Why a Pro-Monopoly Supreme Court Ruled Against the NCAA Monopoly
Louis Brandeis once said, “If we desire respect for the law, we must first make the law respectable.” The court had to rule against this well-known tyrant, or it would lose its credibility.
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Today, a very conservative Supreme Court published its decision on whether the National Collegiate Athletic Association can continue to put rules in place to suppress the wages and terms of student athletes. In NCAA v. Alston, the court ruled 9-0 on narrow grounds for the student-athletes and against the NCAA, which is a clear labor-fixing cartel. The decision did, as Daniel Hanley points out, rhetorically uphold the consumer welfare oriented status quo, but there are a few interesting tidbits worth noting.
First, the court finally noted that suppressing competition in labor markets is an antitrust harm. This may seem like it’s already the case. But while courts have said that agreements not to hire the employees of competitors is a violation, they hadn’t yet ruled on using market power to directly lower wages. Now the court has done so, noting that “student-athletes had shown the NCAA enjoys the power to set wages in the market for student-athletes’ labor—and that the NCAA has exercised that power in ways that have produced significant anticompetitive effects."
Brett Kavanaugh’s concurrence was aggressive on this point, when he noted “price-fixing labor is price-fixing labor.” That’s a shift that is favorable to workers, at least when it comes to employers suppressing competition in labor markets. And because workers are perceived as ‘suppliers' of labor, it is a shift that could be favorable to suppliers in general, particularly of victims of ‘power buyers’ like Walmart, Amazon, or CVS, who exert their power by suppressing price to suppliers.
Second, the court made it harder for monopolies that dominant through their buying power to justify their conduct. One of the key questions at hand was whether the NCAA could justify suppressing wages to athletes if it could show that doing so improved the product in a different market, aka ‘amateur athletics’ to fans. That is, the NCAA made the case that college sports is fun for fans because fans like it that athletes aren’t paid, so to assess whether the suppression of wages is anti-competitive one has to see whether fans like amateurism more than athletes want to get paid.
This is known as a cross-balancing test, and it has significant implications for tech and finance platforms. A few years ago, the Supreme Court heard a case by American Express, which argued that it charges higher prices to merchants and used coercive contracts, but this is fine if the value that American Express cardholders get in rewards points cross-balances on net to be higher than what merchants lose. The Supreme Court agreed, in a big loss for anti-monopolists. Now, Google can use this argument to assert, for instance that its suppression of ad revenue to publishers is counterbalanced by how much users appreciate its services. And that’s what the NCAA was doing, saying that treating athletes sort of as indentured servants is fine because the end product is good for a different class of stakeholders, fans.
The court rejected the NCAA’s argument, though not cross-balancing entirely. It asserted that “the NCAA had to establish that any suppression of wages must have a “direct connection” to consumer demand.” In other words, it narrowed the scope of the AMEX decision by making it harder for defendants to use the multi-sided platform defense. Now, to assert benefits on one side of a market, the monopolist must prove a “direct connection” to the other affected stakeholder group.
And third, the court chipped away at a dangerous judicial assumption, which is that judges cannot and should not make product design decisions. The NCAA made the case that changing athlete rules was judicial meddling with an end product, and doing so is inappropriate. The court did a bunch of throat-clearing about how judges are bad central planners, but eventually said, nope, “none of that means a party can relabel a restraint as a product feature and declare it “immune from §1 scrutiny.”’ In other words, product design is a legitimate arena for judicial decision-making.
Finally, I think John Newman is basically right with this observation. It is simply impossible to square labor wage-fixing with any coherent view of consumer welfare.
And ultimately, this is why the Chicago School framework is collapsing. Senator Mike Lee recently introduced an antitrust bill to largely uphold the status quo, or even make it harder to attack the power of monopolies. One of his goals was to codify the consumer welfare standard. And yet, here is his definition of consumer:
DEFINITION OF CONSUMER.—In this section, the term ‘consumer’ includes buyers and sellers.’
Sorry, but that doesn’t make any sense. It’s pure sophistry. And so while the Supreme Court is full of pro-monopolists, and while Chicago Schoolers like Mike Lee want to uphold their philosophical position, it is simply impossible to do so without ruling that the NCAA gets to act as a monopolist in setting the terms and the wages of student-athletes. And everyone, including the man on the street, knows that would immoral. As Louis Brandeis once put it, “If we desire respect for the law, we must first make the law respectable.”
And that’s why a hyper-conservative Supreme Court ruled against a dominant labor cartel.
I competed for Virginia Commonwealth University's Cross Country & Track & Field teams. While on the team, I set 2 university records (STILL STANDING!) and paid for half of my undergraduate tuition via athletic scholarships. While attending VCU, I also started tutoring my fellow student-ahtletes. That turned into a graduate assistantship where VCU paid for my masters degree (plus a stipend of $1,200 a month) in exchange for my tutoring Men's Basketball and academically at-risk student athletes. It was an awesome deal! And VCU making the Final Four during my time with the team made it even more awesome.
My experience as a long distance runner was not at all similar to the experience of a Men's Basketball player. There is only so much a person can run, after all, and my limit was about 80 miles a week. That took about 10 hours of running. Add in another 2-3 hours for strength training and 2-3 for stretching and other forms of recovery training, like ice baths (you haven't been cold until you've been hip deep in 45 degree water for 10 to 15 minutes).
As rigorous as that schedule sounds, particularly while taking a full course load, the basketball guys had it worse. How much worse? Every moment of their day was scheduled. If they weren't in morning classes, they were meeting with me no later than 10am and I would tutor until their practice at 2pm. They would then practice until no later than 4pm and as late as 6pm. After practice, it was either more class, more tutoring and sometimes film until 8pm. All told, I think they were engaging in sport-related activities for at least 20 hours a week and up to 40 hours (and sometimes more) throughout the year. It was particularly crazy in season when they'd have 2 games a week (As a track runner, particularly a 10K runner, I'd need up to 2 weeks to properly recover from a race before competing again) And remember, these guys were taking a full course load and *MANY* of them came from academically poor backgrounds.
These guys deserved to be paid. They played and worked their hearts out on and off the court. I have nothing but respect for their never quit attitudes, but they deserved more than a scholarship.
It's an interesting argument. The current SCOTUS is not hyper-conservative. But both the liberals and conservatives on the Court for the last 30 years have thinking that is strongly influenced by the narrower consumer-welfare standard that was adopted in the 1980s.
Recall that, at the time, there were some who wanted to abolish antimonopoly altogether. An important thing to remember is that, when it was adopted in the 80s, this narrower standard meant, then, that the *fans* were considered the "final consumers," and that's the usual way most people would think of it. But once you realize that the *schools* are doing the "hiring," you'll look at it differently. It's like the famous line from Milton Friedman about the purpose of business being for the sake of its owners (shareholders), which is true in a narrow sense -- for the shareholders, not the management or external "stakeholders." But it's not true in a basic sense. Peter Drucker made the correct point around the same time, which is that a commercial enterprise exists for the sake of its (end) customers and functions properly when it's creating something of greater value than its inputs.
Much of the problem with places like universities and hospitals is that, historically, they've had quite special positions in society -- non-profit, tax-free, allowed to charge truly absurd tuitions (thanks to bloated administrations), large supply of ultracheap borrowing to pay for it available, etc., etc. There's a presumption that these institutions are on a higher moral plane. Especially in the last 30 years, higher education has gotten an extraordinary deal and extreme leeway from society and government, and so have certain parts of health care.
TOTALLY DIFFERENT BUT STILL RELATED ... for Matt ... watch this very interesting video by an expat who's moved back to the US recently, and what she says about the cost of living in the US, especially the absurd cost of medical care, the subsidy-induced consolidation of food and factory farming (the real problems with US health care), and monopoly-induced outrageous cost and mediocre quality of phone and internet service. (Personally, we get Verizon, which costs a little more, but is worth it -- we're mostly happy with it. It is, however, a *regulated* monopoly and generally aware of consumer satisfaction.)