Assistant Attorney General Delrahim Remarks on Competition Policy in Collegiate and Professional Sports

On August 31, the U.S. Department of Justice’s Assistant Attorney General for the Antitrust Division, Makan Delrahim, delivered remarks at Notre Dame Law School on the topic of competition policy in collegiate and professional sports.  Delrahim’s remarks warrant an extended discussion, as they contained certain observations and recommendations that should be of interest to lawyers, antitrust compliance officers, and executives involved in college and professional sports issues.

Delrahim began with a comment that he wanted to “share some lessons and observations about antitrust policy in collegiate and professional sports.”  He first acknowledged that “[t]he realities of organized sports make the application of the antitrust laws to sports unique,” then added:

Just as in music and other entertainment industries, however, the considerable evolution of the business of sports over the last century prompts us to take a fresh look at competition policy in an industry that’s as much a part of our national economy today as it is part of our culture.

Delrahim briefly discussed the federal antitrust laws, commenting, “Like antitrust policy, competition is the lifeblood of sports.  In sports, as in antitrust policy, we don’t pick winners and losers, but provide rules designed to promote the competitive process and let competition determine the winner.”  Referring to the Sherman Act as “a favorite vehicle for challenging conduct in sports,” he stated:

[S]ports fans should care about antitrust and antitrust lawyers should care about sports for at least three reasons.  First, sports teach us important lessons about the structure of our government.  Second, antitrust challenges in sports reaffirm the flexible and resilient nature of antitrust law itself.  And third, competition and its enforcement has helped sports improve and become a more enjoyable experience for the American consumer, fans like you and me, and for the athlete that makes it all happen.

Delrahim then reviewed three situations involving antitrust and sports that he cited as “lessons” in antitrust policy.  His first “lesson” related to the history of baseball’s reserve clause and the litigation and legislation stemming from it. From that history, he drew the lesson that “markets operate best when unencumbered by anticompetitive restraints.”

His second lesson pertained to the rules of the National Collegiate Athletic Association (“NCAA”) and its affiliates. He acknowledged the NCAA’s dual status as an entity “maintaining academic standards and codes of conduct for student-athletes” and “unquestionably a substantial commercial enterprise that generates over $1 billion annually.”  He termed the U.S. Court of Appeals for the Ninth Circuit’s decision in O’Bannon v. NCAA, 802 F.3d 1049 (9th 2015), cert. denied, 580 U.S. __  2016  – which held that the NCAA’s amateurism rules were subject to antitrust scrutiny and must be analyzed under the Rule of Reason – a “landmark” decision that explored “[t]he tension between eligibility rules that promote amateurism and what some have challenged as an anticompetitive agreement to fix at zero a student-athlete’s compensation.”  Stating that “amateurism, although a laudable goal, in itself does not grant antitrust immunity, and rules designed to promote amateurism need to be carefully tailored so they don’t unreasonably limit competition,”  he then commented on various changes in NCAA rules pertaining to student athletes:

I applaud these procompetitive changes and am proud of the role the Antitrust Division has played in advocating for increased competition. I hope the NCAA will go further, as needed, to implement new rules or modify existing ones to promote increased competition for student-athletes.  In the future, for example, I hope to see schools consider competing fully to fund student-athletes’ educational expenses, for example, by offering graduate education tuition incentives and job training as they compete for top student-athletes.

His third lesson was that “competitive markets improve on-the-field competition and the consumer experience.” In that regard, he pointed to the proconsumer effects of professional football leagues such as the XFL, the Alliance of American Football (AAL),  and the United States Football League (USFL) as competitors to the National Football League (NFL).  He also stated generally that “the Antitrust Division remains an active observer that is ready to investigate and enforce the antitrust laws.”  In particular, he noted the Division’s record since 2016 in taking enforcement actions, such as the 2018 required divestiture of Disney’s Regional Sports Networks in connection with the Fox-Disney merger and the 2017 civil settlement regarding a planned information exchange between DIRECTV and three of its pay television competitors.

Note: Several of Assistant Attorney General Delrahim’s remarks require closer attention, as they are likely to prompt speculation (perhaps even a trace of concern) in the antitrust legal community.  Take, for example, his passing reference to the Antitrust Division “tak[ing] a fresh look at competition policy in the [sports] industry.”  Since the Antitrust Division in this Administration has already been taking enforcement actions involving professional sports, it is not clear whether Delrahim’s comment is merely a signal that the Division will continue to maintain the same level of oversight or reflects an intention to scrutinize college and professional sports more or less closely than in recent years.  Delrahim’s favorable comments about the Division’s activity in this area makes the latter alternative of less scrutiny extremely unlikely.

In addition, his stated “hope” that universities would consider full competition to fund student-athletes’ educational expenses goes farther than seems appropriate for the Antitrust Division’s chief to advocate on the basis of antitrust policy. The interests to be weighed regarding the relative costs of college sports versus non-sports higher-education costs are complex and extend well beyond simply touting the virtues of increased competition in college sports, for at least three reasons.

First, if universities were to “compete for top student-athletes” in the ways Delrahim proposed, they would necessarily be choosing to spend more money on athletes in ways that they are likely not offering at present to non-student-athletes.  Colleges and universities therefore would have to choose between doing so only for student-athletes, which would exacerbate the massive spending disparity between athletics and education, or offering comparable support for non-athletes, which would drive costs to colleges and universities even higher.

Second, referring to universities’ competition for “top student-athletes” seems to suggest that the playing field, so to speak, for colleges and universities is a level one.  The current state of affairs, however, can be seen more as an example of oligopolistic coordination by a small coterie of well-funded universities than free and open competition among many competing colleges and universities.  A 2015 Chronicle of Higher Education and Huffington Post study found that

[a]t many midtier and smaller institutions, [business] decisions [based on a desire to compete at the highest level] are fueled by a pressure to keep up with better-financed peers, even though the colleges are unable to tap into the same television and licensing money.  Just two dozen universities collect nearly half of the $26 billion in revenue that has flowed into the athletic departments of Division I public colleges in the past five years . . . .

Similarly, a 2017 USA Today analysis found that only 23 public universities, thanks largely to television-rights revenues, “finished their 2016 fiscal years having met the NCAA’s benchmark for financial self-sufficiency.”

Third, many colleges and universities, in their efforts to keep up, have chosen to shift more of their athletics costs directly onto students, regardless of whether those students value having elite-caliber sports teams.  The ChronicleHuffington Post study found that public universities had taken in more than $10.3 billion in mandatory student fees and other subsidies to support their sports programs in the previous five years, and that student subsidy rates “tend to be highest at colleges where ticket sales and other revenue are the lowest — meaning that students who have the least interest in their college’s sports teams are often required to pay the most to support them.”

One can agree with Delrahim that “rules designed to promote amateurism need to be carefully tailored so they don’t unreasonably limit competition.”  Yet it should be equally true that competition in only one, nonacademic, dimension of higher education needs to be carefully tailored, so that it does not unreasonably constrain colleges and universities in pursuing what should be their primary mission of high-quality education.

Delrahim’s citation of NFL-competitor football leagues as an example of how “competitive markets improve on-the-field competition and the consumer experience” also requires a closer look at the historical record.  Although the USFL reportedly had success in its first three years, despite having a lower aggregate level of player talent than the NFL, it was able to succeed because it was offering its product in the spring rather than in head-to-head competition against the NFL in the fall.  What changed the USFL’s success was the insistence by one vociferous USFL team owner to move the USFL schedule to the fall, hoping to leverage a rapid merger with the NFL rather than to conduct sustained head-to-head competition with the NFL.

Delrahim correctly noted that the USFL collapsed soon after its failed civil antitrust litigation against the NFL, but deemed the competitive impact of the USFL “undisputed” based on the NFL’s adoption of innovations such as “two-point conversions, the instant replay, and expansion teams” and the availability of “a multitude of greater players.”  It should be noted, however, that the NFL did not adopt the two-point conversion until 1994 – eight years after the USFL’s demise in 1986, and 36 years after college football adopted it in 1958.  As for instant replay, the NFL itself experimented with instant replay in the 1976 and 1978 seasons –five to seven years before the USFL’s first season – and again in the 1986-1991 seasons, but abandoned it each time because of ineffectiveness until the 1999 season.

The competitive impact of the USFL is therefore, at the very least, open to dispute.  As one sports writer put it, “if it weren’t for [that USFL owner], we might have pro ball year-round.”  Perhaps Delrahim’s faith in competitive markets improving competition and consumer experience will be better repaid with the arrival and eventual success of the AAL and the XFL.

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