Decision time for the Ivy League: What the NCAA v. Alston Supreme Court decision means for the Ivy League’s policy of not providing athletic scholarships

Editor’s note: The authors of this article submitted this article to the Ivy League’s eight presidents Monday to share their views and recommendations, eight days after it was published here:

In June 2021, the Supreme Court unanimously decided in NCAA v. Alston that the antitrust laws prohibit the NCAA from limiting in any way its Division I schools from offering “education-related compensation or benefits” to student-athletes (men and women) who play basketball and football.

This means, for example, that the NCAA is barred from preventing any college from giving full tuition, room and board or other education-related benefits — such as tuition for graduate or professional school, textbooks, or internships while in school — to these college athletes. The Supreme Court agreed with the federal district trial court that the NCAA could set standards or definitions of what types of expenditures are “education-related,” including those items just noted. In reaching its decision, the Supreme Court recognized that the antitrust laws exist to ensure and protect competition and to prevent practices that interfere with a student athlete’s right to have schools compete for their services.

As the Supreme Court described the effect of the district court’s finding, “competition among schools would increase in terms of the compensation they would offer to recruits, and student-athlete compensation would be higher as a result … Student-athletes would receive offers that would more closely match the value of their athletic services.”

Both parties, Alston (for the college athletes) and the NCAA, appealed the trial court’s decision to the 9th U.S. Circuit Court of Appeals. The Alston plaintiffs argued that the trial court did not go far enough and challenged all the NCAA’s challenged compensation limits, including those not related to education. The NCAA, in contrast, wanted the trial court’s decision reversed and its education-related limits on financial aid restored. The 9th Circuit rejected both appeals and fully upheld the trial court’s ruling.

In the Supreme Court, the Alston plaintiffs did not challenge the appellate court ruling. The plaintiffs apparently were satisfied with the judicial prohibition of the NCAA’s restrictions on “education-related compensation or benefits” for student-athletes. The NCAA continued to object to both the appellate and trial court decisions, effectively wanting an exemption from the antitrust laws. The Supreme Court recognized near the opening of its subsequent opinion that this was the NCAA’s objective when it flatly stated: “In essence, it [the NCAA] seeks immunity from the normal operation of the antitrust laws.”

The Supreme Court rejected the NCAA’s appeal but did not address or opine on one important issue of particular importance to the Ivy League: whether individual conferences can legally restrict “education-related compensation or benefits” for athletes. In other words, can the Ivy League do what the Supreme Court has now unanimously held the NCAA cannot do to hundreds of its member schools?

The Ivy League’s prohibition of full scholarships for any students is inconsistent with the Supreme Court’s holding against the NCAA in Alston

The Ivy League has long prohibited the awarding of athletic scholarships for anything, including “education-related compensation or benefits.” Moreover, no Ivy school has given full “education-related compensation or benefits” to any athlete, independent of the financial need of his or her family.

The Ivy League is the only athletic conference whose schools have long not awarded athletic scholarships independent of student need. It is widely assumed that the schools in the league have also agreed on the basic formula for calculating need – namely, the cost of attendance (tuition, room and board) minus the “expected family contribution.” In practice, however, financial aid offices at the Ivies have discretion in how expected family contributions are calculated for specific students and their families. Anecdotally, we know that each Ivy school figures out what a student’s financial needs are and makes an “offer.” The school will then tell the student it will match a “better offer” the student gets from another Ivy school.  But the Ivy schools restrict offers of “education-related compensation or benefits” that are not tied to financial need.

In practice, this means that many families with limited financial means will owe tens of thousands of dollars over four years if their children choose to attend an Ivy League school. This puts the Ivies at a substantial disadvantage when recruiting academically qualified athletes, especially those who have choices to attend other selective schools that offer full athletic scholarships not tied to financial need. As a result, the Ivies lose many highly regarded football and basketball recruits who otherwise want to attend an Ivy school and play in iconic venues like the University of Pennsylvania’s Palestra and Franklin Field or the Yale Bowl to these other schools that provide full and complete scholarships that pay for tuition, room and board, and textbooks.

So, what is the implication of the Supreme Court’s Alston ruling for the Ivy League’s policy of not allowing its schools to provide athletic scholarships? If one (especially a non-lawyer) reads the opinion too quickly, it may appear that the Court’s holding gives the Ivies a pass. In summarizing the trial court’s decision, the Supreme Court noted that the lower court’s injunction allowed “individual conferences (and the schools that constitute them) to impose tighter restrictions if they wish.” At first blush, one could infer that statement to allow the Ivy League, for example, to limit the “education-related compensation or benefits” its schools can offer even though the NCAA (or two or more conferences agreeing) cannot do so without violating the antitrust laws.

But that outcome does not make sense: the NCAA cannot impede competition … but the Ivy League can?

Indeed, on the very next page of its opinion, all the Justices made clear that they were not addressing or opining on that part of the trial court’s order. Rather, the Supreme Court was only addressing that part of the order that “enjoined” the NCAA from limiting “education-related compensation or benefits.” The Supreme Court wrote: “we do not pass on the rules that remain in place or the district court’s judgment upholding them. Our review is confined to those restrictions now enjoined” – namely, any agreement by the NCAA or by multiple conferences to limit “education-related compensation or benefits.”

In other words, the court never addressed that part of the trial court’s order allowing individual conferences to set “education-related compensation or benefits,” and thus the Ivy League’s restrictions against providing any athletic scholarships. The thrust of the Supreme Court’s opinion dealt with the Power Five conferences and their competition for football and basketball players. If the Ivy League does not change its current policy in the near future, when its antitrust exemption (to be explained below) expires next fall, Ivy schools then will be at risk of one or more antitrust suits that will give the lower courts, if not the Supreme Court, the chance to decide the issue of single-conference limits on “education-related compensation or benefits” that were not at issue in Alston.

The Supreme Court chose not to address that question because the attorneys for the Alston plaintiffs deliberately chose not to present it to the trial court, which explains why the issue was not argued in the Alston case before the Supreme Court. Reading between the lines of the trial court’s opinion, the plaintiffs’ attorneys made that calculation because they feared they might have gone too far to have asked the trial court judge in the Northern District of California, Claudia Wilken, to rule that all restrictions, even those maintained by individual conferences, violated the antitrust laws. Alston’s attorneys understandably did not account for the unique Ivy League policy against awarding athletic scholarships or expect if they won that any other conference would want to limit education-related expenses.

All other conferences and their schools were and continue to be highly competitive in seeking recruits. The SEC, ACC, Big Ten and other major conferences posed (and still pose) no threat of wanting to limit “education-related compensation or benefits.” Accordingly, the attorneys had to know that allowing an individual conference the right to limit “education-related compensation or benefits” would not be a problem because outside the Ivy League it would never happen. So, the attorneys had to feel comfortable narrowing the litigation only to the restrictions imposed by the NCAA, or if imposed by two or more conferences agreeing with each other do so. No one – the attorneys or the courts – was thinking about what the Ivy League has been doing for decades, expressly limiting “education-related benefits or compensation” for its student-athletes (and all other students as well).

Nevertheless, one Justice on the Supreme Court, Brett Kavanaugh, was ready to go much further than his colleagues. Justice Kavanaugh would strike down all NCAA limits on aid or compensation for athletes, even those unrelated to education. He, too, did not address whether individual conferences, and specifically the Ivy League, could impose any limits. But the tenor of the language at the end of his opinion strongly suggests he would not be sympathetic to them. Kavanaugh wrote:

“Nowhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate. And under ordinary principles of antitrust law, it is not evident why college sports should be any different.”

The Ivy League athletic “product” has been defined, so far, by its unwillingness to provide athletic scholarships, and when Kavanaugh speaks of “college sports” being treated “any different” under the antitrust laws, he could just as easily be speaking about the “Ivy League.”

Kavanaugh’s opinion points to a future where the full Supreme Court could decide what it chose not to address in Alston: not only to ban the NCAA’s restrictions against non-education related compensation for athletes, but also to prohibit individual conferences from doing what the Supreme Court said the NCAA could not do, namely, to restrict even “education-related compensation or benefits.”  With one justice clearly already there and likely four of his conservatives leaning in that direction, the floodgates of even broader competition than permitted in Alston may open a lot more quickly than people realize.

Indeed, less than two weeks after the Alston opinion was issued, the NCAA allowed athletes to be paid for their “names, images and likeness” (NIL rights), provided the compensation is not tied to their performance in contests (pay-to-play). This decision reflected the NCAA’s recognition of which way the wind was blowing after Alston: toward more competition rather than less. Even the Ivy League formally announced that it was fully on board with that decision. The Ivies seemed to be recognizing the rights of individual student-athletes to enjoy the benefits of free competition and the American way of free enterprise.

The 1994 antitrust exemption for the Ivy League expires at the end of September 2022

Up to now, commentators who have spoken or written about the Alston decision have focused only on scholarships and compensation for college athletes, without taking account of a parallel body of law relating to financial aid more generally for all students. That omission is a mistake, especially with respect to the Ivy League and its member schools, who for decades have not provided merit aid – independent of financial need – to any students (apart from rare academic prizes for students while already in school).

The Ivy schools have been able to do so over nearly the past three decades because any agreement about not providing merit scholarships of any kind has been exempted from the antitrust laws. But it is not widely appreciated that this exemption is due to expire by October 2022. If that happens, then the Ivies would run a substantial antitrust risk if they were to continue, by explicit or implicit agreement, not to award merit aid of any type, or to prohibit the awarding of athletic scholarships.

In other words, without the exemption from the antitrust laws, the Ivy League policy of no full scholarships for tuition, room and board, and other education-related expenses – independent of student need – is susceptible to the same reasoning that led the Supreme Court to ban the NCAA from restricting “education-related benefits or compensation.”

To understand how this narrow and not widely publicized antitrust exemption came about, it is important to understand the history of financial aid in the Ivy League. Beginning in the 1950s, the Ivies and other selected schools participated in the “overlap” process which sought essentially to prevent any “bidding wars” among the schools for students by schools competing through financial aid offers. They did this by agreeing to provide aid only on a need basis. There was to be no merit aid. And they agreed on a common formula for assessing financial aid. Even more, schools compared differing awards to specific students and then fixed the amounts so they would be the same for students accepted to more than one Ivy school (and selected others).

In sum, the overlap process eliminated all competition for students using financial aid inducements. The schools rationalized this price-fixing by asserting that if they had to compete on awards, they would not have enough money to assure that every student admitted would get their full “need-based” allotment.

The Justice Department’s antitrust division during the George H. W. Bush administration uncovered the overlap practices and prepared in 1991 to file suit against the Ivies and MIT to ban all of them. The Ivy schools did not have the stomach to test this theory in court. So, they settled, agreeing to quit all forms of colluding to limit financial aid. MIT, however, chose to go to trial. The federal district court hearing the case not only found the collusion to be unlawful but rejected the claim that without the collusion the Ivies and MIT would halt their need-blind admissions policies. On appeal, however, MIT prevailed on a 2-1 vote, getting a second chance to prove in another trial that the alleged “social benefits” of the aid-fixing justified what otherwise would have been a clear antitrust violation.

In 1993, the Clinton Justice Department inherited the case. It did not want to appeal that ruling to the Supreme Court, however, fearing that it would bless the appellate court’s quasi-exemption of the Ivies (and perhaps other selective schools, or more) from the antitrust laws. The department instead settled with MIT (under the leadership of one of the authors of this article, Litan, who was then deputy assistant attorney general for antitrust). The settlement prohibited MIT from fixing the aid awards but allowed it to agree with other schools on a formula for limiting aid to financial need only, so long as the schools committed to need-blind admissions. The next year, led by Sens. Ted Kennedy, D-Mass., and Howard Metzenbaum, D-Ohio, Congress extended the basic terms of the MIT settlement to all schools via Section 568 of the Higher Education Act, whose language in pertinent part reads:

“(a) Exemption: It shall not be unlawful under the antitrust laws for 2 or more institutions of higher education at which all students admitted are admitted on a need-blind basis, to agree or attempt to agree-

(1) to award such students financial aid only on the basis of demonstrated financial need for such aid;

(2) to use common principles of analysis for determining the need of such students for financial aid if the agreement to use such principles does not restrict financial aid officers at such institutions in their exercising independent professional judgment with respect to individual applicants for such financial aid”

Section 568 is the Ivy League’s shield that protects it from potential antitrust liability if the Supreme Court is given an opportunity to apply its logic in Alston to limits on “education-related compensation or benefits” of any type awarded to student-athletes imposed by a single conference, the question that the plaintiffs in the case never litigated.

In the meantime, potential change awaits. As we have noted, the antitrust exemption under Section 568 expires at the end of September 2022 – almost a year from now. That means before then, Ivy schools will have to decide whether to: (1) dig in their heels and lobby Congress to extend the Section 568 exemption; (2) if the antitrust exemption is not extended, do nothing, thereby running the risk of being sued, by students, parents, or the Department of Justice again; or (3) embrace competition and the right of individual student-athletes (and non-athletes) to have individual Ivy schools compete for their services (or in the case of other students for their enrollment) like the other 300-plus Division I schools and thereby not prohibit individual Ivies from giving full scholarships for “education-related compensation or benefits.”

There are substantive and political reasons why Section 568 may not be renewed. On the merits, the Ivy schools could repeat the same arguments that MIT pressed back in 1993-94 before the Department of Justice: that without a commitment to provide no more than need-based aid, the schools could not afford to compete for specific students – including athletes – without abandoning the guarantee that all admitted students receive their “full need.”

In particular, the Ivy schools and their attorneys could press the argument before Congress, or in litigation if they were later sued, that the appellate court’s ruling in the earlier Justice Department’s litigation against MIT in the 1990s gives the schools the opportunity to prove that limits on aid fulfill a legitimate social objective of ensuring that there is enough financial aid to go around for all students, athletes and non-athletes.

That argument should fail as a matter of fact for several reasons.

For one thing, the notion that there is a fixed pot of financial aid money was contradicted by evidence presented at the trial court level in the initial MIT case. Moreover, the argument today must be considered in light of the fact that the endowments of the Ivies now are very large – in the tens of billions of dollars for several of the schools – and much larger than they were 30 years ago, and that these endowments have earned returns well above the 5% of assets their schools are required under the law to distribute each year.

As of the first quarter of 2020, endowments among Ivy schools averaged $17 billion, with Harvard’s the most at $40 billion and Brown’s $4 billion the lowest.

If the Ivies had to compete for students, as other schools do now through merit scholarships of many different kinds, and by offering athletic scholarships for sports in which individual schools wanted to excel, the Ivy schools’ endowments are more than ample to allow them to do so while continuing to provide full need-based aid to all.

In fact, in an environment of full competition, there would be no fixed pot of money for financial aid. Individual schools would be free to decide to what extent, if any, they want to exceed the annual 5%-of-assets distribution requirement that applies to their endowments.

Moreover, as a matter of law, any effort to claim that Ivies deserve what amounts to a judicially created antitrust exemption based on earlier case law is now totally at odds with the reasoning of the Supreme Court’s Alston ruling, which effectively rebuts the view that colleges deserve an antitrust exemption.

Any notion that the Ivy League must somehow remain above the fray of competing for athletes because that stance is necessary to maintain the schools’ academic reputations is easily rebutted. For one thing, academically selective schools like Duke, Stanford, Virginia and Vanderbilt (among others) have outstanding athletic programs – Stanford in particular in many sports – and great academic reputations. Being superlative in academics and athletics are not mutually exclusive. For another, such a claim is inconsistent with how the Ivies already present themselves. Consider this statement from the official Ivy website:

“Consistently ranked as the top academic conference and with more national championships than any other collegiate athletic conference (287 team, 546 individual), The Ivy League showcased 98 nationally-ranked programs in 2018-19 and prides itself on sponsoring 33 sports, the highest number of any NCAA conference, with more than 8,000 student-athletes competing annually. The League’s world-renowned schools – Brown, Columbia, Cornell, Dartmouth, Harvard, Penn, Princeton and Yale – serve as the standard bearers for inspiring and transforming student-athletes to boldly take on the world’s challenges and lead lives of great impact.” (bolding added).[5]

Allowing schools to give full scholarships to come within the antirust laws will significantly improve the Ivies’ performance in the two sports most affected by the policy not to provide full “education-related compensation or benefits” to student athletes: basketball and, possibly far more expensive, football (if some or all of the Ivies were to choose to compete more aggressively in the latter).

Nor can the league’s schools pretend that their prestige, coupled with financial need awards, make them fully competitive now with other selective schools in recruiting outstanding student-athletes in the main “revenue sport,” who both want to compete at the highest levels and obtain an Ivy degree. The reality, as noted above, is that the substantial cost for working or middle-class families of sending student-athletes to the Ivies, even after taking account of the current need-based financial awards, is often the deciding factor for those students. There have been many top-flight high school basketball players for whom an Ivy school was their first choice, but because they could owe as much $40,000 or more after four years, they and their families felt they could not afford to turn down a full scholarship at a non-Ivy school.

This will be even truer in the wake of the Supreme Court’s Alston ruling, which will allow other schools to offer fuller packages of “education-related compensation or benefits,” unrestricted by the former NCAA rules. The Ivy League cannot hold back the inexorable tide of change that is revolutionizing college sports today.

In addition, the political environment is much different today than it was three decades ago when the Ivy League’s policies were litigated. There is strong bipartisan support for more vigorous enforcement and possible toughening of the antitrust laws (although the two parties differ in how best to accomplish this).

In such a climate, the idea of carving out antitrust exemptions for any sector of the economy, but especially the endowment-rich Ivy League, is not likely to be attractive to Democratic or Republican leaders. In addition, selective schools with large endowments, like the Ivies, have been targets in recent years for proposals requiring them to increase the annual distributions from their endowments, or otherwise face tax penalties. If the schools were compelled through competition to increase their endowment payouts, this likely would be widely applauded.

In sum, unlike in the past when Section 568 has simply been renewed, that outcome is no longer assured when the section expires at the end of September, or just five weeks before the 2022 mid-term election in early November.

Accordingly, athletic departments at Ivy schools should be in close contact not only with their financial aid offices, but with policymakers at the highest levels of their schools, especially at the Presidential level to learn as early as they can how their schools, and the Ivy League, intend to respond to the upcoming expiration of 568. If, as suggested here, it would be a major uphill political battle for the Ivies even to try for an extension, and the schools recognize that now (or soon), then athletic departments can plan for what sports they want to compete in at the highest levels, since this will help them and the financial aid offices at their schools budget for a future in which athletic scholarships are awarded, and at what level.

Conclusion

In the wake of the Supreme Court’s Alston decision, the Ivy League and its member schools have several choices when it comes to awarding athletic scholarships.

First, they could stick their collective heads in the sand by pressing for another extension of Section 568, which would permit the League to continue not providing athletic scholarships, using “social justice” arguments that are no longer tenable if they ever were.

Second, if Section 568 is not renewed, they can stick to their no athletic scholarship policy, formally or through informal means, and run the risk of fighting another antitrust lawsuit, mounted either by private families or by the Justice Department again, or both. In doing so, the schools likely would waste millions of dollars on lawyers that could be far more productively spent on scholarships, for athletes and all other students.

Finally, the Ivies could stand up for competition and embrace what 300-plus other NCAA Division I schools are now doing – respecting the individual rights of student athletes and complying with the antitrust laws. The Ivy League has already taken a step in that direction by embracing the NCAA’s NIL policy, as reflected in this statement by Robin Harris, executive director of the league:

“These [NIL] changes to the landscape of intercollegiate athletics bring contemporary opportunities — in and beyond sports — to our ambitious and innovative student-athletes and are now more closely aligned with similar potential endeavors available to all students.”

If the Ivy League has gone this far, surely it is not too much to ask the league and its schools to take the final step toward living in the world where the antitrust laws apply: fully embrace competition, which we suspect that many (probably most) Ivy League economics and law professors no doubt teach their students — as they did us — is central to the functioning of our economy and society.

Alan Cotler is a trial lawyer in Philadelphia. He earned B.S. in Economics and MBA degrees from the Wharton School at the University of Pennsylvania and his J.D. from Georgetown University Law Center. He was the point guard on the 1971-72 Penn team, coached by Hall of Fame Coach Chuck Daly and assistant coach Rollie Massimino (also now a basketball coaching legend) that was 25-3 and ranked third in the country. Cotler and his teammates in the Class of 1972 had a combined 99-6 record (41-1 in the Ivy League) and went to the Elite 8 twice. Cotler was named first-team Jewish All-American his senior year. He was drafted by the Chicago Bulls, while two members of his senior team were high draft picks: Corky Calhoun was the fourth player picked in the first round, by the Phoenix Suns, and Bob Morse was the Buffalo Braves’ choice in the second round. Calhoun was a member of the NBA champion Portland Trail Blazers in 1977. Morse played in Italy for two decades and became one of the greatest players in European professional basketball history. Phil Hankinson, a junior shooting forward on the 1971-72 team, was drafted after he graduated in 1973 in the second round by the Boston Celtics. Not bad for one Ivy League team.

Robert Litan, an economist and lawyer, is currently a partner at Korein Tillery, based in St, Louis and Chicago, specializing in large case antitrust litigation (plaintiffs’). He earned his B.S. in Economics from the Wharton School at the University of Pennsylvania and his J.D. and PhD (Economics) degrees from Yale. He formerly directed economic research at the Brookings Institution, the Kauffman Foundation and Bloomberg Government. Litan is the author or co-author of 30 books, including his most recent, Resolved: Debate can Revolutionize Education and Help Save our Democracy. He formerly was an associate director of the Office of Management and Budget and the principal deputy assistant attorney general in the Justice Department’s Antitrust Division, where he oversaw all non-merger civil antitrust investigation, and (among numerous other activities) personally directed the settlement of the Department’s final settlement of its antitrust case against the Ivy League and MIT in 1993. He was a manager of the Penn freshman basketball team, coached by another famed coach Digger Phelps, on which Cotler was the shooting guard that went 21-0 and was ranked second nationally (when freshmen couldn’t play varsity). He also co-chaired the fundraising for the Dave Stallworth memorial statue at the entrance of the “Roundhouse” in Wichita, Kansas, memorializing his boyhood basketball hero, a consensus first team All American at Wichita State who later went on to win an NBA championship with the New York Knicks.

 

 

 

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