The Sports Law & Policy Centre | Amateur and Professional Sport : An Analysis of U.S. Laws
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Amateur and Professional Sport : An Analysis of U.S. Laws

By Nandan Kamath

Introduction

The sports industry has seen some significant developments in the recent past, the most crucial among them being the advent of professionalism and the steady and gradual decline of amateurism. Although it will be incorrect to say that amateur athletes receive little or no monetary returns, sponsorships or scholarships, such accruals are however, regulated and curtailed through the rules and regulations framed by the bodies governing such sports. However, the regulatory framework is generally ambiguous and rife with exceptions, thereby presenting a challenge to the courts and the regulatory authorities in distinguishing the amateur sports person from the professional and ensuring the equitable application and enforcement of such rules and regulations. Given that amateur sport is also played for physical, mental, moral, and social benefits directly derived from the sport and not for any commercial gain, it has also been granted several tax benefits and certain exemptions from application of antitrust laws.

This learning module explores the distinctions between amateur and professional sport in the U.S. in the areas of antitrust, labour and tax law.

Antitrust Law

The legal framework developed and enforced by the NCAA and other governing bodies with respect to amateurism has been accorded special status by the U.S. courts. Courts have upheld restrictions in the nature of prohibitions on student athletes receiving compensation or consideration for participating in intercollegiate games and events, or taking part in competitions involving professionals, or playing alongside them, and receiving aid in the form of free equipment, etc., for participating in these events. These have been held to be fair and also necessary for the preservation and development of amateur sports and the amateur ideal. The Sherman Act, 1983 prohibits restrictions on trade and competition which are unreasonable and against public policy. The approach adopted by the courts, with respect to cases where the restraint or restriction is not on the face of it, anti competitive, is to test such restraint against the ‘rule of reason’. Under the ‘rule of reason’ analysis, a restriction which is laced with good motives may be rejected if it violates the spirit of competition.

Initially U.S. courts did not apply the Sherman Act to certain practices of amateur sports bodies on the ground that their unique nature, purpose and objective precluded application of antitrust laws which were primarily intended to regulate purely commercial transactions. However, recently the courts have started subjecting the rules, directives and restraints of such bodies to the rule of reason. In Tondas v. Amateur Hockey Association, 439 F. Supp. 310 (W.D.N.Y.1977), the applicant alleged that the amateur sports body was resorting to unhealthy and arbitrary trade practice in the game of hockey. The District Court rejected the plea for summary judgment by the defendants, stating that “such bodies are found to be engaging in conduct which may result in the unreasonable restraint of trade and commerce,” and that “an exemption for amateur athletics is unwarranted”, and concluded that the activities of such bodies should be subject to the rule of reason for the purpose of determining antitrust elements. In Justice v. NCAA 577 F. Supp. 356 (D. Ariz. 1983) the District Court, applied the rule of reason to the NCAA sanction which prohibited a football team from participating in competitions conducted in the off season period or to make television appearances for two seasons, and held the same to be not in violation of the Sherman Act.

Another notable case of antitrust against the NCAA, which was decided on appeal by the Supreme Court, is NCAA v. Board of Regents of the University of Oklahoma 104 S. Ct. 2948 (1984). In this case the athletes’ parents and coaches contended that the NCAA had violated sections 1 and 2 of the Sherman Act, in as much as they had negotiated exclusive football broadcasting deals with television channels limiting, amongst other things, the number of games the television channels could broadcast, the number of appearances the team could make and the fees or remuneration the colleges could ask for in return of such rights. Though the NCAA argued that the same was done to promote the cause of amateur sports in the country and maintain competitive balance in college sports and tournaments, they were unable to prove how the aforesaid television rights deal would help achieve such purpose and objective. The lower Courts (District and Appellate) as well as the Supreme Court held that the said deal was an unreasonable restriction of trade and was against the spirit of commerce and industry. Thus it can be seen that though the amateur sports governing bodies may be carrying out a non-profit venture, their actions, rules, directives, policies, etc., may be regarded as anti competitive if such practices unnecessarily restrain competition and do not further the purpose of encouraging and protecting amateurism.

Professional sport is run like a business with a profit motive, with players entering into employment contracts, leagues selling broadcasting rights to national media agencies, etc. With the exception of baseball which enjoys certain legislative immunities, the rule of reason test is generally applied in the realm of professional sport. Here reasonability of the restraint is evaluated “based on the purpose of the restraint, the causal connection between the restraint and this purpose, and the severity of the restraint relative to the ends served” (NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1984)). In LA Coliseum v. NFL, 634 F.2d 1197 a rule requiring three-fourths of the member teams to approve a franchise’s shift into another team’s territory was challenged and held to be an unreasonable restraint of trade. In Chicago Professional Sports Ltd. v. NBA 961 F.2d 667, a television station challenged an NBA rule that limited the number of games a station could carry. The court adopted the rule of reason and found that such rule violated the Sherman Act.

Labour Law

One of the primary factors distinguishing amateur athletes from professional athletes is the applicability of labour laws in the sphere of professional athletics. Courts have held professional athletes are employees whereas college athletes are primarily students. As a result, while professional athletes are protected by state and federal labour laws, student athletes are not accorded this protection. In Brown University, 342 N.L.R.B. 483,483 (2004) , the question whether graduate student assistants who received scholarships and provided services to the college, were employees was addressed and deliberated. The National Labour Relations Board held that the overall relationship between the graduate student assistants and Brown was primarily an educational one, rather than an economic one and therefore, the graduate students could not be classified as “employees”.

One of the major advantages of coming under the protective sweep of labour laws is the right to join or support a labour union which is primarily engaged in negotiating collective bargaining agreements (CBAs) for its members. A CBA sets minimum standards for wages, industrial safety, benefits/incentives, holidays, etc. Professional athletes often enroll themselves as members of unions (also known as player associations) and collectively negotiate certain rights and benefits for themselves. The CBA concluded between the National Basketball Association (NBA) and the National Basketball Players Association towards the end 2011, incorporating salary caps and revenue sharing percentages is an example of such a CBA. CBAs are the product of mutual understanding and courts do not interfere, unless the CBA is glaringly arbitrary, one-sided and unjust to either party, or incapable of ending the deadlock between the players and the respective governing body. In such cases, the court may take recourse to the laws of the nation to put an end to the controversy.

Tax Law

To avail of the tax-exempt status, an organisation must be engaged in a tax-exempt purpose, such as education. In the realm of amateur sport, the NCAA as well as its member educational institutions are generally exempted from income tax liability as they are a charitable entity, are considered to further the public objective of education as opposed to a commercial one and are operating to encourage and promote intercollegiate sports.

In addition NCAA and its member institutes also enjoy exemption from the payment of the unrelated business income tax (UBIT), which is otherwise payable by charitable organizations and entities carrying on a regular unrelated business that is not in furtherance of its philanthropic purpose. The tax-exemption granted to the NCAA especially that on the unrelated business income has been challenged on several occasions. It is believed by many that NCAA should be stripped off its tax-exempt status especially with respect to UBIT as it makes substantial earnings and profits from various sources such as ticket sales, team sponsorships, sale and/or licensing of broadcasting rights of intercollegiate games to television and other media etc. The NCAA has always countered such challenges by stating that it is required to stay a “for-profit” but a tax-exempt entity, else it could not efficiently carry out its objective of enhancing and elevating the college competitive experiences of student athletes while maintaining a level playing field.

Professional sports leagues, on the other hand, are considered entities organised for a commercial purpose and do not enjoy tax-exempt status.

Conclusion

The principle of amateurism serves as the chief legal distinction between amateur and professional sport, granting amateur sport tax exemptions, limited antitrust obligations and exemption from labour laws. However, such exemptions are arguably one-sided and exclude the interests of the student athletes altogether. With amateur sport increasingly embracing features of professional sport in its operation and management, it is time to evaluate whether the NCAA still deserves the legal immunities conferred on it by the existing legal framework.

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