The Federal Trade Commission has proposed a rule to ban noncompete clauses, which would reverberate through a sports industry in which coaching contracts, membership agreements and endorsement deals frequently restrict competition. But turmoil brewing with the agency, which is entrusted with curbing unfair business practices, clouds the outlook on any new rules and whether they can be enforced.
Last week, FTC commissioner Christine Wilson wrote an op-ed in the Wall Street Journal in which she rebuked FTC chair Lina Khan for “abuses of government power” and exhibiting “disregard for the rule of law and due process.” Wilson, who said she will resign, further blasted Khan for ruling by “fiat” and relying on “dishonesty and subterfuge to pursue her agenda.”
Public airings of grievances by agency leaders are unusual, especially at a bipartisan independent agency like the FTC, which is is made up of five commissioners who are appointed to seven-year terms with no more than three commissioners from the same political party. Wilson is a Republican antitrust attorney. Last fall another Republican antitrust attorney, Noah Phillips, stepped down as commissioner before completing his term. Wilson’s departure will leave two vacancies. Since the other three commissioners are Democrats, President Biden must nominate two Republicans.
Until he does, and perhaps even after, questions will linger about whether the agency should still be viewed as a credible voice, or threat, on important legal and business issues.
Khan, who joined the FTC in 2021 from the faculty of Columbia Law School, is a divisive figure. In legal and political circles, the 33-year-old has alternately been described as brilliant and ruthless. Khan gained fame early in her academic career for writing a Yale Law Journal note titled, “Amazon’s Antitrust Paradox,” in which she advocated for a more aggressive and robust application of antitrust law to e-commerce and the tech sector.
As chair, Khan has been criticized for allegedly suppressing dissenting viewpoints, including those of seasoned economists, and using the agency to ram through legal and policy changes that arguably ought to be implemented by Congress. Courts have rejected some of her initiatives, too. A few weeks ago, a federal judge sided with Meta in a case involving the FTC’s attempt to block the company’s purchase of Within Unlimited, a virtual reality app maker.
Joshua Wright, a professor at George Mason University Antonin Scalia School of Law and a former FTC commissioner, predicted in a recent Twitter thread that courts will become less deferential to the FTC in its current state. “Once courts see that bipartisan balance is now an illusion at the FTC … that will affect everything the agency does,” he wrote, adding, “the reputational capital the agency relies upon is quickly disappearing. This is the capital it relies upon to win cases, promulgate rules, policy statements, and to argue it should get deference.”
Wright’s prediction could be tested by the sports industry. A noncompete ban would likely face a challenge on grounds the agency is acting outside its legal authority. Noncompetes have long been regarded as lawful when permitted under state law and when reasonable in scope and duration. While banning noncompetes might produce positive impacts on public policy—especially in protecting workers from unfair job arrangements—the measure would also take away the freedom of an employee and business to negotiate the terms of their employment, where the employee might negotiate a higher salary or other benefits in order to accept a noncompete. If college athletes are eventually recognized as employees, some might sign employment contracts that include noncompete provisions.
The FTC is also active in the NIL space and would play an instrumental role should NIL become federalized. Like the Securities and Exchange Commission, which last Friday announced an enforcement action against Paul Pierce over his Twitter promotion of crypto assets, the FTC aspires to more aggressively regulate how celebrities and athletes use social media through so-called testimonials and other product plugs. Federal bills on NIL often envision the FTC as regulating the NIL market, including sports agents.
The FTC is no stranger to athletics. The Sports Agent Responsibility and Trust Act of 2004 (SPARTA), which prohibits agents from inducing college athletes when doing so endangers NCAA eligibility, charges the agency with enforcing its provisions. As Sportico uncovered, the FTC has not meaningfully enforced this law, but each change in agency leadership provides an opportunity to revise enforcement priorities.
Although drama at the FTC might add some sizzle to the debate, sports industry insiders should also pay attention to the substance.