Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Former college football player alleges restraint of trade in NCAA’s cap on athletic financial aid, (Apr 18, 2014)

By Linda O’Brien, J.D., LL.M.

The National Collegiate Athletic Association and five major conferences unlawfully engaged in a restraint of trade by capping the value of financial aid given to college student athletes, in violation of the Sherman Act, according to a complaint filed in the federal district court of San Francisco (Gregory-McGhee v. National Collegiate Athletic Association, April 17, 2014).

The National Collegiate Athletic Association (NCAA) is a nonprofit organization of approximately 1,200 educational institutions that organizes athletic programs in many of those institutions in the United States. The Big Ten Conference, Pacific 12 Conference, Big Twelve Conference, Southeastern Conference, and Atlantic Coast Conference are multi-sport collegiate athletic conferences and conference members of Division I, one of three divisions adopted by the NCAA. Through the NCAA Constitution and By-Laws, the NCAA adopted regulations governing all aspects of college sports, including athletic (grant-in-aid) scholarships.

Kendall Gregory-McGhee Alston was a member of the football team at University of Minnesota, a member of one of the top five conferences. He received grants-in-aid from 2009 to 2013. Gregory-McGhee filed a putative class action against the NCAA, alleging that the association and the top five conferences violated antitrust laws by agreeing to unlawfully cap the value of a grant-in-aid at an amount substantially below the cost of attending school.

The complaint alleges that the value of a grant-in-aid is often several thousand dollars below the actual expenses of a typical student. Student athletes have far less time and ability to earn extra money through part-time employment than do other students. By denying student-athletes the benefit of economic competition, the limit on grant-in aid has imposed a lower standard of living and significant hardships on many student-athletes. The NCAA and its member schools have colluded to artificially depress the value of an athlete’s grant-in-aid to the athlete’s economic detriment.

The Constitution and By-Laws constitute horizontal price-fixing agreements between the NCAA and its member institutions, according to the complaint. Because the NCAA and member institutions control the most popular levels of college football, an individual who wishes to provide athletic services in exchange for a full tuition scholarship for an academic education must, by necessity, attend an NCAA Division I member institution. There are no major college football programs in the United States that are not NCAA Division I members, abiding by NCAA rules.

College football is a big business for the universities and conferences that the members of the NCAA’s Division I and generates millions of dollars in revenue annually, the complaint alleged. The superior revenues allow Division I football programs to provide superior coaching, playing and training facilities, and travel opportunities for football players. Despite the non -profit status of NCAA member institutions, the grants-in-aid cannot be termed “noncommercial,” since the institutions make millions of dollars annually as a result of these transactions.

Regarding recruitment for college athletic programs, the NCAA prohibits its member institutions from paying student athletes salaries or offering deferred trust funds. Instead, students receive grants-in-aid that are limited to a maximum amount. Absent these restrictions, member institutions would compete vigorously to attract talented athletes using increased financial aid and other direct forms of compensation, the complaint alleged.

The NCAA Constitution and By-Laws contain extensive provisions constituting horizontal agreements among competitors, requiring all member institutions to abide by its rules. The NCAA enforces the agreement through the threat of sanctions, including the loss of the ability to compete and financial penalties.

The complaint states that there are reasonable and less restrictive alternatives to the current anticompetitive practices, such as allowing the conferences to compete among themselves on the financial aid terms that would be made available to college football players.

Gregory-McGhee asserts claims for per se violation of Section 1 of the Sherman Act and unreasonable restraint of trade under the rule of reason. The action seeks declaratory and injunctive relief, compensatory and treble damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 3:14-cv-01777-MEJ.

Attorneys: Elizabeth C. Pritzker (Pritzker Law) and W. Joseph Bruckner (Lockridge Grindal Nauen P.L.L.P.) for Kendall Gregory-McGhee

Companies: National Collegiate Athletic Association

Cases: Antitrust CaliforniaNews