Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Former college football player alleges restraint of trade by NCAA’s cap on athletic financial aid, (May 28, 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 limiting 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 Oakland (Kindler v. National Collegiate Athletic Association, May 23, 2014).

The National Collegiate Athletic Association (NCAA) is a nonprofit organization of approximately 1,100 educational institutions that organizes athletic programs in many of those institutions in the United States. The Pacific 12 Conference, Big Ten 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. Nicholas Kindler was a student-athlete member of the football team in one of the five conferences and received grants-in-aid from 2009 to 2013.

The complaint states that the NCAA and the five conferences violated antitrust laws by agreeing to unlawfully limit the value of a grant-in-aid at an amount substantially below the cost of attendance of a typical student and what a football player would receive for his services in a competitive market. The NCAA and its conferences have agreed that football players may receive only payments approved by the NCAA, the primary form of payment being an athletic (grant-in-aid) scholarship. The limit on grants-in-aid is set forth in the By-Laws of the NCAA, which serves as a contract among the Conferences. The grant-in-aid restrictions are strictly enforced by the NCAA with sanctions that include a complete ban on athletic participation.

The practical effect of the grant-in-aid limitations results in gaps between the scholarships and the full cost of attendance to be between $1,000 and $6,900 a year. The grant-in-aid cap has imposed a lower standard of living and significant hardships on college athletes. The athletes have less time and ability to earn money through part-time jobs, are more likely to come from lower-income households, and are more likely to incur substantial travel costs to attend school than other students. Each year, the plaintiff incurred substantial amounts of personal debt and expended substantial amounts of personal funds to make up for the shortfall between the grant-in-aid that he received and the actual cost of attending school, the complaint alleged.

According to the complaint, the NCAA and its member institutions control the highest and most popular levels of college football. Any individual who wishes to provide athletic services in exchange for payment of full tuition for any undergraduate education must attend an NCAA Division I member institution. There are no practical alternatives that can provide the unique opportunities offered by Division I schools, including high quality educational services, top training facilities, high quality coaching that would best be able to launch players professional careers, national publicity, and competition at the highest level of college football.

There is intense competition among Division I schools to recruit and retain the athletic services of college football players. The schools would engage in price competition to recruit and retain those athletes except that the NCAA By-Laws prevent them from doing so. There are no reasonable justifications for the grant-in-aid limitations. The cap is not necessary to promote any interest of preserving amateurism in college sports and is simply a cost containment mechanism that enables the NCAA and its member institutions to preserve more of the benefits of their lucrative enterprise for themselves, the complaint charged.

College football is a highly commercialized business for the universities and conferences that are members of the NCAA’s Division I and generates substantial revenue annually. Among the beneficiaries of the substantial revenues are the coaches, who receive compensation packages for millions of dollars. The NCAA executives, conference commissioners, and university athletic directors are also highly compensated.

The complaint alleged that numerous reasonable and less restrictive alternatives are available to the NCAA’s current anticompetitive practices. One less restrictive alternative would be to allow the member Conferences to compete among themselves as to the financial aid terms that are available to football players. In the marketplace, football players would obtain future compensation in an amount no less than the cost of attendance.

The plaintiff asserts claims for restraint of trade, and violations of Section 1 of the Sherman Act and California’s Unfair Competition Act. The action seeks declaratory and injunctive relief, compensatory and treble damages, costs of suit, attorneys’ fees, appointment of an external antitrust compliance monitor, and any other just and proper relief.

The case is No. 4:14-cv-02390-DMR.

Attorneys: Jon T. King, Steve W. Berman, and Robert B. Carey (Hagens Berman Sobol Shapiro LLP) and Bruce L. Simon (Pearson, Simon & Warshaw, LLP) for Nicholas Kindler.

Companies: National Collegiate Athletic Association

News: Antitrust CaliforniaNews