Antitrust Law Daily Wrap Up, ANTITRUST—SDInd: Former Student-Athletes’ Challenge to NCAA Bylaws Dismissed for Lack of Injury, Cognizable Market, (Mar 4, 2013)

By E. Darius Sturmer, J.D.

Three former collegiate student-athletes could not maintain putative class action claims that the National Collegiate Athletic Association (NCAA) unlawfully restrained trade among its member institutions for the labor of student-athletes through its imposition and enforcement of several bylaws related to athletics-based scholarships, the federal district court in Indianapolis has ruled (Rock v. National Collegiate Athletic Assn., March 1, 2013, Magnus-Stinson, J.).

The plaintiffs—one of whom had played Division I football on scholarship and the other two of whom had played basketball and hockey, respectively, for Division III (non-scholarship) schools—challenged bylaws prohibiting multi-year athletics-based scholarships, capping the number and amount of athletics-based scholarships, and banning athletics-based scholarships at Division III schools. The former two of these bylaws, the court noted, were recently at issue in another antitrust litigation, Agnew v. National Collegiate Athletic Association, which was dismissed on the basis that the Sherman Act did not apply to the bylaws because the plaintiffs in that case had failed to sufficiently identify a commercial market. However, Agnew’s holding that the proper identification of a labor market for student-athletes would meet plaintiffs’ burden of describing a cognizable market under the Sherman Act had to be read in the context of Division I college football, the court said.

Antitrust standing. Of the three plaintiffs, only the football player and basketball player had standing to assert the antitrust claims, the court found.

The allegations of the football player, whose scholarship had not been renewed by a new coach that arrived during his third year at Gardner-Webb University, were sufficient because without the applicable bylaws, he would have had a four-year scholarship at the outset of his college career and would not have incurred expenses such as tuition. The basketball player, too, alleged direct injury for the tuition he paid the year after he was forced to give up a scholarship as a result of the Division III prohibition so that he could play basketball for the school.

The hockey player, on the other hand, suffered only indirect and speculative injuries from his own transfer after being informed that his scholarship violated the Division III prohibition. While asserting that the transfer “forced him to pay thousands of dollars in additional tuition and room and board at his new school,” he made no allegation that the challenged rule forced him to transfer schools to incur the economic injury of which he now complained.

Relevant market. The plaintiffs’ proposed relevant market, the “nationwide market for the labor of student-athletes,” was not legally cognizable, the court found. The plaintiffs “[made] no effort to properly identify the labor market at issue, [to] plead its rough contours, or [to] account for the commercial reality of the transaction,” the court stated.

Whereas the former student-athletes contended that the case was a matter of monopsony, since (quoting Agnew) “the NCAA is the only purchaser of student athlete labor,” their own market definition defied their monopsony argument, the court determined. The plaintiffs proposed a two-sided transaction in which student-athletes sold their labor by competing for spots on NCAA members’ teams and those institutions competed to buy that labor through payment of in-kind benefits like scholarships, coaching instruction, access to training facilities, and academic programs.

Despite their argument that NCAA institutions were unique and lacked plausible substitutes for the combinations of attributes they offered, the plaintiffs’ proposed market was impermissibly narrow because it ignored the existence of other associations, such as the National Association of Intercollegiate Athletics (NAIA), that offered athletic scholarships and the opportunity to obtain a high-quality education. The plaintiffs failed to explain why NAIA schools could not be adequate substitutes in their proposed labor market.

Moreover, regarding substitution by the buyers, the proposed market failed because NCAA schools were not necessarily adequate substitutes for each other. For example, the court said, it was implausible to suggest that lower-tier Division I football schools offered the same high level of in-kind benefits that the plaintiffs alleged were present at all NCAA schools across the country.

As for the other end of the equation, substitution by student-athletes selling their labor, the proposed market was impermissibly broad in that it included all student-athletes in the same labor market without accounting for germane differences such as gender and sport played, the court continued. Again, the definition ignored the realities of the transaction—a male football player was not a substitute for a female gymnast, and they did not compete with each other for an athletics-based scholarship on the same team, the court remarked.

Anticompetitive effects, Division III scholarship prohibition. Although the relevant market inadequacies were fatal to the claims, the court also briefly addressed two additional contentions by the NCAA, finding that the plaintiffs had failed to allege any facts supporting their claim that the bylaws at issue had anticompetitive effects and that the Division III prohibition on athletics-based scholarships had to be upheld as procompetitive as a matter of law.

The case is No. 1:12-cv-1019-JMS-DKL.

Attorneys: Elizabeth A. Fegan (Hagens Berman Sobol Shapiro, LLP) for John Rock. Gregory L. Curtner (Schiff Hardin, LLP) for the NCAA.

Companies: National Collegiate Athletic Association

Cases: Antitrust IndianaNews