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From Antitrust Law Daily, August 19, 2013

Antitrust claims over NCAA bylaws restricting scholarships survive motion to dismiss

By Jeffrey May, J.D.

The National Collegiate Athletic Association (NCAA) was not entitled to dismissal of an antitrust action challenging two NCAA bylaws—the prohibition on multi-year scholarships and the cap on the number of allowable scholarships—the federal district court in Indianapolis has ruled. The court concluded that the former student athlete who brought the complaint alleged sufficient factual allegations to support an antitrust claim that was plausible on its face. However, the court cautioned that the plaintiff “may struggle to identify admissible evidence to support some of the allegations” in subsequent stages of the litigation (Rock v. National Collegiate Athletic Assn., August 16, 2013, Magnus-Stinson, J.).

The plaintiff had been recruited by Gardner-Webb University in North Carolina and was offered an official football scholarship for his freshman year in 2008. The Gardner-Webb head football coach purportedly “pledged” that the plaintiff's scholarship would be renewed annually “so long as he did well academically and remained eligible for NCAA competition.” After a new head football coach was installed at the university, the plaintiff was informed that he would no longer receive his athletic scholarship. He eventually paid tuition, room and board out-of-pocket for his final year at Gardner-Webb and graduated in May 2012.

The plaintiff alleged that in a competitive market not subject to the NCAA’s prohibition on multi-year scholarships and the cap on the total number of scholarships per team, he would have received additional or enhanced scholarship offers, including a multi-year scholarship. He contended that the challenged bylaws had no effect on amateurism and could not be justified by competitive balance concerns.

Antitrust standing. In considering an earlier motion to dismiss, the court had already found that the plaintiff alleged standing. The plaintiff claimed that, without the challenged NCAA bylaws, he would have received a multi-year scholarship and would not have incurred subsequent expenses when his university did not renew his scholarship.

Also rejected was the NCAA's argument that the plaintiff did not have standing to challenge bylaws governing the Football Bowl Subdivision (FBS or Division 1-A) of NCAA Division I football because the school for which he played was a Football Championship Subdivision (FCS) or Division 1-AA member. The proposed complaint alleged that FBS and FCS were subdivisions of the same relevant market and that the bylaws at issue affected the supply of scholarships in both divisions. The plaintiff alleged that, without the challenged bylaws, he would have received more scholarship offers, including from FBS teams.

Commercial activity. The plaintiff sufficiently alleged commercial activity subject to the Sherman Act, the court ruled. It was sufficient that the plaintiff alleged that he received an athletics-based scholarship to Gardner-Webb in exchange for the opportunity to earn a college degree and play football. Commercial activity was not limited to “bigtime college football programs” and “premier athletes,” as the NCAA suggested.

Relevant market. The court also rejected the NCAA's argument that the plaintiff failed to allege facts to support his proposed relevant market that included both FBS and FCS schools—the two subdivisions that comprise Division I football. The NCAA’s own structure classified both FBS and FCS football as part of the same division. Moreover, FBS and FCS teams can, and did, play against each other. While the proposed market might ultimately be found to be overbroad, it was not facially implausible.

An alternative NCAA argument that the market was too narrow and should have included Division II and National Association of Intercollegiate Athletics schools also was rejected. Division II and NAIA football were not reasonable substitutes for Division I football, in the court's view.

Anticompetitive effect. Lastly, the court rejected the NCAA's contention that the plaintiff failed to allege an anticompetitive effect on the proposed market. Without the bylaws at issue, the plaintiff allegedly would have received additional scholarship offers, including offers for multi-year scholarships. The prohibition on multi-year scholarships was purportedly an attempt by NCAA member institutions to prevent “bidding wars” over prospective student-athletes. As for the cap on the total number of available scholarships, while a typical NCAA football squad had 100 players, the bylaws limited FBS teams to 85 full scholarships and FCS teams to 63 scholarships. Without those caps, the overall supply of scholarships would increase and the prospective student-athletes in the market would receive more financial aid, the plaintiff alleged.

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 National Collegiate Athletic Assn.

Companies: National Collegiate Athletic Assn.

MainStory: TopStory Antitrust IndianaNews

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