A federal judge from the Southern District of Indiana has granted the NCAA’s motion to dismiss in a case in which the association was accused of violating antitrust laws. The court found specifically that the plaintiffs failed to adequately allege the elements of an antitrust violation.
Plaintiffs John Rock, Tim Steward, and Kody Collins challenged two NCAA bylaws that were at issue in an earlier case Agnew v. National Collegiate Athletic Association, 2011 U.S. Dist. LEXIS 98744 (S.D. Ind. 2011), affirmed by Agnew v. National Collegiate Athletic Association, 683 F.3d 328 (7th Cir. 2012). The bylaws at issue in Agnew were the prohibition on multi-year athletics-based scholarships and the cap on the number and amount of athletics-based scholarships. The plaintiffs also challenged an NCAA bylaw prohibiting athletics-based scholarships at Division III schools.
The bylaws, they argued, “restrain trade among NCAA member institutions for the labor of student-athletes.”
The court was clearly unimpressed with the plaintiffs’ complaint, noting that it “reads more like a press release than legal filing. Given the applicable standard of review, the court ignores the plaintiffs’ conclusory legal allegations and needless case citations and will only detail the reasonable inferences it can make from the necessary factual allegations to determine if the plaintiffs have stated a plausible claim for relief.”
The NCAA moved to dismiss the plaintiffs’ complaint for four reasons:
First, it challenged the plaintiffs’ antitrust standing to bring these claims.
Second, the NCAA argued that the plaintiffs’ proposed relevant market for the “nationwide market for the labor of student athletes” is not legally cognizable.
Third, the NCAA argued that the plaintiffs failed to allege anticompetitive effects on the market.
Fourth, the NCAA argued that the bylaw prohibiting Division III member institutions from awarding athletics-based financial aid is entitled to a procompetitive presumption of reasonableness.
In considering the question on standing, the court reviewed 15 U.S.C. § 15(a), which provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefore . . . .” But “not all persons who have suffered an injury flowing from [an] antitrust violation have standing to sue.” Kochert v. Greater Lafayette Health Servs., Inc., 463 F.3d 710, 716 (7th Cir. 2006). Instead, “only those parties who can most efficiently vindicate the purposes of the antitrust laws have antitrust standing to maintain a private action.” Id. Specifically, a plaintiff “does not have standing to sue . . . if [his] injuries were indirect and speculative.” Greater Rockford Energy & Tech. Corp. v. Shell Oil Co., 998 F.2d 391, 394 (7th Cir. 1993).
The court found that Rock and Steward have standing, while the question of standing around Collins “is a much closer call. Collins alleges that after he was informed that his scholarship violated the Division III prohibition on athletics-based financial aid, he ‘begrudgingly left the team and eventually transferred to [another school] to resume his hockey career.’ But Mr. Collins does not contend that the transfer, which he asserts was what ‘forced him to pay thousands of dollars in additional tuition and room and board at his new school,’ was the direct result of the Division III rule he challenges. In other words, he makes no allegation that the challenged rule forced him to transfer schools to incur the economic injury of which he now complains. Because Mr. Collins’ alleged antitrust injury is too indirect and speculative, the court concludes that he does not have standing to challenge the Division III prohibition on athletics-based financial aid.”
Turning to the market allegations, the court focused exclusively on the Division III rules at issue, and the plaintiffs’ faulty argument. “The plaintiffs’ decision to lump all NCAA schools into the same market regardless of material distinctions in division, sport offered by gender, or athletic success proves that their proposed market is not legally cognizable.”
The court was similarly unimpressed with the plaintiffs’ allegations that the bylaws at issue have caused injury to competition as a whole.
As for whether the Division III prohibition on athletics-based scholarships is procompetitive as a matter of law, the court restated the NCAA’s argument “that nothing in the Sherman Act requires schools to provide athletics-based financial aid, and that the Division III prohibition on athletics-based financial aid promotes amateurism.” It then noted the plaintiffs’ position that Division III schools “entered into an unlawful agreement” not to provide athletics-based scholarships because they “would rather have the athlete labor for free.”
The court wrote that “the Division III prohibition on athletics-based scholarships was not at issue in Agnew, and the Court agrees with the NCAA that the Supreme Court’s decision in Board of Regents is instructive. At issue in Board of Regents, 468 U.S. at 101 was whether the NCAA’s control over the number of football games a university could televise violated Section 1 of the Sherman Act. 468 U.S. at 85.
“The Supreme Court recognized that the horizontal restraint at issue typically would be presumed unreasonable and illegal per se without inquiry into the particular market context; however, ‘what is critical is that this case involves an industry in which horizontal restraints on competition are essential if the product is to be available at all.’ Id. at 101. Therefore, the Supreme Court applied the Rule of Reason analysis ‘to form a judgment about the competitive significance of the restraint.’ Id. at 103. A conclusion that a restraint is unreasonable may be based on either the nature or character of the contracts or the surrounding circumstances giving rise to the inference or presumption that they were intended to restrain trade and enhance prices. Id.
“In Board of Regents, the Supreme Court ultimately concluded that, despite the NCAA’s proffered justifications, the NCAA had engaged in unjustified anticompetitive conduct by restraining the number of football games universities could televise. The Supreme Court emphasized, however, that its holding was not a prohibition on the majority of the NCAA’s regulations because the NCAA must implement rules to preserve the character and quality of its product:
“What the NCAA and its member institutions market in this case is competition itself –— contests between competing institutions. Of course, this would be completely ineffective if there were no rules on which the competitors agreed to create and define the competition to be marketed. A myriad of rules affecting such matters as the size of the field, the number of players on a team, and the extent to which physical violence is encouraged or proscribed, all must be agreed upon, and all restrain the manner in which institutions compete. . . . In order to preserve the character and quality of the ‘product,’ athletes must not be paid, must be required to attend class, and the like. And the integrity of the ‘product’ cannot be preserved except by mutual agreement; if an institution adopted such restrictions unilaterally, its effectiveness as a competitor on the playing field might soon be destroyed.
“Thus, the NCAA plays a vital role in enabling college football to preserve its character, and as a result enables a product to be marketed which might otherwise be unavailable. In performing this role, its actions widen consumer choice—not only the choices available to sports fans but also those available to athletes—and hence can be viewed as procompetitive”
The court went to provide additional rationale for its decision to grant the NCAA’s motion to dismiss. In sum, it found that “the Division III prohibition on athletics-based financial aid is presumptively procompetitive as a matter of law.”
John Rock, et al. v. NCAA; S.D. Ind.; 1:12-cv-1019-JMS-DKL; 3/1/13
