The 7th U. S. Circuit Court of Appeals has affirmed a lower court’s decision to dismiss the antitrust claims of two student athletes, who alleged that the NCAA-imposed limitations on the number of scholarships given per team and that the rules against multi-year scholarships violated Section 1 of the Sherman Act.
The panel’s decision was based primarily on the fact that the plaintiffs — Joseph Agnew of Rice University and Patrick Courtney of North Carolina A&T — did not identify “a specific relevant market,” which is required to prove an antitrust claim.
The impetus for the claim was the fact that Agnew and Courtney each suffered a football-related injury during their collegiate career and that their respective schools chose not to renew their one-year scholarships.
Agnew and Courtney sued the NCAA in 2010. A district judge in Indiana sided with the NCAA, holding that the association has wide latitude to implement rules that protect the amateurism aspect of collegiate athletics.
The plaintiffs appealed.
The 7th Circuit agreed the district court was right to dismiss the claim, but for different reasons. Instead, the panel found that the market for bachelor’s degrees did not qualify for antitrust protection. Federal antitrust law only applies to commercial transactions, and students can’t simply buy a bachelor’s degree, according to the panel.
“As many unhappy undergraduates can attest, payment of tuition does not ensure the receipt of a degree,” held the panel.
The 7th Circuit did leave the door open for the plaintiffs to file a new argument that the NCAA rules limit competition between schools in the market for student-athlete labor, which the attorney for the plaintiffs, Steve Berman of Hagens Berman Sobol Shapiro, has subsequently done with another plaintiff (see article this issue).
“The proper identification of a labor market for student-athletes, on the other hand, would meet plaintiffs’ burden of describing a cognizable market under the Sherman Act,” noted the panel. “As an initial matter, labor markets are cognizable under the Sherman Act. Nichols v. Spencer Int’l Press, Inc., 371 F.2d 332, 335–36 (7th Cir.1967). The Banks majority, in dicta, opined that the market for scholarship athletes cannot be considered a labor market, since schools do not engage in price competition for players, nor does supply and demand determine the worth of student-athletes’ labor. 977 F.2d at 1091.
“We find this argument unconvincing for two reasons. First, the only reason that colleges do not engage in price competition for student-athletes is that other NCAA bylaws prevent them from doing so. The fact that certain procompetitive, legitimate trade restrictions exist in a given industry does not remove that industry from the purview of the Sherman Act altogether. Rather, all NCAA actions that are facially anticompetitive must have procompetitive justifications supporting their existence. Second, colleges do, in fact, compete for student-athletes, though the price they pay involves in-kind benefits as opposed to cash. For instance, colleges may compete to hire the coach that will be best able to launch players from the NCAA to the National Football League, an attractive component for a prospective college football player. Colleges also engage in veritable arms races to provide top-of-the-line training facilities which, in turn, are supposed to attract collegiate athletes. Many future student-athletes also look to the strength of a college’s academic programs in deciding where to attend. These are all part of the competitive market to attract student-athletes whose athletic labor can result in many benefits for a college, including economic gain.”
Agnew v. National Collegiate Athletic Ass’n; 7th Cir.; No. 11-3066; 6/18/12
The Take of the Law Firm Duane Morris
“The court, to a degree, reinforced the findings of NCAA v. Board of Regents, 468 U.S. 85 (1984), the decision that set the stage for the creation of the BCS by giving NCAA member institutions the power to independently contract in the broadcast of their sports events. But today’s decision did not focus on the portion of the holding that gave schools a measure of independence to form the BCS, but on the language pointing to the need for some cooperation among the member institutions via a centralized sports organization, the NCAA. The Seventh Circuit referenced American Needle v. NFL, 130 S. Ct. 2201 (2010), which held that there are agreements between members of a joint venture that have a high probability of surviving a ‘rule of reason’ analysis and if so those rules are not subject to ‘a detailed analysis.’ Slip Op. at 24.
“The court reasoned that because Board of Regents approved of many NCAA regulations and that if regulations reviewed in subsequent cases are ‘of the type’ that the Court in Board of Regents approved, they should be ruled to be ‘presumptively procompetitive.’ Slip Op. at 38. It will be interesting to see how this decision fits with NCAA efforts to deliver academic reforms, including the revision of the annual renewable scholarship issues. NCAA bylaws were amended to permit Division I universities to award multi-year athletic scholarships prior to this Seventh Circuit decision.”
The Take of the Law Firm Proskauer
“Though the court of appeals disagreed with the district court that the plaintiffs could not have alleged a relevant cognizable market, it agreed that, in this case, the plaintiffs had not sufficiently identified a relevant cognizable market in their complaint. In doing so, the appeals court focused on the removal of two items in the plaintiffs’ amended complaint, which were in their original complaint: a heading entitled ‘Relevant Market,’ and a sentence stating that a bachelor’s degree from an accredited university was a distinct product market. The Seventh Circuit interpreted the plaintiffs’ omissions to be a strategic maneuver and also to reflect a belief — albeit an erroneous one — that they did not need to identify a relevant market. The appeals court also agreed with the district court’s analysis that since a bachelor’s degree is not earned upon payment, and a student only pays for the opportunity to earn a bachelor’s degree, the complaint failed to identify a product market for bachelor’s degrees.
“Interestingly, in February 2012, while the Agnew-Courtney case was still pending, the NCAA adopted a regulation that will now permit member institutions to award multiyear scholarships. This new regulation was not favored by all NCAA schools and survived an override motion by only two votes. The recruiting advantage that multi-year scholarships might provide apparently troubles some member schools.”
