In a majority decision, a panel of judges from the 7th U.S. Circuit Court of Appeals has overturned a lower court ruling that favored the NCAA and Ticketmaster on the question of whether their ticket distribution system was an illegal lottery “to sell and distribute tickets for certain championship tournaments.”
The plaintiffs in the case were residents of Arizona, Oregon, and New York, who had applied for tickets to NCAA men’s basketball games through NCAA-owned websites. Each of them forfeited service fees when they were not selected as winners in the process.
Thus, they claimed the NCAA’s ticket-distribution system, which the NCAA has operated since at least 1994, is an illegal lottery and a means of increasing revenues at their expense.
The defendants moved to dismiss the complaint and a federal court in the Southern District of Indiana obliged, dismissing all claims with prejudice. The plaintiffs appealed.
In reviewing the appeal, the panel revisited the plaintiffs’ explanation of “the process” used by the defendants: “Each person who applied for tickets to Final Four games submitted a single application with up to ten entries. Each entry was a chance to win, at the most, two tickets and required a payment of a $6 ‘non-refundable handling fee.’ An applicant could win only once. Nonetheless, each applicant was required to submit the full face value of the tickets for each entry submitted. Accordingly, in order to maximize the chances for winning a single pair of $150 tickets, an applicant would have to submit $3,060 (the face value of ten pairs of tickets plus a $6 handling fee for each of ten entries). If the applicant were to win, he would receive a pair of tickets via overnight mail and, eventually, a $2,700 refund (the total ticket price for the remaining nine entries). The $60 in handling fees would be forfeited to the NCAA. If the applicant were to lose, he would receive a $3,000 refund (his entire up-front investment minus the handling fees).”
The panel went on to restate the plaintiffs allegation that “retained ‘service’ or ‘handling’ fees, as well as the NCAA’s use of the applicants’ money, constitute consideration for a chance to win the right to purchase ‘highly prized’ tickets for priority seating at venues that ‘are much too small to meet ticket demand’ and that the NCAA’s ticket-distribution system constitutes an unlawful lottery.”
The plaintiffs asserted five claims in their original complaint: Count I seeks a declaratory judgment that the NCAA’s ticket-allocation process constitutes illegal gambling in violation of Indiana law; Count II is a claim for unjust enrichment; Count III alleges a civil conspiracy between the NCAA and Ticketmaster; Count IV is for monies had and received; and Count V claims the NCAA violated the Indiana Deceptive Consumer Sales Act.
“Indiana law defines a lottery as ‘a scheme for the distribution of prizes by lot or chance,” wrote the court, citing Lesher v. Baltimore Football Club and two other cases. “These cases identify three elements necessary to establish a lottery: (1) a prize, (2) an element of chance, and (3) consideration for the chance to win a prize. The NCAA does not dispute this.
“The NCAA argues that its distribution process only grants an opportunity to purchase tickets at full price, which the NCAA contends is not a prize. This argument misconstrues the nature of the ticket-distribution process as pled by the plaintiffs.
“As detailed above, Final Four games, in particular, required a significant up-front investment – as much as $3,060. Included in this cost were ‘non-refundable handling fees.’ Unsuccessful applicants were refunded a portion of their up-front investment at some later point in time, but all handling fees were retained by the NCAA.”
The district court, in dismissing the plaintiffs’ complaint, cited Lesher, a case from the Indiana court of appeals, which held that a distribution scheme for season tickets to Indianapolis Colts games did not constitute an unlawful lottery.”
But the panel saw something in Lesher that the lower court did not: “Losers received a full refund of the ticket price and the handling fee.”
Another difference in Lesher and the NCAA’s scheme, argued the plaintiffs, was the NCAA was offering a prize, based on the “scarcity of the tickets.”
The panel continued: “To defeat that motion, the plaintiffs need only have alleged that the fair-market value of the tickets exceeded their face value such that those tickets constitute something of more value than the amount invested. The plaintiffs have done so.”
It then visited another NCAA argument about whether “an element of chance” existed.
“For an event in which the demand for tickets exceeds the supply and the right to purchase tickets is allocated at random, the element of chance is plain. Applicants for NCAA tickets do not obtain their reward through any exercise of skill or judgment. Nonetheless, the NCAA argues that its ticket-distribution scheme lacks any element of chance because a random drawing occurs only if the demand for tickets to a given event exceeds the supply. Therefore, an element of chance is not necessarily present. But the plaintiffs specifically allege that tickets are highly prized and that the venues hosting the events are ‘much too small to meet ticket demand.’ The fact that all applicants may win tickets for some events does not obviate the plaintiffs’ claims that they paid money to enter drawings for valuable tickets where the demand for tickets did exceed the supply.
“Thus, the plaintiffs have alleged all elements of a lottery: they paid a per-ticket or per-entry fee (consideration) to enter a random drawing (chance) in hopes of obtaining scarce, valuable tickets (a prize).”
Tom George, Chris Vitron, Lori Chapko and Edward Snead v. NCAA; 7th Cir.; No. 09-3667, 2010 U.S. App. LEXIS 14571; 7/16/10
Attorneys of Record: (for plaintiffs) Robert B. Carey, Attorney, HAGENS BERMAN SOBOL SHAPRIO, Phoenix, AZ. (for defendant) Benjamin R. King, Attorney, Michael L. Mallow, Attorney, LOEB & LOEB, Los Angeles, CA.
