Antitrust Lawsuit against NCAA Appears Destined for Trial

Apr 13, 2007

The business of college athletics is on the verge of being severely altered.
 
An antitrust lawsuit naming the NCAA as a defendant is apparently headed to trial on June 12.
 
The suit, brought initially by three former student athletes and later given class-action status, alleged that the NCAA’s rule requiring its members to cover some, but not all, of a student athlete’s expenses while attending college is an antitrust violation. In essence, they are arguing that the NCAA is a collusive monopsony.
 
The NCAA chief legal counsel Elsa Cole told USA Today last month that if the suit is successful it could “turn on its head our system of financial aid for student athletes.”
 
The plaintiffs, who are represented by the Los Angeles law firms of Susman Godfrey and Blecher & Collins, have based their argument on the belief that the NCAA and its membership does “not allow student athletes the share of the revenues that they would obtain in a more competitive market.”
 
Further, the plaintiffs suggested that through an “unlawful horizontal agreement” that the NCAA and its members “have short-changed student athletes by imposing an artificial cap on the amount of financial aid any athlete may receive in the form of an athletic scholarship, ‘grant-in-aid’ (GIA). The artificial cap on financial aid is set below the amount of the cost of attendance (COA) that any student would incur to attend the relevant colleges or universities.”
 
They went on to note that so-called “full” scholarships are “insufficient to cover normal and usual expenses, such as school supplies, recommended textbooks, laundry expenses, health and disability insurance, travel costs and incidental expenses.” They also pointed out that the NCAA has admitted that those student athletes on “full” scholarships must still cover $2,500 in “out-of-pocket expenses.”
 
The plaintiffs quoted a 2003 letter that NCAA President Myles Brand wrote to the Denver Post in which he suggested that he would favor the idea of “providing the full cost of attendance.”
 
The plaintiffs would like the NCAA membership to eliminate the “artificial GIA cap” and to provide student athletes with aid that covers the full COA. The plaintiffs are also seeking damages based on the scholarship payments that they would have received “absent the NCAA’s unlawful agreement to impose the GIA cap.”
 
After defining the relevant market as the markets for major college football and men’s basketball, the plaintiffs argued that the demand for student athletes in these markets is such that, “absent the unlawful GIA cap, each student athlete in the class would have received a grant equal to the COA.”
 
They then sought to build a case that the GIAs awarded to student athletes “are commercial transactions that affect interstate commerce. By adopting and enforcing the agreement to cap the GIA amount that member institutions may provide student athletes, the NCAA deprives student athletes of millions of dollars in additional financial aid each year.”
Finally, they also sought to draw a parallel with Law v. NCAA, 134 F.3d 1010 (10th Cir. 1998) in which 10th U.S. Circuit Court of Appeals affirmed a district court’s decision that the salary restrictions placed on assistant coaches at the time was an unlawful restraint of trade. After a subsequent damages verdict in the coaches’ favor, that case settled for $54.5 million.
 
The NCAA is expected to argue that the current practice is designed to promote a pro-competitive product.
 
As it stands, the NCAA could be facing potential damages of $345 million. That number is arrived at by multiplying the 11,500 football and basketball scholarships given out each year at the specified schools by the $10,000 increase (over four years) that each would be arrived at. That number — $115 million – could be trebled to approximately $345 million.
Lines Drawn in the Sand
 
By order of the court, the two sides met unsuccessfully met with a mediator earlier this spring.
 
The Collegiate Athletes Coalition, a group formed by the UCLA football team in 2001 that has facilitated the suit against the NCAA, recently suggested that the NCAA “moves much too slow on critical issues that affect student-athletes.”
 
And while Cole recently compared in USA Today the track the case is on with the antitrust suit brought two years ago by the organizers of the National Invitational Tournament against the NCAA, this case is different in several ways:
 
• That claim was brought, technically by organizers of the NIT, who were members or friends of the NCAA, which had to consider the long-term ramifications of protracted litigation.
 
• Second, the chance of success for the plaintiffs in that case may have been more remote than the instant case.
 
• Third, it is unlikely the NCAA and could settle its way out of the case for $54 million, like it did in the NIT case.
 
• Finally, the long-term ramifications of a win for the plaintiffs could hamper athletic departments financially for years to come, an unenviable prospect for the NCAA.
 


 

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