NCAA Suffers Legal Setback in Walk-On Case

Oct 21, 2005

A federal judge in the Western District of Washington has denied the NCAA’s motion for judgment on the pleadings in an antitrust case, which was filed by a former walk-on football player at the University of Washington, who is challenging the NCAA bylaw limiting the number of scholarships at Division I football programs to 85.
If the litigation continues on that path, the economic ripple across college athletics could be significant. Those programs that want to offer more than 85 scholarships could do so, but would have to either mirror that increase in their women’s programs or reduce scholarships in men’s minor sports programs in order to stay in compliance with Title IX.
Another potential economic impact could arise as the gulf between the major and mid-major football programs widens. As some programs stockpile the talent, as they did prior to the institution of cap, other mid-majors may suffer from a lack of talent. This could ultimately lead to fewer television dollars for the mid-majors when the TV rights money is divided.
Plaintiff Andy Carroll was a non-scholarship wide receiver for the Huskies in the late 1990s. Represented by Steve Berman of Hagens Berman and Simeon Osborn of Osborn Machler, Carroll sued the NCAA claiming he would have been awarded a scholarship if not for Bylaw 15.5.5, which “artificially restrains the number of scholarships that a school may award to football team roster members.” Carroll, who was joined by other similarly situated plaintiffs, alleged that the practice “is an unlawful horizontal restraint of trade that violates Section I of the Sherman Act and is a monopolization of the ‘big-time college football market’ in violation of Section II of the Sherman Act.”
In its motion to dismiss, the NCAA argued that “(1) NCAA rules preserving amateurism and protecting fair competition have been uniformly upheld under the Sherman Act; (2) Plaintiffs have not alleged a legally cognizable relevant market; (3) Plaintiffs have not alleged injury to competition; and (4) Plaintiffs’ Section 2 claim fails as a matter of law because the Amended Complaint contains insufficient factual allegations showing that the NCAA has monopoly power in any relevant market.”
The NCAA’s first argument, noted the court, rested on its attempts “to characterize this case as challenging the NCAA’s protection of amateurism in so-called ‘big-time college football.’” In essence, the NCAA claimed that case law has emboldened its rulemaking authority to the point where it is not subject to the Sherman Act, at least in the instant case. The appeals court, however, disagreed with that interpretation, noting other courts have “found the award of financial aid to college students to be ‘trade or commerce’ and therefore subject to the Sherman Act.” It thus found that the plaintiffs should be given a chance to address this point as the litigation progressed.
Next, the court turned to whether the plaintiffs had identified a relevant market. The NCAA supported its position by arguing that “there is no ‘commercial’ or ‘employment market’ for the services of Division I-A football players” and that the plaintiffs failed “to identify consumer substitutability, interchangeability or cross-elasticity of demand.”
Again, the appeals court disagreed, noting that the plaintiffs have alleged “a sufficient ‘input’ market in which NCAA member schools compete for skilled amateur football players.” The court made an important distinction, noting the difference between the market for intercollegiate athletics and the market for talented amateur football players.
That distinction had previously been drawn in the 1998 decision by the 10th U.S. Circuit Court of Appeals in Law v. NCAA, 134 F.3d 1010. In that case, the appeals court concluded that the NCAA had violated antitrust laws by collectively agreeing to pay some assistant coaches a reduced amount of salary. The so-called “restricted earnings case” cost the NCAA approximately $67 million.
The appeals court also agreed with the plaintiffs that “there are no other viable options for students wishing to make full use of their skills at the highest level of competition, thus satisfying a requirement that the product market include the pool of goods and service that enjoy ‘reasonable interchangeability of use and cross-elasticity of demand.’” Tanaka v. NCAA, 252 F.3d 1059, 1063 (9th Cir. 2001).
Addressing the NCAA’s third argument, the appeals court described the current market as a monopsony, or where a single purchaser dominates the relevant market for a factor of production. “Injury to competition can occur by monopsony, just as it may result from a monopoly.” National Macaroni Mfrs. Ass’n v. FTC, 345 F.2d 421 426 (7th Cir. 1965). Thus, the plaintiffs demonstrated that it is possible for an injury to competition to have occurred.
The court then turned to the final argument that the amended complaint lacks “factual allegations showing that the NCAA has monopoly power in any relevant market.”
“Plaintiffs allege that the NCAA ‘operates as a classic cartel’ because it is ‘a combination of producers of a product joined together to control its production, sale and price.’ They also allege that the NCAA ‘exercises an almost absolute control over intercollegiate athletics,’ including the imput market of Division 1-A football players.
“Indeed, the NCAA’s power to control intercollegiate athletics has been noted by other courts. See e.g. Bd. Of Regents, 468 U.S. at 99; Law II, 134 F.3d at 1012; Hennessey, 564 F.2d at 1147;Gaines, 746 F. Supp. At 745.
“In light of the monopsony discussion above, the court finds that the plaintiff has alleged sufficient facts that the NCAA has monopoly power over the alleged market.”
In Re NCAA 1-A Walk-on Football Players Litigation; W.D. Wash.; Case No. C04-1254C; 9/14/05


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