Sports Law
(Due by the end of Week Six)
Banks v. National Collegiate Athletic Association, 977 F.2d 1081 (7th Cir. 1992)
Overview:
Braxston Lee Banks appeals the district court’s dismissal of his claim that the National Collegiate Athletic Association (NCAA) rules withdrawing athletes’ eligibility to participate in collegiate sports in the event the athlete chooses to enter a professional draft or engages an agent to help him secure a position with a professional team are an illegal restraint on trade or commerce in violation of 15 U.S.C. § 1. We affirm the judgment of the district court holding that Banks failed to state a claim upon which relief can be granted.
Banks entered the University of Notre Dame on a full football scholarship in September 1986. As a freshman Banks started in four or five games and in fact played in all 11 contests. In the first game of his sophomore year, Banks injured his knee and, as a result of his injury, played in only seven games—he started in four of them. Again in his junior year, allegedly because of the knee injury, Banks played in only six games but again started in four. Banks chose to sit out his senior year (1989) because, as he stated, “of my desire to be sure that my knee was fully recovered before I played again.”
Having completed three years of college eligibility, Banks was eligible to enter the National Football League (NFL) selection process or draft in the spring of 1990. Banks decided to enter the 1990 NFL draft after representatives of two scouting organizations employed by the NFL teams informed him that he would have been invited to the regular NFL scouting tryouts if he had completed his collegiate eligibility. After the news of Banks’ entrance into the draft became public, representatives of virtually every NFL team visited Notre Dame and put him through athletic efficiency drills to test his skills. In addition, Banks participated in an NFL tryout in Indianapolis, Indiana for college players who had entered the draft before completing college eligibility. Banks apparently performed below par at the tryouts in Indianapolis, and as a result failed to be selected in the draft or as a free agent.
Under the NCAA rules, an athlete is eligible to play four seasons of an intercollegiate sport within five years of commencing his college education. As a result of sitting out his senior year of eligibility, Banks had one year of intercollegiate eligibility remaining when he graduated in August 1990. In spite of the fact that he was exposing himself to further injury, he decided that the only way for him to demonstrate his ability to compete on the professional level was to return to Notre Dame for graduate courses and reenter its intercollegiate football program during his final year of eligibility. Unfortunately for Banks, two NCAA eligibility rules stood in his way. Rule 12.2.4.2, the no-draft rule, provides that an individual loses amateur status in a particular sport when the individual asks to be placed on the draft list or supplemental draft list of a professional league in that sport. Rule 12.3.1, the no-agent rule, states: “An individual shall be ineligible for participation in an intercollegiate sport if he or she ever has agreed (orally or in writing) to be represented by an agent for the purpose of marketing his or her athletics ability or reputation in that sport.” Since Banks participated in the draft tryouts and agreed to be represented by an agent subsequent to signing up for the draft, either of the two rules (NCAA Rule 12.2.4.2 or Rule 12.3.1) was sufficient to bar him from participating in his final year of eligibility at Notre Dame. The Notre Dame football coaches allegedly wanted Banks to play in the 1990 season, but according to Banks, the school refused to request the NCAA to reinstate Banks’ eligibility because no college had ever appealed to the NCAA to restore eligibility of a player who entered the NFL draft. The NCAA declined to consider Banks’ personal request for reinstatement, as the bylaws provide only for member colleges to petition for restoration of an athlete’s eligibility.
We will address the following issues in this appeal: (1) whether Banks has standing to act as a class representative for the purpose of seeking to enjoin the NCAA’s enforcement of its no-draft and no-agent rules, (2) whether the district court erred in dismissing this antitrust claim under Rule 12(b) (6) for failure to state a claim upon which relief can be granted, and (3) whether the plaintiff stated a valid antitrust claim in his second cause of action.
Banks’ primary contention on appeal is that because the record is not thoroughly developed, it was inappropriate for the district court to decide that the NCAA no-draft and no-agent rules were procompetitive in ruling on a Rule 12(b) (6) motion to dismiss. Banks asserts that without any evidence, the district court agreed with the NCAA that its no-draft and no-agent rules were reasonable and dismissed the complaint under Rule 12(b) (6) for failure to state a claim. We are unconvinced that the record in this case requires further development in order to determine whether the NCAA rules have a procompetitive effect, but it is immaterial to evaluating Banks’ argument that the district court improperly decided that the rules were reasonable. The district court decided the case not on the basis of the relative anticompetitive effect of the rules versus the procompetitive impact, but on the ground of Banks’ absolute failure to allege an anticompetitive effect: Mr. Banks does not suggest what anticompetitive effects result from either restraints in the football labor market or the group boycott; nor does he challenge the purported procompetitive impact of the NCAA no-draft rules. The court went on to hold that “[w]hile Mr. Banks claims that the NCAA rules in question accomplish a group boycott by way of restricting the football labor market, he ties those allegations to no competitive impact on any identifiable market. Mr. Banks has no antitrust injury that can be gleamed
[sic]
from the amended complaint.” Since the district judge’s decision was based on Banks’ failure to allege an anticompetitive effect on an identifiable market, the argument that the court improperly determined that the rules were reasonable on a motion to dismiss is without merit.
The district court dismissed Banks’ claim because he failed to allege that the NCAA rules had an anticompetitive impact on any identifiable market. Banks chose to appeal the judgment of the court rather than request leave to amend and reinstate his complaint. On appeal, Banks ignores the holding of the district court and asserts that the court found an anticompetitive impact on a relevant market.
The district court’s conclusion that Banks has no antitrust injury was obviously based upon its holding that Banks failed to allege an anticompetitive impact on a relevant market. We confess that we are somewhat perplexed as to how Banks expects to get a reversal of the district court’s judgment without assigning error to its holding.
The dissent claims, on the other hand, that Banks’ complaint did allege an anticompetitive impact on an identifiable market. We disagree, but we do not dispute the fact that the plaintiff could have alleged an anticompetitive impact. However, this court is not able to review what Banks could have alleged, but is called upon to review only what he actually alleged. Our review of Banks’ argument shows that the plaintiff cited only examples of antitrust law violations (group boycotts, price fixing, control of output, refusal to deal) but failed to delineate much less explain which, if any, of these restraints of trade apply to the NCAA rules at issue.
This court has previously addressed the requirement of alleging anticompetitive effects on a market in order to make out a claim for a violation of the Sherman Act:
“The fundamental requirement at issue in this dispute is that of a sufficient allegation of anticompetitive effects that would result or have resulted from the defendants’ actions; the absence of such allegations is ordinarily fatal to the existence of a cause of action. The purpose of the Sherman Act is to rectify the injury to consumers caused by diminished competition; it is for this reason that Congress provided a treble damage recovery for private parties willing to initiate an enforcement action. Thus, the plaintiff must allege not only an injury to himself, but an injury to the market as well. It is only when the plaintiff adequately states a per se violation of § 1 of the Sherman Act that an allegation of anticompetitive effects is not required.” Car Carriers, Inc. v. Ford Motor Company, 745 F.2d 1101, 1107-08 (7th Cir.1984)
Under the Supreme Court’s ruling in National Collegiate Athletic Association v. Board of Regents, 468 U.S. 85, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984), allegations that the NCAA rules restrain trade or commerce may not be viewed as per se violations of the Sherman Act, but must be addressed under the rule of reason. Thus, in order for Banks’ complaint to state a claim on which relief can be granted, it must allege anticompetitive effects on a discernible market.
Banks’ complaint alleged that the NCAA no-draft and no-agent rules restrained trade or commerce in three ways: “(a) First, there is the restraint imposed by the NCAA on all of its member institutions that restricts them from offering a player such as Banks, who enters the draft and/or retains an agent, an opportunity to play college football again. The relevant market on which that restraint is imposed is all those players who wish to play football for major college football teams, a market which is dominated by the NCAA. (b) Second, the Rules operate as a restraint on all members of the NCAA requiring them to abide by the Rules, and not to change them or grant waivers from them. This restraint operates directly on member institutions such as Notre Dame and indirectly, although intentionally, on players such as Banks. The relevant market is all major college football institutions since all NCA [sic] member institutions are subject to similar restrictions, and hence players like Banks are foreclosed from choosing a major college football team based on the willingness of the institution to waive or change its rules, or consider doing so. (c) Third, the Rules also operate to restrain the ability of a player such as Banks from marketing his services to the NFL, by effectively giving him one and only one realistic chance to be drafted by the NFL. The relevant market being restrained is composed of players like Banks who are considering entering the NFL draft while they still have college football eligibility remaining.”
These allegations identify two markets: (1) NCAA football players who enter the draft and/or employ an agent and (2) college institutions that are members of the NCAA. Another reading of the complaint might even have deduced a third market, the NFL player recruitment market. But regardless of how charitably the complaint is read, it has failed to define an anticompetitive effect of the alleged restraints on the markets.
The dissent reasons that Banks has alleged that the NCAA no-draft rule has an anticompetitive effect in the market for college football players. The dissent claims this anticompetitive effect is the no-draft rule foreclosing players from choosing a major college football team based on the willingness of the institution to waive or change [the no-draft] rule. This allegation can at best be described as inaccurate and further fails to allege an anticompetitive impact. First, as Banks states in paragraphs 5-7 of his amended complaint, the NCAA has adopted the no-draft, no-agent, and other substantive rules to which all NCAA member institutions have agreed, and do in fact, adhere. Contrary to Banks’ erroneous allegations, an NCAA member institution may not waive or change the no-draft rule at its discretion for it is rather obvious that only the National Collegiate Athletic Association can waive or change one of its substantive rules. Any school that sought to waive or change the rules would forfeit its ability to participate in NCAA sanctioned events.
Second, as the district court held, the complaint has failed to allege an anticompetitive impact. The failure results from Banks’ inability to explain how the no-draft rule restrains trade in the college football labor market. The NCAA rules seek to promote fair competition, encourage the educational pursuits of student athletes, and prevent commercialism. According to the constitution of the National Collegiate Athletic Association, the purposes of the NCAA Eligibility Rules are to maintain amateur intercollegiate athletics as an integral part of the educational program and the athlete as an integral part of the student body and by doing so, retain a clear line of demarcation between intercollegiate athletics and professional sports. The overriding purpose of the Eligibility Rules, thus, is not to provide the NCAA with commercial advantage, but rather the opposite extreme—to prevent commercializing influences from destroying the unique product of NCAA college football.
As the Supreme Court in Board of Regents stated: “most of the regulatory controls of the NCAA are a justifiable means of fostering competition among the amateur athletic teams and therefore are procompetitive because they enhance public interest in intercollegiate athletics.” Board of Regents, 468 U.S. at 104, 104 S.Ct. at 2961. The Court further explained: “The NCAA seeks to market a particular brand of football—college football. The identification of this product with an academic tradition differentiates college football from and makes it more popular than professional sports to which it might otherwise be comparable, such as, for example, minor league baseball. 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 [restrictions on eligibility rules], 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 no-draft rule has no more impact on the market for college football players than other NCAA eligibility requirements such as grades, semester hours carried, or requiring a high school diploma. They all constitute eligibility requirements essential to participation in NCAA-sponsored amateur athletic competition. Banks might just as well have alleged that only permitting a student five calendar years in which to participate in four seasons of intercollegiate athletics restrains trade. Banks’ allegation that the no-draft rule restrains trade is absurd. None of the NCAA rules affecting college football eligibility restrain trade in the market for college players because the NCAA does not exist as a minor league training ground for future NFL players but rather to provide an opportunity for competition among amateur students pursuing a collegiate education. Because the no-draft rule represents a desirable and legitimate attempt to keep university athletics from becoming professionalized to the extent that profit-making objectives would overshadow educational objectives, the no-draft rule and other like NCAA regulations preserve the bright line of demarcation between college and play-for-pay football. We consider college football players as student athletes simultaneously pursuing academic degrees that will prepare them to enter the employment market in nonathletic occupations, and hold that the regulations of the NCAA are designed to preserve the honesty and integrity of intercollegiate athletics and foster fair competition among the participating amateur college students.
In order for the NCAA rules to be considered a restraint of trade in violation of section 1 of the Sherman Act, Banks must allege that the no-draft and no-agent rules, as the dissent explains, are terms of employment that diminish competition in the employment market (i.e., college football). The dissent refers to NCAA member colleges as purchasers of labor in the college football player market and the players as suppliers in this market. After likening colleges to purchasers of labor, the dissent extends the analogy to conclude that colleges offer material terms of employment to their college players and that the no-draft rule is a material term of employment that harms competition in the college football labor market.
Initially, we restate that the no-draft rule and similar NCAA rules serve to maintain the clear line of demarcation between college and professional football. In contrast to professional football, NCAA student athletes are required to attend class, maintain a minimum grade point average, and enroll and complete a required number of courses to obtain a degree. The no-draft rule is evidence of the academic priority of the NCAA because it forecloses a student athlete from hiring an agent or entering the NFL draft and after failing to meet the professional standards, returning to play college football to improve his football skills in hopes of entering an upcoming draft. In denying a college football player the right to play professional football (entering the NFL draft) and then return to college football, the no-draft rule merely serves as an NCAA eligibility requirement and precludes the existence of a college football labor market for athletes who are ineligible by NCAA standards.
Second, we disagree with the dissent’s allegation that NCAA member schools are purchasers of labor as the operation of the NCAA eligibility and recruiting requirements prohibits member colleges from engaging in price competition for players. We fail to understand how the dissent can allege that NCAA colleges purchase labor through the grant-in-aid athletic scholarships offered to college players when the value of the scholarship is based upon the school’s tuition and room and board, not by the supply and demand for players. Elimination of the no-draft and no-agent rules would fly in the face of the NCAA’s amateurism requirements. Member schools might very well be exposed to agents offering the services of their football playing clients to the highest bidder. In representing their pro-athlete clients, the agents would in all probability attempt to bargain with the NCAA school and might very well expect the school to offer their client an attractive contract possibly involving automobiles, condominiums, and cash as compensation in contravention of the NCAA amateurism rules. Such arrangements might involve cash compensation payable only in the future after the player has completed his college eligibility and continues with an NFL club. The involvement of professional sports agents in NCAA football would turn amateur intercollegiate athletics into a sham because the focus of college football would shift from educating the student athlete to creating a minor-league farm system out of college football that would operate solely to improve players’ skills for professional football in the NFL. We should not permit the entry of professional athletes and their agents into NCAA sports because the cold commercial nature of professional sports would not only destroy the amateur status of college athletics but more importantly would interfere with the athletes proper focus on their educational pursuits and direct their attention to the quick buck in pro sports. The no-agent and no-draft rules are vital and must work in conjunction with other eligibility requirements to preserve the amateur status of college athletics and prevent the sports agents from further intruding into the collegiate educational system.
Although we disagree with it, the dissent’s term of employment argument reveals how Banks could have alleged the manner in which the no-draft and no-agent rules have an anticompetitive impact on a relevant market. Our review of Banks’ amended complaint reveals that he has not alleged that college football players are regulated under terms of employment or that players are selling their services to their colleges. Despite the failure of Banks to allege an anticompetitive impact, the dissent again goes out of its way to read into the complaint and makes an argument for Banks by contending that college football players are really selling their services to NCAA member colleges. It is true that some colleges have been justifiably sanctioned by the NCAA for their violations of NCAA rules regarding cash compensation and free airline transportation between the athlete’s school and home. The dissent takes a surprisingly cynical view of college athletics and contends that colleges squeeze out of their players one or two more years of service because the no-draft rule forces the player to choose between continued collegiate eligibility and entering the draft. Dissent at 1096. This description of players selling their services to NCAA colleges stands in stark contrast to the academic and amateurism requirements of the vast majority of college athletic programs that, in compliance with the NCAA rules and regulations, are foreclosed from offering cash compensation or nonpermissible awards, extra benefits, or excessive or improper expenses not authorized by NCAA legislation. The fact that a minority of schools use athletes rather than encourage and foster their student’s academic pursuits, does not negate the fact that all NCAA member colleges encourage and require their student athletes to carry a minimum number of semester credits and maintain a minimum grade point average equivalent to the academic program the university’s nonathletic students follow.
Specifically, the NCAA requires “to be eligible to represent an institution in inter-collegiate athletics competition, a student-athlete shall be enrolled in at least a minimum full-time program of studies, be in good academic standing and maintain satisfactory progress toward a baccalaureate or equivalent degree.” 1992-93 NCAA Division I Operating Manual § 14.01.1. The term “a full-time program of studies” in section 14.01.1 of the NCAA Bylaws is defined to mean: “the student-athlete shall be enrolled in not less than 12 semester or quarter hours, regardless of the institution’s definition of a minimum full-time program of studies.” The NCAA’s definition of good academic standing in section 14.01.1 is “determined by the academic authorities [of the NCAA institution] who determine the meaning of such phrases for all students of the institution.” Lastly, the NCAA defines the “satisfactory completion” requirement in section 14.01.1 as “a student-athlete shall maintain satisfactory progress toward a baccalaureate or equivalent degree at that institution as determined by the regulations of that institution.”
We acknowledge that some schools adhere more faithfully to the NCAA rules than others, but we need not reach the merits of whether the no-draft rule is a material term of employment as the dissent argues because Banks has failed to allege how the no-draft and no-agent rules are restraints of trade under section 1 of the Sherman Act. The most Banks alleges is that the relevant market is (1) NCAA football players who enter the draft (or employ an agent), or (2) NCAA member college institutions, and arguably a third market as the NFL player recruitment market. Beyond establishing these markets, Banks fails to illustrate how the NCAA no-draft and no-agent rules diminish competition in those markets. We recognize that the dissent makes an anticompetitive argument, in lieu of Banks’ omission in his pleadings, but in evaluating the district court’s Rule 12(b) (6) dismissal, we limit our review, as we must, to the well-pleaded allegations of the complaint.
Thus, any additional markets or anticompetitive effects upon them alleged outside the amended complaint are immaterial to our consideration of the district court’s judgment. Although on review of a Rule 12(b) (6) dismissal we accept all allegations in the complaint as true, a complaint must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory. The questions in regard to Banks’ allegations of restraints on trade are whether the plaintiffs have successfully pleaded a contract, combination, or conspiracy in restraint of trade within the meaning of the Sherman Act. The pleader may not evade these requirements by merely alleging a bare legal conclusion; if the facts do not at least outline or adumbrate a violation of the Sherman Act, the plaintiffs will get nowhere merely by dressing them up in the language of antitrust.
We agree with the district court’s finding that the plaintiff has failed to allege an anticompetitive effect on a relevant market; at best Banks has merely attempted to frame his complaint in antitrust language. While Banks alleges a restraint on the market of college football players, college institutions who are members of the NCAA, and perhaps an NFL player recruitment market, the complaint fails to explain how these alleged restraints diminish competition in or among the markets. In our review of Banks’ arguments in his appellate briefs as well as our review of the oral argument, we have been unable to discern a cogent argument articulated even on appeal that the alleged restraints impose an anticompetitive effect on the alleged markets. The appellant merely claims that there is an anticompetitive effect, but he fails to explain what it is. While Banks might possibly have been able to allege an anticompetitive impact on a relevant market through a more carefully drafted complaint or an amendment to his complaint, he failed to do so. It is not for us, as appellate judges, to restructure his complaint for him.
We hold that Banks’ failure to allege an anticompetitive impact on a discernible market justified the district court’s dismissal for failure to a state claim on which relief can be granted. The appellant’s argument that the district court erred in ruling that the NCAA rules were reasonable on a motion to dismiss is without merit, for the basis of the district court’s holding was that Banks failed to allege an anticompetitive effect on a market. The judgment of the district court is affirmed.
Banks v. NCAA, 977 F.2d 1081 (7th Cir. 1992)
Please review the above case and respond to the following questions in a 2-3 page paper utilizing information gleaned from the Introduction to Sport Law text, the course materials and other materials you find through researching Agency Law. Please submit this case analysis through Blackboard by the end of Week Six.
1. State the names of the plaintiff and defendant, the volume number, page number and and the court that decided the case.
2. Describe the facts of the case.
3. What was the cause of action?
4. What was the court’s disposition of the case?
5. What examples of antitrust violations did the plaintiff provide? Was this sufficient? Why?
6. What was the purpose of the NCAA eligibility rules?
7. Did the court hold that NCAA rules affecting college football eligibility restrain trade in the market for college football players? What was their reasoning?
8. What was the reason for the court’s holding that the no-draft rule served the purpose of maintaining a clear line of demarcation between college and professional football?
9. The court stated, “The involvement of professional sports agents in NCAA football would turn amateur intercollegiate athletics into a sham….” What was the reasoning behind this statement?
