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New Class Action Filed Challenging NCAA’S Scholarship Caps and Transfer Rules

In the latest chapter in the litigation wars against college athletics, on March 8, 2016, another antitrust class action was filed against the NCAA in its “home court,” the United States Southern District of Indiana. This latest suit, Deppe v. NCAA, Case No. 1:16-cv-00528, gathers in one complaint NCAA rules already put into issue in previous suits in this court that have been the subject of considerable procedural wrangling. Deppe targets the NCAA’s current rules capping the number of football scholarships a Division I football team may award, as well as the NCAA’s rules that prevent Division I football players from transferring to other NCAA Division I schools without losing athletic eligibility for a year.

According to the Complaint, the scholarship caps are horizontal restraints intended to reduce the cost of essential inputs in the production of high quality Division I football games. The Complaint alleges by doing so, “the NCAA and its member institutions have ensured that student-athletes in the Class receive tens of millions less for their labor for member institutions than they would receive—and the member institutions would pay—in a competitive market.”

The Complaint charges that the transfer rules are “patently unlawful.” The plaintiff contrasts them with the unfettered mobility of the players’ coaches where the “ability to better their own situation has allowed coaches to reap enormous financial benefits.”

The plaintiff, and punitive class representative, Peter Deppe has a story that illustrates the claimed pernicious effects of the transfer rule. Deppe was an award-winning high school kicker, with a high grade point average, and other application-enhancing activities. After taking an official visit to Northern Illinois University (“NIU”), thus making him subject to the NCAA’s transfer rules, Deppe ultimately chose to attend NIU as a preferred walk-on student athlete. He had expected to receive an athletic scholarship after his freshman year, but allegedly because of a change in the football coaching staff, was informed he would not be receiving such a scholarship.

Deppe then took a recruiting visit to the University of Iowa, which was interested in him if he would be eligible to play the following season. Deppe unsuccessfully sought relief from the one-year transfer rule from the NCAA; the NCAA told him that his prospective school had to initiate the request for a waiver. Deppe was ultimately admitted to Iowa academically, but the athletic scholarship was offered to another player who had the ability to play immediately.

Anticipating the justification that the NCAA will likely proffer to defend the restraints, the Complaint alleges that the scholarship caps cannot be justified by amateurism concerns or to maintain competitive balance. The Complaint alleges that lifting the scholarship cap “would have absolutely no effect on amateurism because student-athletes would continue to receive no wages for their playing” and a competitive balance justification is belied by the fact that the “rules actually permit the most competitive schools to have more scholarships.”

The transfer rules have been criticized as complex and Byzantine. As the Complaint recounts, the NCAA publishes a 30-page, single-spaced document to guide players through the process. As one sports commentator wrote about it, “if you can read past the third page without help from prescription ADHD medication, well, I’d love to shake your hand. This stuff is brutal.”

Again attempting to anticipate the NCAA’s justifications for the rules, the Complaint alleges that the year-in-residence rule also cannot be defended by academic purposes. The Complaint points out that a similarly justified ban on freshmen eligibility was repealed years ago. The Complaint further alleges that the restraint “preserves the hegemony of the top ‘Power 5’ conferences” by locking-in players, even when those players are unable to obtain the playing time promised in the recruiting process.

The Deppe case joins others also filed in the Southern District of Indiana on similar claims. In 2012 a former college quarterback filed suit on behalf of a putative class against the NCAA, alleging that the NCAA’s former ban on multiyear scholarships and the cap on scholarships constituted a concerted effort to thwart competition. Rock v. NCAA, case no 1:12-cv-01019 (S.D. Ind.). The court denied the NCAA’s motion to dismiss the second amended complaint in Rock in 2013. In 2015, plaintiff Rock filed a third amended complaint. Briefing on the class certification is complete, but no decision on class has been issued. The jury trial date is set for February 2017. This past November, another former football player sued the NCAA over the scholarship caps, the former scholarship limits, and the one-year residence requirement. Pugh v. NCAA, case no. 1:15-cv-01747 (S.D. Ind.). However, since Pugh is no longer eligible, there may be flaws in his ability to be a class representative. Also, in January, the NCAA filed a motion in Pugh for dismissal of the one-year residence claims. (The NCAA acknowledged that in Rock, the court already decided that the scholarship caps and limits claims were sufficiently pled.) One could surmise that Peter Deppe is being sent on the playing field to ensure that the proposed class (and their counsel) have all their necessary bases touched.

It has now been over 30 years since the Supreme Court, in NCAA v. Board of Regents of the Univ. of Okla., 468.U.S. 85 (1984), began to subject various aspects of the college athletic regime to antitrust scrutiny when it struck down the NCAA’s restrictions on televised college football as an unreasonable output-reducing restraint. In recent years, the trickle of such litigation has grown to a cascade as the money and stakes surrounding the major college sports have grown. These new cases challenging the NCAA’s scholarship caps and one-year residence requirements are ones to watch.

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Bruce D. Sokler

Member / Co-chair, Antitrust Practice

Bruce D. Sokler is a Mintz antitrust attorney. His antitrust experience includes litigation, class actions, government merger reviews and investigations, and cartel-related issues. Bruce focuses on the health care, communications, and retail industries, from start-ups to Fortune 100 companies.

Farrah Short

Special Counsel

Farrah Short is a Mintz Special Counsel who advises clients on antitrust and competition law, including merger review, competitor collaborations, government investigations, and private class action litigation. She specializes in counseling clients through the Hart-Scott-Rodino merger review process.