Worldwide Basketball & Sport Tours v. Ncaa

• Decision Date: 15 November 2004
• Docket Number: No. 03-4024.,03-4024.
• Citation: 388 F.3d 955
• Parties: WORLDWIDE BASKETBALL AND SPORT TOURS, INC., et al., Plaintiffs-Appellees, v. NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

388 F.3d 955

WORLDWIDE BASKETBALL AND SPORT TOURS, INC., et al., Plaintiffs-Appellees, v. NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, Defendant-Appellant.

No. 03-4024.

United States Court of Appeals, Sixth Circuit.

Argued: February 3, 2004.

Decided and Filed: November 15, 2004.

Appeal from the United States District Court for the Southern District of Ohio, Edmund A. Sargus, Jr., J.

ARGUED:

Gregory L. Curtner, Miller, Canfield, Paddock & Stone, Ann Arbor, MI, for Appellant. W.B. Markovits, Markovits & Greiwe, Cincinnati, OH, for Appellees.

ON BRIEF:

Gregory L. Curtner, Miller, Canfield, Paddock & Stone, Ann Arbor, MI, James A. Wilson, Laura G. Kuykendall, Vorys, Sater, Seymour & Pease, Columbus, OH, for Appellant. W.B. Markovits, Markovits & Greiwe, Stanley M. Chesley, Waite, Schneider, Bayless & Chesley, Cincinnati, OH, for Appellees.

Before: BATCHELDER, GIBBONS, and COOK, Circuit Judges.

BATCHELDER, J., delivered the opinion of the court, in which COOK, J., joined. GIBBONS, J. (pp. 964-66), delivered a separate concurring opinion.

BATCHELDER, Circuit Judge.

The National Collegiate Athletic Association, (the "NCAA"), appeals the district court's order declaring that the NCAA's "Two in Four Rule" violates Section I of the Sherman Antitrust Act, 15 U.S.C. § 1, and permanently enjoining the enforcement of that rule. Because we conclude that the district court erred in applying an abbreviated or "quick-look" analysis and in its definition of the market for purposes of antitrust analysis, and because the record does not contain evidence to support a proper market definition, we REVERSE the judgment of the district court.

I.

The NCAA is a voluntary organization of over 1200 colleges and universities that promulgates rules and regulations designed to, in its own words, "maintain intercollegiate athletics as an integral part of the educational program and the athlete as an integral part of the student body." To accomplish this goal, the NCAA adopts bylaws formulated by a legislative body drawn from the Association's membership. The NCAA members agree to follow those by-laws. Of concern in this case is a portion of the NCAA Division I men's basketball regulations, specifically because of a restriction on the type and number of games individual schools are permitted to play.

Men's Division I basketball is divided into conferences; within each conference the member schools individually play each other. Each school, however, makes its own schedule and may seek several non-conference games. The NCAA sets the maximum number of games that each team may play per year. Throughout the year, there are various tournaments in which a school's team may participate, some of which are "certified" and some of which are not. Certified tournament events are multiple-game early season tournaments. These events were originally introduced as a means of encouraging scheduled games with schools in Alaska and Hawaii that traditionally had difficulty scheduling games because of their inconvenient locations. In recent years, the NCAA has become concerned that the more "powerful" basketball schools (i.e., members of the "Big Six" conferences) were disproportionately taking advantage of the certified events. To address this concern, the NCAA adopted Proposal 98-92 ("98-92"), which increases to 28 the number of allowed games per season for each team, provides that a team's participation in a certified event, regardless of how many games the team actually plays as part of that event, counts as one game toward the NCAA regular season maximum, and permits each team to participate in "not more than one certified basketball event in one academic year, and not more than two certified basketball events every four years." As stated in the text of 98-92, the rationale of the rule is to:

address competitive equity concerns by giving many Division I institutions an opportunity to compete in certified events, particularly those outside the continental United States, so that the inherent recruiting and competitive advantages are distributed equally among Division I institutions. This proposal will provide Division I men's and women's basketball programs greater flexibility in the scheduling of basketball contests. It will permit institutions the opportunity to participate in certified contests in accordance with the legislation or to add additional contests to the institution's regular-season schedules during those years in which the institution either is not permitted to engage in a certified contest or chooses not to participate in such an event.

The plaintiffs in this case are promoters of outside certified tournament events (the "Promoters"). They allege that the NCAA is less concerned with the disproportionate advantage to the Big Six Conferences than it is with the monies that the outside promoters of certified events are able to make in connection with these events. The Promoters contend that the Two in Four Rule, the prong of 98-92 that limits teams to two certified events every four years, was adopted purely to deny outside promoters the opportunity to make money from the certified events.

Complaining that the application of this rule limited their ability to schedule events with schools having the most powerful and famous basketball programs, which in turn hampered their ability to sell tickets and make broadcast contracts, the Promoters initiated this suit on December 21, 2000, alleging that the Two in Four rule is a violation of the Sherman Antitrust Act. On August 6, 2001, they filed a motion for preliminary injunction under § 16 of the Clayton Act; that motion was then consolidated with a motion for permanent injunction. The district court issued an Opinion and Order on July 19, 2002, holding that because the rule had not been in effect long enough to permit its effect to be accurately evaluated, the motion for preliminary injunction was denied and the motion for permanent injunction would be held in abeyance. The plaintiffs renewed their request for a permanent injunction on February 29, 2003, asserting that there was by then enough evidence to justify the injunction. The district court granted the permanent injunction on July 28, 2003. Worldwide Basketball and Sports Tours, Inc. v. NCAA, 273 F.Supp.2d 933, 954-55 (S.D.Ohio 2003). The NCAA timely appealed, and because of the nature of the injunction, the NCAA sought and obtained from this court a stay and order for expedited appeal.

II.

Our standard of review for the granting or denial of a permanent injunction is mixed:

When reviewing the decision of a district court to grant or to deny a request for issuance of a permanent injunction, we employ several different standards of review. Factual findings are reviewed under the clearly erroneous standard, legal conclusions are reviewed de novo, and the scope of injunctive relief is reviewed for an abuse of discretion.

Secretary of Labor, U.S. Dept. of Labor v. 3Re.com, Inc., 317 F.3d 534, 537 (6th Cir.2003) (citing S. Cent. Power Co. v. Int'l Bhd. of Elec. Workers, Local Union 2359, 186 F.3d 733, 737 (6th Cir.1999) (internal quotations omitted)).

Section One of the Sherman Act provides that:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

15 U.S.C. § 1. By its plain language, this section applies to the Two in Four rule only if the rule is commercial in nature. The NCAA maintains that the rule is academically directed and motivated and its commercial impact is negligible. The Promoters and the district court, on the other hand, assume that the Two in Four rule involves a "restraint of trade or commerce." Id.

The dispositive inquiry in this regard is whether the rule itself is commercial, not whether the entity promulgating the rule is commercial. See, e.g., Virginia Vermiculite, Ltd. v. W.R. Grace & Co.-Connecticut, 156 F.3d 535, 540 (4th Cir.1998). At least some NCAA rules have been held to be commercial and hence subject to antitrust scrutiny. See NCAA v. Bd. of Regents of the University of Oklahoma, 468 U.S. 85, 98, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984) ("Bd. of Regents") (finding NCAA rules limiting live broadcasting of college football games subject to scrutiny under Sherman Act). One of our sister circuits has held that NCAA rules governing eligibility for participating in collegiate sports are not commercial, see Smith v. NCAA, 139 F.3d 180, 184-85 (3rd Cir.1998), vacated on other grounds by NCAA v. Smith, 525 U.S. 459, 119 S.Ct. 924, 142 L.Ed.2d 929 (1999), but this circuit has not yet addressed the commercial or non-commercial nature of particular NCAA rules.

We think it apparent that the Two in Four rule has some commercial impact insofar as it regulates games that constitute sources of revenue for both the member schools and the Promoters. We therefore assume that the district court's implicit finding that the Two in Four rule is commercial is supported by the evidence and we proceed on that basis.

In order to establish their claim under Section 1 of the Sherman Act, the Promoters must prove that the NCAA "(1) participated in an agreement that (2) unreasonably restrained trade in the relevant market." Nat'l Hockey League Players' Assoc. v. Plymouth Whalers Hockey Club, 325 F.3d 712, 718 (6th Cir.2003). The NCAA does not dispute the Promoters' claim that the Two in Four Rule represents an agreement in which the NCAA participated. The NCAA vigorously contests the district court's conclusion that...