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Wednesday, July 21, 2010

Ind. Decisions - More on: NCAA Class Action Reinstated

Updating this ILB case summary from July 16th, Jon Hood of ConsumerAffairs.com has this story today headed "NCAA Class Action Reinstated: Suit alleges that ticket sales system constitutes an illegal lottery."

A federal appeals court has reinstated a class action brought by angry basketball fans, which claims that the NCAA's system of distributing Final Four tickets constitutes an illegal lottery.

Under the NCAA's system, which has been in place since at least 1994, consumers enter for a chance to win tickets through one of several NCAA-owned websites. To enter, fans have to pay the full face value of the ticket, plus a $6 service fee. Each contestant is allowed up to 10 entries; obviously, more entries means a higher chance of winning a ticket.

While losing consumers are refunded the amount they paid to cover the ticket, they are forced to give up the service fee. Thus, a consumer who entered ten times over to win a $150 ticket would get back $3,060 (the total value of all ten tickets), but she would lose $60 (the $6 service fee, multiplied by ten). If the consumer won, of course, she would also forfeit the cost of the ticket.

The suit claims that “the number of applicants greatly exceeds the number of tickets on virtually every occasion,” and that the games are held at venues that “are much too small to meet ticket demand.” The complaint also alleges that the $60 service fee, which “grossly exceeds any costs associated with the lottery,” generates massive profits for the NCAA -- $100 million in 2008 alone.

The suit, brought in the NCAA's home state of Indiana, was dismissed by a U.S. District Court last September. In ruling for the Association, Judge William Lawrence wrote that a plaintiff could not prevail when, “knowing the facts of a transaction, he nonetheless became a participant in the very action of which he complains.” * * *

But the appeals court overturned the dismissal, ruling that the plaintiffs had met all three elements of an illegal lottery in Indiana: a prize, an element of chance, and payment or other consideration by the contestants.

The court disagreed with the NCAA's assertion that the system grants only an opportunity to purchase tickets at full price, noting that the plaintiffs were required to pay the “service fee” just to enter the lottery, and that, “[w]in or lose, the … fee was forfeited by all entrants and retained by the NCAA.” The court also noted that the plaintiffs allege that “the fair-market value of the tickets exceeded their face value such that those tickets constitute something of more value than the amount invested,” turning them into a “prize” of a sort that is illegal under Indiana law.

Judge Richard Cudahy penned a dissent essentially agreeing with the District Court that the plaintiffs' willing participation barred them from making a claim. He also said that the existence of a service fee is “without significance” to the issue at hand.

Posted by Marcia Oddi on July 21, 2010 02:47 PM
Posted to Ind. (7th Cir.) Decisions