Agnew v. National Collegiate Athletic Ass'n , 683 F.3d 328 ( 2012 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-3066
JOSEPH A GNEW , et al.,
Plaintiffs-Appellants,
v.
N ATIONAL C OLLEGIATE A THLETIC A SSOCIATION,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 1:11-cv-00293—Jane E. Magnus-Stinson, Judge.
A RGUED JANUARY 9, 2012—D ECIDED JUNE 18, 2012 Œ
Before F LAUM and K ANNE, Circuit Judges, and C HANG ,
District Judge.ŒŒ
Œ
This opinion has been circulated among all judges of this
court in regular active service pursuant to Circuit Rule 40(e).
No judge requested to hear this case en banc.
ŒŒ
The Honorable Edmond E. Chang, Judge of the United
States District Court for the Northern District of Illinois,
sitting by designation.
2 No. 11-3066
F LAUM, Circuit Judge. Joseph Agnew and Patrick
Courtney (“plaintiffs”) have at least two things in
common: they were both highly successful high school
football players that earned scholarships to play for
National Collegiate Athletic Association (“NCAA”)
Division I football programs, and they both suffered career-
ending football injuries during their college tenures. The
athletic scholarships held by plaintiffs at the time of their
injuries were good for one year only, and needed to be
renewed to be valid for any subsequent seasons. When
plaintiffs’ injuries prevented them from playing football,
their scholarships were not renewed. Plaintiffs claim
that two NCAA regulations—the cap on the number
of scholarships given per team and the prohibition of
multi-year scholarships 1 —prevented them from ob-
taining scholarships that covered the entire cost of their
college education. These regulations, according to plain-
tiffs, have an anticompetitive effect on the market for
student-athletes, and therefore violate § 1 of the Sherman
Act. 15 U.S.C. § 1. The NCAA filed a motion to dismiss and
the district court granted that motion, finding that plain-
tiffs failed to allege a relevant market on which the
1
On February 17, 2012, a new NCAA regulation permitting
multi-year scholarships became final. See Steve Wieberg,
Multiyear Scholarship Rule Narrowly Survives Override Vote,
USA T ODAY (Feb. 17, 2012, 7:00 p.m.), http://www.usatoday.com/
sports/college/story/2012-02-17/multiyear-scholarships-survives-
close-vote/53137194/1. Since plaintiffs seek damages for prior
actions taken by the NCAA and its member schools, the repeal
of the multi-year scholarship prohibition does not render
this case nonjusticiable.
No. 11-3066 3
NCAA’s Bylaws had an anticompetitive effect. Plaintiffs
appealed the dismissal. While we depart from some of
the district court’s reasoning, we ultimately conclude
that plaintiffs’ complaint did not sufficiently identify a
commercial market—an obvious necessity for Sherman
Act violations—and thus we affirm the district court’s
dismissal of plaintiffs’ suit.
I. Background
In 2006, after receiving several offers from a number
of college football teams, Agnew enrolled at Rice Univer-
sity on an athletic scholarship. In exchange for agreeing
to play football at Rice, Agnew received a year of educa-
tion, room, and board at no charge. That scholarship
was renewed for Agnew’s second year at Rice. During his
sophomore year, Agnew suffered a series of football-
related injuries. The injuries, along with a coaching
change at Rice, resulted in the school’s decision not to
renew Agnew’s scholarship for his junior year. Agnew
successfully appealed this decision and received one
more year-long scholarship, but he was unable to
acquire a scholarship for his senior year. As a result,
he was forced to pay full price for the last year of his
undergraduate education.
Courtney endured a similar experience. In 2009,
Courtney decided to attend North Carolina A&T on full
athletic scholarship to play football. As with Agnew, the
scholarship was only a year long. During training camp
Courtney was injured, and as a result, his scholarship
was not renewed. Due to his financial circumstances
and the high cost of out-of-state tuition, Courtney
4 No. 11-3066
was forced to transfer to a different school and pay
tuition out-of-pocket.
Plaintiffs allege that their failure to acquire a scholar-
ship equal to the full cost of obtaining a bachelor’s
degree is the result of the NCAA’s regulation of par-
ticipating schools’ athletic scholarships. Plaintiffs specifi-
cally cite two NCAA bylaws (the “Bylaws”) as the
source of their injury: (1) the one-year scholarship limit,
which prohibits NCAA member schools from offering
student-athletes multi-year scholarships, 2009-10 NCAA
D IVISION I M ANUAL, Bylaw 15.3.3.1 (2009-10); and (2) the
cap on the number of athletic scholarships a school
can offer for each team in a given year, see, e.g., 2009-10
NCAA D IVISION I M ANUAL, Bylaw 15.5.4. According to
plaintiffs, NCAA member schools compete intensely
over the premier student-athletes in the country, and if
the Bylaws had not been passed, schools would need to
offer multi-year scholarships to stay competitive in the
market for elite athletes. They assert that multi-year
scholarships used to be the norm before the Bylaws
went into effect. The current ban on such scholarships,
they claim, forces student-athletes who do not have
their scholarships renewed to pay more for their under-
graduate education. Plaintiffs further contend that the
limit on the number of athletic scholarships a school can
offer reduces the total number of athletic scholarships
offered, thus preventing some students—perhaps those
that are injured but would have been offered a multi-
year scholarship but for the Bylaws—from obtaining
a bargained for education. Plaintiffs therefore main-
tain that the Bylaws violate § 1 of the Sherman Act.
15 U.S.C. § 1.
No. 11-3066 5
On October 25, 2010, plaintiffs filed suit against the
NCAA in the United States District Court for the
Northern District of California.2 In response, the NCAA
filed a motion to dismiss and a motion to transfer simul-
taneously. The motion to dismiss was fully briefed, but
in February 2011, the Northern District of California
decided not to rule on the motion and to transfer the
case to the Southern District of Indiana. The parties set
a schedule for rebriefing applying Seventh Circuit case
law, and before the briefs were submitted, plaintiffs
filed an amended complaint. The complaint alleged that
the Bylaws resulted in a horizontal agreement to fix
prices and reduce output, which caused a reduction of
the supply of bachelor’s degrees and an increase in
the price for bachelor’s degrees for those that did not
have their scholarships renewed.
In its motion to dismiss, the NCAA argued that plain-
tiffs’ complaint should be dismissed for three reasons:
(1) it failed to identify a relevant market, a necessity for
a valid Sherman Act claim; (2) it failed to allege facts
sufficient to show that the NCAA injured competition in
a relevant market; and (3) it failed to allege facts sufficient
to show an injury as a result of anticompetitive acts
committed by the NCAA. On September 1, 2011, the
2
Agnew originally filed the lawsuit as a class action, but had
not filed a motion to certify a class at the time of the dismissal
of the claims at issue. Thus, when plaintiffs’ claims were
dismissed, the entire lawsuit was dismissed, since there were
no other parties with legally protected interests in the litiga-
tion. See Wiesmueller v. Kosobucki, 513 F.3d 784, 786 (7th Cir.
2008).
6 No. 11-3066
district court granted the NCAA’s motion to dismiss.
The court held that plaintiffs failed to identify a
cognizable market in which trade was improperly re-
strained, and that even if plaintiffs did adequately allege
that there is a product market for bachelor’s degrees or
a labor market for student-athletes—as plaintiffs con-
tended during oral argument—those markets are not
cognizable in the context of the Sherman Act. Since the
NCAA’s first argument was sufficient to dismiss plain-
tiffs’ claims, the court did not pass on the NCAA’s other
arguments. The district court also held that plain-
tiffs’ claims would be dismissed with prejudice for two
reasons. First, plaintiffs already had the opportunity to
amend their complaint after being exposed to the NCAA’s
arguments in the Northern District of California, and yet
they chose not to clearly identify a relevant commercial
market. Second, plaintiffs did not show how they could
alter their complaint to make it sufficient since, according
to the district court, the markets discussed at oral argu-
ment are not cognizable under the Sherman Act. Plaintiffs
have appealed the district court’s decision to dismiss its
claims as well as its decision to dismiss with prejudice.
II. Discussion
Plaintiffs’ suit was brought pursuant to statutory provi-
sions found in the Sherman Act and the Clayton Act.
Under § 1 of the Sherman Act, “[e]very contract, combina-
tion in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce . . . is declared to be ille-
gal.” 15 U.S.C. § 1. Plaintiffs’ civil cause of action is
rooted in the Clayton Act, which states that “any person
No. 11-3066 7
who shall be injured in his business or property by
reason of anything forbidden in the antitrust laws may
sue . . . and shall recover threefold the damages by
him sustained.” 15 U.S.C. § 15. Plaintiffs allege that the
Bylaws are a restraint on trade in the labor market for
student-athletes and the product market for bachelor’s
degrees, and thus violated plaintiffs’ statutory rights
under the Sherman Act. The NCAA contends that plain-
tiffs’ complaint did not identify any market, including
a bachelor’s degree or labor market, in which the
Bylaws restrained trade. The NCAA further argues that
even if plaintiffs’ complaint did sufficiently identify a
product market for bachelor’s degrees or a labor market
for student-athletes, those markets are not commercial,
and therefore are not cognizable under the Sherman Act.
If this is true, then any NCAA actions affecting those
markets—to the extent that they are markets—are not
subject to antitrust laws.
In reviewing the sufficiency of a complaint, we must
accept all well pled facts as true and draw all permissible
inferences in favor of the plaintiff. Active Disposal, Inc. v.
City of Darien, 635 F.3d 883, 886 (7th Cir. 2011). The
Federal Rules of Civil Procedure require only that a
complaint provide the defendant with “fair notice of
what the . . . claim is and the grounds upon which it
rests.” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
We have explained, however, that a complaint may be
“so sketchy that the complaint does not provide the
type of notice of the claim to which the defendant is
entitled under [the Federal Rules of Civil Procedure],” in
8 No. 11-3066
which case a dismissal of the complaint is proper.
Airborne Beepers & Video, Inc. v. AT&T Mobility LLC, 499
F.3d 663, 667 (7th Cir. 2007). The Supreme Court has
described this notice-pleading standard as requiring a
complaint to “contain sufficient factual matter, accepted
as true, to ‘state a claim to relief that is plausible on its
face.’ ” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009)
(quoting Twombly, 550 U.S. at 570). While factual allega-
tions must be accepted as true, legal conclusions may
not be considered. Id. Dismissals under Rule 12(b)(6)
are questions of law, and thus are reviewed de novo.
Autry v. Nw. Premium Servs., Inc., 144 F.3d 1037, 1039
(7th Cir. 1998). A district court’s decision to dismiss a
complaint with prejudice is reviewed for abuse of discre-
tion. Stanard v. Nygren, 658 F.3d 792, 797 (7th Cir. 2011).
A. Sherman Act Framework
The purpose of the Sherman Act is to protect consumers
from injury that results from diminished competition.
Banks v. NCAA, 977 F.2d 1081, 1087 (7th Cir. 1992). “Thus,
the plaintiff must allege, not only an injury to himself,
but an injury to the market as well.” Car Carriers, Inc. v.
Ford Motor Co., 745 F.2d 1101, 1107 (7th Cir. 1984). Accord-
ingly, a plaintiff must prove three elements to succeed
under § 1 of the Sherman Act: “(1) a contract, combination,
or conspiracy; (2) a resultant unreasonable restraint of
trade in [a] relevant market; and (3) an accompanying
injury.” Denny’s Marina, Inc. v. Renfro Prods., Inc., 8 F.3d
1217, 1220 (7th Cir. 1993). There is no question that all
NCAA member schools have agreed to abide by the
No. 11-3066 9
Bylaws; the first showing of an agreement or contract
is therefore not at issue in this case.
The district court’s dismissal of plaintiffs’ claims
focused solely on the second necessary showing—whether
there has been an unreasonable restraint of trade in a
relevant market. The court did not ultimately reach the
question of whether the restraints were reasonable, since
it found that plaintiffs did not allege a relevant market
on which a restraint of trade could operate. Most § 1 cases
focus not on whether a relevant market exists, but on
the other aspect of the second required showing—
whether a restraint of trade in a given market was
actually unreasonable. While our central discussion will
revolve around whether a relevant market was—or even
could have been—identified in plaintiffs’ complaint, a
brief explanation of how courts determine if restraints
are unreasonable will be helpful in understanding
why plaintiffs are mistaken in their belief that a relevant
market need not be identified at all in this case.
Since the Sherman Act is meant to protect the benefits
of competition, the determination of whether a restraint
is unreasonable must focus on “the competitive effects
of challenged behavior relative to such alternatives as its
abandonment or a less restrictive substitute.” Phillip
Areeda, Antitrust Law ¶ 1500, at 362-63 (1986). Courts
have established three categories of analysis—per se,
quick-look, and Rule of Reason—for determining whether
actions have anticompetitive effects, though the
methods often blend together. Cal. Dental Ass’n. v. FTC,
526 U.S. 756, 779 (1999) (“The truth is that our categories
10 No. 11-3066
of analysis of anticompetitive effect are less fixed than
terms like ‘per se,’ ‘quick look,’ and ‘Rule of Reason’ tend
to make them appear.”); see also United States v. Brown
Univ., 5 F.3d 658, 668 (3d Cir. 1993). All of these methods
of analysis are meant to answer the same question:
“whether or not the challenged restraint enhances com-
petition.” Cal. Dental, 526 U.S. at 780; NCAA v. Bd. of
Regents, 468 U.S. 85, 104 (1984).
The standard framework for analyzing an action’s
anticompetitive effects on a market is the Rule of Reason.
Cf. Chicago Prof’l Sports Ltd. P’ship v. NBA, 961 F.2d 667, 673
(7th Cir. 1992). Under a Rule of Reason analysis, the
plaintiff carries the burden of showing that an agree-
ment or contract has an anticompetitive effect on a
given market within a given geographic area. See Reifert
v. S. Cent. Wis. MLS Corp., 450 F.3d 312, 321 (7th Cir. 2006).
As a threshold matter, a plaintiff must show that the
defendant has market power—that is, the ability to
raise prices significantly without going out of busi-
ness—without which the defendant could not cause
anticompetitive effects on market pricing. Valley Liquors,
Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 666 (7th Cir.
1987). If the plaintiff meets his burden, the defendant
can show that the restraint in question actually has a
procompetitive effect on balance, while the plaintiff can
dispute this claim or show that the restraint in question
is not reasonably necessary to achieve the procompetitive
objective. Areeda, Antitrust Law, ¶1507b, at 397 (1986).
The second framework utilized by courts—the per se
rule—is employed when a “practice facially appears to
No. 11-3066 11
be one that would always or almost always tend to
restrict competition and decrease output.” Bd. of Regents,
468 U.S. at 100 (quoting Broad. Music, Inc. v. Columbia
Broad. Sys., Inc., 441 U.S. 1, 19-20 (1979)). Restraints
that would fall under this category are illegal as a matter
of law for reasons of efficiency; in essence, it is simply
not worth the effort or resources of a Rule of Reason
analysis when “the Court [can] predict with confidence
that the Rule of Reason will condemn [a restraint].”
Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 342
(1990) (quoting Arizona v. Maricopa Cnty. Med. Soc’y, 457
U.S. 332, 344 (1982)). Under the per se framework, a
restraint is deemed unreasonable without any inquiry
into the market context in which the restraint operates.
Bd. of Regents, 468 U.S. at 100. Horizontal price fixing
and output limitation are classic examples of behavior
that is considered anticompetitive per se. Id.The third framework is the “quick-look” analysis, which
is used where the per se framework is inappropriate, but
where “no elaborate industry analysis is required to
demonstrate the anticompetitive character of . . . an
agreement,” and proof of market power is not required.
Bd. of Regents, 468 U.S. at 109 (quoting Nat’l Soc’y of
Prof’l Engineers v. United States, 435 U.S. 679, 692 (1978)).
Put another way, the quick-look approach can be
used when “an observer with even a rudimentary under-
standing of economics could conclude that the arrange-
ments in question would have an anticompetitive effect
on customers and markets,” Cal. Dental, 526 U.S. at 770,
but there are nonetheless reasons to examine potential
12 No. 11-3066
procompetitive justifications. See Herbert Hovenkamp,
Antitrust Law, ¶ 1911c, at 273 (1998). Among other situa-
tions, the quick-look approach is used when a restraint
would normally be considered illegal per se, but “a
certain degree of cooperation is necessary if the [product
at issue] is to be preserved.” Bd. of Regents, 468 U.S. at 117;
see also Hovenkamp, Antitrust Law, ¶ 1911c, at 274 (1998).
Under this approach, if no legitimate justifications for
facially anticompetitive behavior (such as price-fixing)
are found, no market power analysis is necessary and
the court “condemns the practice without ado.” Chicago
Prof’l Sports, 961 F.2d at 674. But if justifications are
found, a full Rule of Reason analysis may need to take
place. Cf. Chicago Prof’l Sports Ltd. P’ship v. NBA, 95 F.3d
593, 600 (7th Cir. 1996).
Plaintiffs contend that the third framework—the quick-
look approach—is the appropriate method for analyzing
whether the NCAA’s actions have had an anticompetitive
effect on a commercial market. This argument finds
support in Board of Regents, where the Supreme Court
held that since college athletics is “an industry in
which horizontal restrictions on competition are
essential if the product is to be available at all,” it is
inappropriate to apply a per se rule to NCAA regula-
tions, even if they amount to horizontal price fixing
and output limitation. 468 U.S. at 100-01; accord Chicago
Prof’l Sports, 961 F.2d at 674. According to plaintiffs, the
NCAA’s restriction on the number of scholarships a
school can provide is a clear limitation on output (that
is, the number of scholarships and, therefore, bachelor’s
degrees) and the NCAA’s restriction of scholarships to
No. 11-3066 13
one year is a clear limitation on price (that is, the price
of bachelor’s degrees and the cost that schools must pay
for student-athletes). They therefore argue that despite
the inapplicability of per se rule cases, a quick-look ap-
proach is warranted in this case, as it was in Board of
Regents. Plaintiffs next argue that the quick-look frame-
work absolves them of the burden of describing a
relevant market on which the Bylaws have had an
anticompetitive effect. The Supreme Court, in Board of
Regents, stated that “when there is an agreement not to
compete in terms of price or output, no elaborate
industry analysis is required,” and “naked restraint[s] on
price and output require[] some competitive justifica-
tion even in the absence of a detailed market analysis.”
468 U.S. at 109-10 (internal quotation marks and
citation omitted); see also Law v. NCAA, 134 F.3d 1010,
1020 (10th Cir. 1998) (“Under a quick look Rule of
Reason analysis, anticompetitive effect is established,
even without a determination of the relevant market,
where the plaintiff shows that a horizontal agreement
to fix prices exists . . . .”).
Out of context, while these quotations seem to support
plaintiffs’ view of the quick-look doctrine, they are mis-
leading. The quotes from Board of Regents and Law are not
referring to the need for a relevant market to exist, but
rather to the plaintiff’s burden of showing that an agree-
ment had anticompetitive effects on a particular market.
As noted above, a plaintiff’s threshold burden under
the Rule of Reason analysis involves the showing of a
precise market definition in order to demonstrate that a
14 No. 11-3066
defendant wields market power, which, by definition,
means that the defendant can produce anticompetitive
effects. See Valley Liquors, Inc., 822 F.2d at 666. The quick-
look doctrine permits plaintiffs to forgo any strict
showing of market power, and thus a specific definition
of the relevant market. See Law, 134 F.3d at 1020(“[W]here a practice has obvious anticompetitive ef-
fects—as does price-fixing—there is no need to prove that
the defendant possesses market power.”). This does not
mean, however, that there need not be a relevant market
on which actions have an anticompetitive effect. The
entire point of the Sherman Act is to protect competition
in the commercial arena, Banks, 977 F.2d at 1087; without
a commercial market, the goals of the Sherman Act have
no place. If a plaintiff can show that a defendant has
engaged in naked restrictions on price or output, he
can dispense with any showing of market power until
a procompetitive justification is shown—but the
existence of a relevant market cannot be dispensed with
altogether. Cf. Law, 134 F.3d at 1020. It is the existence
of a commercial market that implicates the Sherman Act
in the first instance.3
3
Aside from the fact that the plaintiffs misunderstand the
need for the existence of a relevant market, it is unclear why
they would adamantly seek to avoid the topic of market power.
This appears to be a clear monopsony case, since the NCAA
is the only purchaser of student athletic labor. In any event,
a showing of market power is not necessary in a case
involving clear restrictions on price and output unless and
(continued...)
No. 11-3066 15
The stage is therefore set. To succeed in its challenge
of the district court’s dismissal, plaintiffs must prove
two points: (1) that there is a cognizable market on
which the NCAA’s actions could have had anticompeti-
tive effects (thus implicating the Sherman Act); and
(2) that plaintiffs did, in fact, identify that market in
their complaint.4
B. Applicability of the Sherman Act to NCAA’s Bylaws
The district court held that the bachelor’s degree
market and the student-athlete labor market, to the
3
(...continued)
until a full Rule of Reason analysis takes place. See Bd. of
Regents, 468 U.S. at 109-10.
4
Of course, plaintiffs must show more than this to actually
progress past the motion-to-dismiss stage. As stated supra, a
successful Sherman Act plaintiff must prove the existence of
“(1) a contract, combination, or conspiracy; (2) a resultant
unreasonable restraint of trade in the relevant market; and (3)
an accompanying injury.” Denny’s Marina, 8 F.3d at 1220. It is
unquestionable that the member schools of the NCAA agreed
to follow the NCAA’s Bylaws, thus meeting the first element of
a Sherman Act claim. Since the district court concluded that
plaintiffs did not identify a relevant market in their complaint,
it did not address whether plaintiffs adequately alleged that
the Bylaws are an unreasonable restraint of trade or that
they suffered an accompanying injury. Likewise, we need not
analyze plaintiffs’ assertions regarding the reasonableness of
the NCAA’s restraints or plaintiffs’ alleged injury, since we
ultimately conclude that plaintiffs failed to allege a relevant
market in their complaint.
16 No. 11-3066
extent that they exist at all, could never be cognizable
markets under the Sherman Act regardless of the clarity
of plaintiffs’ complaint. First, the district court found
that we foreclosed any possibility that a labor market
for student-athletes could be cognizable in Banks v.
NCAA, 977 F.2d 1081 (7th Cir. 1992). The district court
went on to reject the possibility of a cognizable
market for bachelor’s degrees, finding two points to be
particularly relevant: (1) that one cannot buy a bachelor’s
degree outright, but rather must meet certain require-
ments to receive the degree even after tuition has
been paid; and (2) that student-athletes are not given
bachelor’s degrees for playing sports, but rather are
given the opportunity to fulfill certain requirements
that could lead to the bestowal of a bachelor’s degree.
Plaintiffs challenge the district court’s findings.
It is undeniable that a market of some sort is at
play in this case. A transaction clearly occurs between a
student-athlete and a university: the student-athlete
uses his athletic abilities on behalf of the university in
exchange for an athletic and academic education, room,
and board. As the Supreme Court made clear long ago,
however, the Sherman Act was intended for, and thus
only applies to, commercial transactions. Apex Hosiery
Co. v. Leader, 310 U.S. 469, 492-93 (1940). See also Brown,
5 F.3d at 665 (“It is axiomatic that section one of the
Sherman Act regulates only transactions that are com-
mercial in nature.”); Areeda & Hovenkamp, Antitrust
Law, ¶260b, at 250 (2000). In determining whether the
exchange of free or reduced-rate education for athletic
participation constitutes a cognizable market, then, we
No. 11-3066 17
must determine whether such a transaction can be con-
sidered commercial. To begin with, the NCAA is not
exempt from the strictures of the Sherman Act merely
because it is a nonprofit entity, as Board of Regents
makes clear. See 468 U.S. at 100. There is no clear line as to
what constitutes a “commercial transaction,” but one
leading commentator has suggested that “today the term
‘commerce’ is much broader than it was [in the past] . . .,
including almost every activity from which [an] actor
anticipates economic gain.” Areeda & Hovenkamp,
Antitrust Law, ¶260b, at 250 (2000).
The Sherman Act clearly applies to at least some of
the NCAA’s behavior. See Bd. of Regents, 468 U.S. 85;
see also Law, 134 F.3d 1010 (holding that the Sherman
Act applies to the NCAA’s regulation of the salaries of
coaches). The question for us, however, is whether and
when the Sherman Act applies to the NCAA and its
member schools in relation to their interaction with
student-athletes. The Supreme Court has not weighed in
on this issue directly, but Board of Regents, the seminal
case on the interaction between the NCAA and the
Sherman Act, implies that all regulations passed by the
NCAA are subject to the Sherman Act. 468 U.S. at 117.
In Board of Regents, the Supreme Court ruled that the
NCAA’s restrictions on televising football games were
a violation of § 1 of the Sherman Act. In so holding, the
Court stated the following:
It is reasonable to assume that most of the regula-
tory controls of the NCAA are justifiable means of
fostering competition among amateur athletic teams
18 No. 11-3066
and therefore procompetitive because they en-
hance public interest in intercollegiate athletics. The
specific restraints on football telecasts that are chal-
lenged in this case do not, however, fit into the
same mold as do rules defining the conditions of the
contest, the eligibility of participants, or the manner
in which members of a joint enterprise shall share
the responsibilities and the benefits of the total ven-
ture.
Id. This presumes the applicability of the Sherman Act
to NCAA bylaws, since no procompetitive justifications
would be necessary for noncommercial activity to
which the Sherman Act does not apply. Nonetheless,
courts have struggled with the applicability of the
Sherman Act to NCAA regulations.
Specifically, the Third and Fifth Circuits have con-
fronted the issue at hand. The Third Circuit decided
the issue definitively, but limited its holding to the
NCAA’s eligibility rules. See Smith v. NCAA, 139 F.3d 180(3d Cir. 1998). In Smith, the Third Circuit upheld
the dismissal of a suit claiming that an NCAA bylaw
“prohibiting a student-athlete from participating in
intercollegiate athletics while enrolled in a graduate
program at an institution other than the student-
athlete’s undergraduate institution” violated the
Sherman Act. Id. at 182. The court first held that the
NCAA’s eligibility rules are not related to the NCAA’s
commercial interests, and thus the Sherman Act does
not apply to the NCAA’s promulgation of such rules. Id.
at 185-86; see also Gaines v. NCAA, 746 F.Supp. 738, 743-
No. 11-3066 19
44 (M.D. Tenn. 1990) (distinguishing between the
NCAA’s commercial rules and noncommercial rules, and
finding that eligibility rules are of the latter type, and
thus not subject to the Sherman Act). In an alternative
holding, the Third Circuit also reasoned that even if the
NCAA’s actions were subject to the Sherman Act, the
plaintiff’s suit should have been dismissed based on a
Rule of Reason analysis. Smith, 139 F.3d at 186. The court
observed that NCAA eligibility rules “allow for survival
of the product, amateur sports, and allow for an even
playing field,” thus making them procompetitive on
balance. Id. at 187. Contrary to the Third Circuit, the
Fifth Circuit assumed without deciding that the
Sherman Act applies to the NCAA’s promulgation
of eligibility rules in McCormack v. NCAA. 845 F.2d 1338,
1343-44 (5th Cir. 1988). The Fifth Circuit nonethe-
less ruled that a particular NCAA eligibility rule—the
restriction on benefits awarded to student-athletes—
easily survived a Rule of Reason analysis, even at the
dismissal stage. Id. As in Smith, the Fifth Circuit cited the
eligibility rules’ ability to create the product of college
football, preserve that product, and preserve “a mixture
containing some amateur elements.” Id. at 1344-45.
While this Circuit has not definitively decided whether
a cognizable market exists between universities and
student-athletes under the Sherman Act, our case of
Banks v. NCAA included a discussion of the issue in the
form of dicta found in the majority opinion (Coffey and
Grant, JJ.) and in a partial concurrence and dissent
(Flaum, J.). See generally 977 F.2d 1081. In Banks, a former
University of Notre Dame football player challenged
20 No. 11-3066
the NCAA’s rule barring any players who have hired an
agent or entered a professional draft. Id. at 1082. The
majority held that the plaintiff’s complaint failed to
allege an anticompetitive effect on a relevant market,
and thus affirmed the district court’s dismissal of the
plaintiff’s claim. Id. at 1093 (“[W]e 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 . . . .”). In dicta, the majority deter-
mined that even if the plaintiff had properly alleged
anticompetitive effects of the NCAA bylaw in question,
his claim would have failed. Id. at 1090-91. The opinion
reasoned that the no-draft and no-agent bylaws were
both eligibility requirements, which are essential to
preserving the existence of a football league consisting
of student-athletes as well as maintaining a clear line
of demarcation between college sports and professional
sports. Id. at 1089-90. Further, the majority expressed
doubt that a labor market for NCAA athletes exists at
all, since “the value of [a] scholarship is based upon
the school’s tuition and room and board, not by the
supply and demand for players.” Id. at 1091. The
dissent, conversely, believed that the plaintiff had
alleged anticompetitive effects on the nationwide labor
market for college football players, a market that is cogni-
zable under the Sherman Act, and that a view of the
NCAA’s eligibility rules as noncommercial was “an
outmoded image of intercollegiate sports that no longer
jibes with reality.” Id. at 1095, 1099 (Flaum, J., dissenting).
Successful college football programs often lead to
No. 11-3066 21
large profits, and to acquire those profits, schools must
pay in-kind benefits, namely, grant-in-aid, access to
training facilities, and instruction from premier coaching.
Id. at 1096, 1099. Significantly, the dissent noted that
the no-agent and no-draft rules are not necessarily
Sherman Act violations, but believed that the plaintiff’s
complaint should have survived a motion to dismiss,
and the procompetitive justifications of the eligibility
rules at stake should have been examined more closely.
Id. at 1098.
We start with the view that the Sherman Act applies
to the NCAA bylaws generally. As indicated above, the
Sherman Act applies to commercial transactions, and
the modern definition of commerce includes “almost
every activity from which [an] actor anticipates
economic gain.” Areeda & Hovenkamp, Antitrust Law,
¶260b, at 250 (2000). No knowledgeable observer could
earnestly assert that big-time college football programs
competing for highly sought-after high school football
players do not anticipate economic gain from a
successful recruiting program. Despite the nonprofit
status of NCAA member schools, the transactions those
schools make with premier athletes—full scholarships
in exchange for athletic services—are not noncommercial,
since schools can make millions of dollars as a result of
these transactions.5 Indeed, this is likely one reason that
5
To illustrate, Forbes reported that the University of Texas’
college football team was worth $129 million in 2011 and
(continued...)
22 No. 11-3066
some schools are willing to pay their football coaches up to
$5 million a year rather than invest that money into
educational resources. See Kristin DeRamus et al., College
Football Coach Salary Database, 2006-2011, (Nov. 17, 2011
11:02 AM), USA T ODAY, http://www.usatoday.com/sports/
college/football/story/2011-11-17/cover-college-football-
coaches-salaries-rise/51242232/1 (putting top salary for
a college head football coach at roughly $5.2 million).
That is not to suggest that all universities with a
football program are solely driven by economic benefit;
the profits derived from athletics can aid a university
in many positive ways that fall in line with the mission
of the university as a whole. But that does not prevent
many universities, through their football teams, from
entering the recruiting market, setting their recruiting
budget, and making recruiting decisions with economic
interests in mind. Similarly, student-athletes con-
templating scholarship offers likely include economic
factors in their decision-making process, such as the
value of a given degree or the increased potential for
entry into professional football. It follows that the
NCAA’s bylaws can have an anticompetitive or a pro-
competitive effect on collegiate athletics generally and
the national college football recruiting market specifi-
cally, and those effects can have an economic component.
5
(...continued)
generated $71 million in profits. Chris Smith, College Football’s
Most Valuable Teams, F ORBES (Dec. 22, 2011, 11:43 a.m.),
http://www.forbes.com /sites/chrissmith/2011/12/22/college-
footballs-most-valuable-teams/.
No. 11-3066 23
Thus, the transactions between NCAA schools and
student-athletes are, to some degree, commercial in
nature, and therefore take place in a relevant market with
respect to the Sherman Act. See White v. NCAA, CV 06-999-
RGK (C.D. Cal. Sept. 20, 2006) (holding that under
the Sherman Act, “Major College Football” is a relevant
market in which “colleges and universities compete to
attract prospective student-athletes”).
None of this is to suggest that all NCAA bylaws, or
even any NCAA bylaws, are violative of the Sherman
Act. On the contrary, Board of Regents implies that the
Sherman Act does apply to NCAA regulations, but
most regulations will be a “justifiable means of fostering
competition among amateur athletic teams,” and are
therefore procompetitive. 468 U.S. at 117. In fact, the
Supreme Court seemed to create a presumption in
favor of certain NCAA rules when it stated:
It is reasonable to assume that most of the regulatory
controls of the NCAA are . . . procompetitive be-
cause they enhance public interest in intercollegiate
athletics. The specific restraints . . . that are challenged
in this case do not, however, fit into the same mold
as do rules defining the conditions of the contest, the
eligibility of participants, or the manner in which
members of a joint enterprise shall share the respon-
sibilities and the benefits of the total venture.
Id. We construe this language as a license to find certain
NCAA bylaws that “fit into the same mold” as those
discussed in Board of Regents to be procompetitive “in
the twinkling of an eye,” Bd. of Regents, 468 U.S. at 110 n.39
24 No. 11-3066
(citation and quotation marks omitted)—that is, at the
motion-to-dismiss stage. See Am. Needle v. N.F.L., 130
S.Ct. 2201, 2216-17 (2010) (observing that certain agree-
ments between members of a joint venture are “likely to
survive the Rule of Reason” such that they do not require
“a detailed analysis,” and thus the Rule of Reason “can . . .
be applied in the twinkling of an eye”). Thus, the first—
and possibly only—question to be answered when
NCAA bylaws are challenged is whether the NCAA
regulations at issue are of the type that have been blessed
by the Supreme Court, making them presumptively
procompetitive. We now turn to that question.
The parties disagree on the scope of the presumption
favoring certain NCAA regulations. Plaintiffs argue that
the presumption should be limited to NCAA eligibility
rules. They distinguish Banks, Smith, and McCormack on
the grounds that the regulations upheld in those cases,
unlike the regulations here, were eligibility rules. See Banks,
977 F.2d 1081 (suggesting in dicta that procompetitive
justifications for NCAA eligibility rules would undoubt-
edly outweigh any anticompetitive effects if the Sherman
Act does, in fact, apply to said rules); Smith, 139 F.3d 180(same); McCormack, 845 F.2d at 1345 (reasoning at the
motion to dismiss stage that “[t]he eligibility rules create
the product and allow its survival in the face of commer-
cializing pressures,” and thus “do not violate the anti-
trust laws”). The NCAA, on the other hand, argues that
the procompetitive presumption should not be limited
to eligibility rules. Despite the Fifth Circuit’s clear con-
ceptualization of the limitation on collegiate athlete
compensation as an eligibility rule, see McCormack, 845
No. 11-3066 25
F.2d at 1343, the NCAA argues that the regulation at
issue in McCormack is better characterized as a financial
aid rule, similar to the Bylaws at issue in this case. It
therefore argues that any procompetitive presumption
that might have been at play in McCormack should
apply here.
In considering the parties’ arguments and attempting to
discern the scope of the presumption established by
Board of Regents, it is important to consider the context
in which that presumption was discussed. Directly pre-
ceding the language that allegedly establishes the pre-
sumption is a reminder that the NCAA’s collusive
behavior is only permissible because “a certain degree
of cooperation is necessary if the type of competition
that [the NCAA] and its member institutions seek to
market is to be preserved.” Bd. of Regents, 468 U.S. at 117.
The Supreme Court made this point in greater detail in
a separate section of its opinion, where it explained
why “horizontal restraints on competition are essential
if the product [of collegiate sports] is to be available at
all.” See id. at 98-105. The Court explained that any
league sport will require the joint establishment of
certain rules, such as the “size of the field” or the “number
of players on a team.” Id. at 101. College football, the
court reasoned, requires even more joint activity, since
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
26 No. 11-3066
comparable, such as, for example, minor league base-
ball. 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, its effectiveness as a
competitor on the playing field might soon be de-
stroyed. 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.
Id. at 101-02. Herein lies the scope of the procompeti-
tive presumption for certain NCAA regulations. A certain
amount of collusion in college football is permitted
because it is necessary for the product to exist. Accord-
ingly, when an NCAA bylaw is clearly meant to help
maintain the “revered tradition of amateurism in college
sports” or the “preservation of the student-athlete in
higher education,” the bylaw will be presumed
procompetitive, since we must give the NCAA “ample
latitude to play that role.” Id. at 120. But if a regulation
is not, on its face, helping to “preserve a tradition that
might otherwise die,” either a more searching Rule of
Reason analysis will be necessary to convince us of its
procompetitive or anticompetitive nature, or a quick
look at the rule will obviously illustrate its anticompeti-
tiveness. See id. In Board of Regents, for instance, the Su-
preme Court ruled that the limitation on the type of
television contracts that member schools are allowed to
enter into does not aid in the preservation of amateurism
No. 11-3066 27
or student-athletes, and is thus a violation of the
Sherman Act. Id. The Court rejected the argument that
the television plan equalized competition on the field
and reasoned that, in any event, “the NCAA imposes
a variety of other restrictions designed to serve
amateurism which are much better tailored to the goal
of competitive balance . . . [and] which are ‘clearly suffi-
cient’ to preserve competitive balance to the extent it is
within the NCAA’s power to do so.” Id. at 117-20.
Most—if not all—eligibility rules, on the other hand, fall
comfortably within the presumption of procompetitive-
ness afforded to certain NCAA regulations, as both
parties agree.6 Beyond the obvious fact that the Supreme
Court explicitly mentioned eligibility rules as a type
that “fit[s] into the same mold” as other procompetitive
rules, they are clearly necessary to preserve amateurism
and the student-athlete in college football. Indeed, they
define what it means to be an amateur or a student-
athlete, and are therefore essential to the very existence
of the product of college football. Accord Banks, 977 F.2d
at 1089-90 (“[T]he no-draft rule and other like NCAA
regulations preserve the bright line of demarcation be-
tween college and ‘pay for play’ football.”); Smith, 139
F.3d at 187 (“[T]he NCAA’s eligibility rules allow for the
survival of the product, amateur sports, and allow for an
even playing field.”); McCormack, 845 F.2d at 1344-45 (“The
6
We need not touch upon the debate of whether all eligibility
rules or just most eligibility rules are due a presumption, as
the Bylaws at issue in this case are not, in fact, eligibility rules.
28 No. 11-3066
NCAA markets college football as a product distinct
from professional football. The eligibility rules create
the product and allow its survival in the face of commer-
cializing pressures.”). There may not be such a thing as a
student-athlete, for instance, if it was not for the NCAA
rules requiring class attendance, and thus no “detailed
analysis,” Am. Needle, 130 S.Ct. at 2216-17, would be
necessary to deem such rules procompetitive. Cf. Bd.
of Regents, 468 U.S. at 102. The same goes for bylaws
eliminating the eligibility of players who receive cash
payments beyond the costs attendant to receiving an
education—a rule that clearly protects amateurism. Cf.
McCormack, 845 F.2d 1338.7
The Bylaws at issue in this case, however, are not eligi-
bility rules, nor do we conclude that they “fit into the
same mold” as eligibility rules. See In re NCAA I-A Walk-on
Football Players Litigation, 398 F.Supp.2d 1144, 1149
(W.D.Wash. 2005) (finding that the cap on the number of
scholarships a college team can grant does not implicate
student-athlete eligibility “in the same manner as rules
requiring students to attend class or rules revoking eligi-
bility for entering a professional draft”). These Bylaws—
a one-year limit to scholarships and a limit on scholar-
7
One should not mistake the analysis we discuss here as
requiring proof of the procompetitive nature of the NCAA’s “no
payment” rules on a case-by-case basis. This analysis involves
a determination of whether a rule is, on its face, supportive of
the “no payment” and “student-athlete” models, not whether
“no payment” rules are themselves procompetitive—under
Board of Regents, they clearly are.
No. 11-3066 29
ships per team—are not inherently or obviously necessary
for the preservation of amateurism, the student-athlete,
or the general product of college football. Issuing more
scholarships (thus creating more amateur players) and
issuing longer scholarships cannot be said to have an
obviously negative impact on amateurism. Nor is there
an obvious effect on the ability of college football to
survive without the Bylaws in question. The NCAA
argues that multi-year scholarships would make it too
difficult for less wealthy schools to compete in the re-
cruiting market, but this claim is weakened by the fact
that the restriction on multi-year scholarships was only
instituted in 1973, Zachary Stauffer, NCAA Approves
New Rules—But Do They Matter?, FRONTLINE (Oct. 28,
2011, 4:58 p.m.), http://www.pbs.org/wgbh/pages/frontline/
sports/money-and-march-madness/ncaa-approves-new-
rules-but-do-they-matter/, and has recently been rescinded,
see Steve Wieberg, supra. In any event, the claim is far
too great a leap to make without evidentiary proof at
the full Rule of Reason stage. Similarly, the rules limiting
the number of scholarships available for every NCAA
team may have procompetitive effects, such as the pre-
vention of elite programs stockpiling athletes, but it is
not intuitive that the recruiting market would be unable
to handle this potential pitfall on its own. The Bylaws
at issue, especially the prohibition against multi-year
scholarships, seem to be aimed at containing university
costs, not preserving the product of college football,
though evidence presented at a later stage could prove
that the Bylaws are, in fact, key to the survival of the
student-athlete and amateurism.
30 No. 11-3066
It is true that the prohibition against multi-year scholar-
ships is, in a sense, a rule concerning the amount of
payment a player receives for his labor, and thus may
seem to implicate the split between amateur and pay-for-
play sports. After all, student-athletes are paid, but
their payment is limited to reimbursement for costs
attendant to receiving an education. For the purposes
of college sports, and in the name of amateurism,
we consider players who receive nothing more than
educational costs in return for their services to be
“unpaid athletes.” It is for this reason, though, that the
prohibition against multi-year scholarships does not
implicate the preservation of amateurism, for whether
or not a player receives four years of educational
expenses or one year of educational expenses, he is still
an amateur. It is not until payment above and beyond
educational costs is received that a player is considered
a “paid athlete.” The NCAA could (but does not) argue
that payment of more than one year’s educational costs
for only one year of athletic services—a scenario that
may unfold if a player with a multi-year scholarship
is released from the team or injured—would result in the
destruction of amateurism. Once again, this assertion
is belied by the fact that multi-year scholarships were
wholly permissible before 1973, see Zachary Stauffer, supra,
and amateurism, by all accounts, was alive and well
in college sports in the first seven decades of the
twentieth century. See, e.g., Mechelle Voepel, College
athletes are already getting paid, ESPN. COM (July 18, 2011),
http://sports.espn.go.com/ncaa/columns/story?columnist=
voepel_mechelle&id=6739971.
No. 11-3066 31
As for the NCAA’s argument that, according to
McCormack, both eligibility rules and financial aid rules
are deserving of a procompetitive presumption, we
disagree. The NCAA’s limitation on athlete compensa-
tion beyond educational expenses, which was implicated
in McCormack, directly advances the goal of maintaining
a “clear line of demarcation between intercollegiate
athletics and professional sports,” Banks, 977 F.2d at 1089(quoting Gaines, 746 F.Supp. at 744), and thus is best
categorized as an eligibility rule aimed at preserving the
existence of amateurism and the student-athlete. The
Bylaws at issue in this case, on the other hand, are not
directly related to the separation of amateur athletics
from pay-for-play athletics, as explained in the preceding
paragraphs. Nor do they help preserve the existence of
the student-athlete (as a facial matter, anyway), since
they actually limit the number of athletes awarded finan-
cial aid and the amount of financial aid that an athlete
can be awarded. Thus, financial aid rules do not
always assist in the preservation of amateurism or the
existence of student-athletes, so the regulations at issue
cannot be presumptively procompetitive simply because
they relate to financial aid.
The lack of a procompetitive presumption in favor of
the two Bylaws under consideration does not equal a
finding that they are anticompetitive; it simply means
that they cannot be deemed procompetitive at the motion-
to-dismiss stage. In fact, some of the procompetitive
arguments made by the NCAA, if supported by evidence,
could lead to a finding that the Bylaws are reasonable
restrictions on trade. The district court did not reach the
32 No. 11-3066
issue of whether the NCAA Bylaws were an unreasonable
restriction on trade, but rather held that plaintiffs did
not—and could not—allege a relevant market cognizable
under the Sherman Act. As we have made clear, we
disagree that plaintiffs could not have alleged a relevant
cognizable market, but we ultimately conclude that
plaintiffs did not identify such a market in their
complaint, see infra Part C, and that the district court’s
dismissal was justified.
C. Adequacy of Plaintiffs’ Complaint
As already noted, naked price and output controls can
obviate the need for a detailed market analysis in a
Sherman Act case, Bd. of Regents, 468 U.S. at 109, but that
does not eliminate the need for a relevant commercial
market to exist altogether. Apex Hosiery, 310 U.S. at 492-93.
In an area that is not obviously commercial, and thus
where the Sherman Act’s application is not clearly ap-
parent, we believe it is incumbent on the plaintiff to
describe the rough contours of the relevant commercial
market in which anticompetitive effects may be felt,
even when a quick-look approach is all that is called
for. It must therefore be determined whether the actual
markets allegedly identified in plaintiffs’ complaint—
the market for bachelor’s degrees and the market
for student-athlete labor—were actually identified, and
if so, whether they adequately describe the relevant
market on which the Bylaws may have had an
anticompetitive effect. The district court held that plain-
No. 11-3066 33
tiffs failed to identify in their complaint either of the
markets they now present, and we agree.
Plaintiffs come closest to identifying a relevant com-
mercial market in their discussion of bachelor’s degrees,
but we nonetheless conclude that the complaint falls
short. Plaintiffs admit that before filing their amended
complaint in the lower court, they removed two important
portions from their original complaint: (1) a section
heading entitled “Relevant Market,” and (2) a sentence
stating that “bachelor’s degrees from accredited colleges
and/or universities constitute a distinct product mar-
ket.” It is clear, therefore, that they believed a relevant
market need not be identified or they attempted to
hedge their bets by keeping their market allegations
vague. Plaintiffs’ complaint did state that “NCAA
member institutions compete with each other to attract
and enroll highly skilled athletes to their institution for
obtaining bachelor’s degrees,” which at least suggests
the existence of some market, but the confines of that
market are far too unclear. For instance, it is not
apparent whether plaintiffs believe that the Bylaws
affect an overall market for bachelor’s degrees, which
would impact scholarship athletes and non-athletes
alike, or some subsidiary market that only concerns
athletes attempting to obtain educational degrees in
exchange for athletic services. This may seem like nit-
picking, but if a Sherman Act claim of this nature pro-
gresses past the quick-look stage and enters a full-fledged
Rule of Reason analysis, the scope of the market becomes
of central importance.
34 No. 11-3066
Moreover, even if we deemed plaintiffs’ complaint to
put the NCAA on sufficient notice of the relevant
market affected by the Bylaws, we would still have
doubts about plaintiffs’ ability to survive a motion to
dismiss. As mentioned above, the customer base in a
product market for bachelor’s degrees would include
many more people than scholarship athletes. Bachelor’s
degrees are issued to literally thousands of people, only
a small portion of which are scholarship athletes, and
an even smaller portion of which are athletes whose
scholarships were not renewed. The anticompetitive
impact of an NCAA bylaw would therefore likely be
very minimal. Another problem with the alleged market
for bachelor’s degrees, which was discussed by the
district court, is the fact that degrees are not auto-
matically received or guaranteed upon payment of
tuition. As many unhappy undergraduates can attest,
payment of tuition does not ensure the receipt of a de-
gree. Plaintiffs cite Brown in support of their proposed
market, where the Third Circuit found a cognizable
market for educational services provided by Ivy League
colleges. 5 F.3d 658. But the difference between a market
for educational services and a market for bachelor’s
degrees is of vital importance. A student is owed educa-
tional instruction upon payment of tuition, though what
a student does with that instruction and whether
that instruction leads to a degree is up to the student. A
bachelor’s degree, on the other hand, is not bought out-
right. It is the opportunity to earn a bachelor’s degree
that one pays for (or performs athletic services for, as the
case may be). Thus, plaintiffs’ complaint did not identify
No. 11-3066 35
a product market for bachelor’s degrees, but even if it
did, we would likely find that such a market—to the
extent that it exists—is not cognizable under the
Sherman Act.
The proper identification of a labor market for student-
athletes, on the other hand, would meet plaintiffs’
burden of describing a cognizable market under the
Sherman Act. As an initial matter, labor markets are
cognizable under the Sherman Act. Nichols v. Spencer Int’l
Press, Inc., 371 F.2d 332, 335-36 (7th Cir. 1967). The Banks
majority, in dicta, opined that the market for scholarship
athletes cannot be considered a labor market, since
schools do not engage in price competition for players,
nor does supply and demand determine the worth of
student-athletes’ labor. 977 F.2d at 1091. We find this
argument unconvincing for two reasons. First, the only
reason that colleges do not engage in price competition
for student-athletes is that other NCAA bylaws
prevent them from doing so. The fact that certain
procompetitive, legitimate trade restrictions exist in a
given industry does not remove that industry from
the purview of the Sherman Act altogether. Rather, all
NCAA actions that are facially anticompetitive must
have procompetitive justifications supporting their exis-
tence.8 Second, colleges do, in fact, compete for student-
8
Again, this does not necessarily mean that any challenge of
any NCAA bylaw will survive the motion-to-dismiss stage.
Many NCAA bylaws can be deemed procompetitive “in the
twinkling of an eye.” Cf. Bd. of Regents, 468 U.S. at 109 n.39
(continued...)
36 No. 11-3066
athletes, though the price they pay involves in-kind
benefits as opposed to cash. For instance, colleges may
compete to hire the coach that will be best able to
launch players from the NCAA to the National Football
League, an attractive component for a prospective
college football player. Colleges also engage in veritable
arms races to provide top-of-the-line training facilities
which, in turn, are supposed to attract collegiate ath-
letes. Many future student-athletes also look to the
strength of a college’s academic programs in deciding
where to attend. These are all part of the competitive
market to attract student-athletes whose athletic labor
can result in many benefits for a college, including eco-
nomic gain.
Unfortunately for plaintiffs, nothing resembling a
discussion of a relevant market for student-athlete
labor can be found in the amended complaint. Indeed, the
word labor is wholly absent. Plaintiffs claim that they
“allege[d] that there was ‘no practical alternative’
available for students wishing to pursue an education
in exchange for their playing ability,” but the paragraph
that they cite to in their amended complaint explains
the lack of “practical alternatives” for colleges wanting
to field teams outside of the NCAA’s framework, not
the lack of “practical alternatives” for student-athletes.
Plaintiffs appear to have made the strategic decision
to forgo identifying a specific relevant market. Whatever
8
(...continued)
(quoting P. Areeda, The “Rule of Reason” in Antitrust Analysis:
General Issues 37-38 (Federal Judicial Center, June 1981)).
No. 11-3066 37
the reasons for that strategic decision, they cannot now
offer post hoc arguments attempting to illuminate a
buried market allegation. We therefore affirm the
district court’s dismissal of plaintiffs’ claims.
D. Dismissal with Prejudice
The district court’s denial of plaintiffs’ request to
amend their complaint is reviewed for abuse of discretion,
Stanard, 658 F.3d at 797, which is a “heavy burden.”
Jackson v. Bunge Corp., 40 F.3d 239, 246 (7th Cir. 1994).
Under Rule 15(a) of the Federal Rules of Civil Procedure,
a complainant may amend his complaint as a matter
of course in response to a motion to dismiss, but any
subsequent amendments can only be made with consent
of the opposing party or the court’s leave. We have
stated that a district court is not required to grant such
leave when a plaintiff has had multiple opportunities
to state a claim upon which relief may be granted. Emery
v. Am. Gen. Finance, Inc., 134 F.3d 1321, 1322-23 (7th
Cir. 1998). By our count, plaintiffs had three oppor-
tunities to identify a relevant market in which the
NCAA allegedly committed violations of the Sherman
Act. Plaintiffs obviously could have established a
relevant market from the outset, but they also had the
opportunity to amend their complaint and include an
identification of a cognizable market after the full
briefing and argument of the NCAA’s motion to dismiss
in the California district court. Further, plaintiffs actually
took advantage of their ability to amend their complaint
in the Indiana district court, yet even after confronting
38 No. 11-3066
the NCAA’s claim that a relevant market had not been
identified, they still did not include a clear identification
of the market in which the NCAA allegedly acted
in an anticompetitive manner. Further, “[i]t is a basic
principle that the complaint may not be amended by
the briefs in opposition to a motion to dismiss, nor can it
be amended by the briefs on appeal.” Thomason v.
Nachtrieb, 888 F.2d 1202, 1205 (7th Cir. 1989). We therefore
cannot find that the district court abused its discretion
in dismissing plaintiffs’ claims with prejudice.
III. Conclusion
For the foregoing reasons, we A FFIRM the decision
of the district court.
6-18-12