Are ticket lotteries fair game? George v. NCAA sets the standard.
Facts and Case History
The National Collegiate Athletic Association ("NCAA") is an organization that governs college athletics and hosts championship tournaments. Due to the popularity of many NCAA championship tournaments, such as the Division I men's and women's basketball tournaments, and the limited seating capacity in sport venues, ticket demand often exceeds the ticket supply. When the demand exceeds the supply, the NCAA implements a random-selection procedure (George, 2011). The ticket distribution process requires interested parties to submit an application in order to be chosen for the opportunity to purchase tickets.
The 2009 NCAA Division I men's Final Four utilized a ticket-distribution system to handle the demand for tickets. There were fewer than 5,000 tickets available to the general public and several hundred thousand people submitted offers (George, 2011, p. 152). The NCAA set the face value of $150 per ticket and the tickets were required to be purchased in pairs. Every interested person who applied for tickets was required to submit a single application with up to ten entries requesting a maximum of two-tickets per request. Each entry required a $6 non-refundable handling fee. Although an applicant could only win once for a maximum of two tickets, they could increase their odds of winning by submitting up to ten entries. By way of example, a person who applied with ten entries for two tickets would tender $3,060 (the face value of ten pairs of tickets plus the non-refundable handling fee for ten entries). If chosen, the applicant received the two tickets and a refund for the remaining balance of $2,700. If not chosen, the applicant received a refund of $3,000, representing the total cost of the tickets. In either case, however, the NCAA kept all the non-refundable handling fees (for 10 entries, this amounted to $60) (George, 2010).
The plaintiffs submitted entries to the NCAA to purchase tickets to the 2009 NCAA Division I men's Final Four but their applications were not accepted. They alleged that the NCAA purposefully advertised the limited availability of the tickets in order to increase demand and thus revenue from the non-refundable handling fees. They further alleged that these handling charges grossly exceeded any costs associated with the ticket-distribution system (George, 2010). Furthermore, applicants who were randomly chosen received event tickets via overnight delivery but those not chosen had to wait several weeks for their ticket refund (George, 2011).
The plaintiffs argued that the NCAA's ticket distribution system constituted a lottery in violation of Indiana's lottery laws (Ind. Code 35-45-5-3). A lottery is a scheme for distribution of prizes by lot or chance and requires three elements: (1) a prize; (2) an element of chance; and (3) consideration for the chance to win a prize (Lesher, 1986). Here, the plaintiffs asserted the elements for a lottery existed. They paid a per-ticket entry fee (consideration) to enter a random drawing (chance) in hopes of winning event tickets (the prize) (George, 2010). They argued that because the handling fee was forfeited regardless of the outcome, those receiving tickets were awarded something greater (event tickets) than those who were not permitted to purchase tickets, thus meeting the criteria for a lottery. In response to the lottery claim, the NCAA asserted that the ticket-distribution system only gave the applicant an opportunity to purchase the tickets, thus that opportunity was not a prize. Further, the NCAA contended that the ticket-distribution process may not have an element of chance if the ticket demand does not exceed the supply (George, 2010).
The district court dismissed the plaintiffs' complaint with prejudice for failure to state a claim, holding that even if the NCAA ticket distribution system was an illegal lottery under Indiana law, the doctrine of in pari delicto barred the claim because the plaintiffs were aware of the essential features of the ticket distribution process when they applied, and they knowingly participated in the disputed process (George, 2009). Thus, the plaintiffs should be considered equally at fault with the NCAA and cannot be granted a remedy from the court. However, the U.S. Court of Appeals for the Seventh Circuit reached a different conclusion. The Court of Appeals rejected the NCAA defense and held the ticket-distribution system was an illegal lottery under Indiana law; further, the Court held that the ticket distribution process did not fall within the statutory exception for bona fide business transactions (which the NCAA argued), and that the in pari delicto was not applicable given that the NCAA had a greater degree of fault in the ticket distribution process (George, 2010). However, the same appellate court judicial panel granted the NCAA's petition for a rehearing, and vacated its own decision. Noting that the ultimate decision could have far reaching effects and implications, the Court of Appeals certified three questions to the Indiana Supreme Court for consideration: 1) whether the ticket distribution system was a lottery under Indiana law; 2) whether the bona fide business exception was applicable; and 3) whether the plaintiff's claims were subject to an in pari delicito defense (George, 2011).
Legal Analysis and Opinion
The Indiana Supreme Court held the NCAA's ticket-allocation process was not an illegal lottery because no prize was awarded to the applicants who received the opportunity to purchase tickets (George, 2011). A prize is something more of value than the amount invested (George, 2011). The court decided that by setting a face value to the tickets at $150 per ticket and requiring payment for the tickets and the handling fee with the application, there isn't a prize. There is no market for the tickets until the NCAA issues the tickets and the speculative nature of the secondary market makes it an "inappropriate consideration in determining the presence of a prize" (George, 2011, p. 23). The court also examined the handling fee itself. It held that since the handling fee might exceed the amount needed for shipping, and might also create profit for the NCAA, the consideration factor may be altered. However, the court stated, "it would not alter the prize analysis" (George, 2011, p. 20). Because the NCAA's ticket distribution method did not, in the court's opinion, issue a prize, it could not be deemed an illegal lottery. Since the second and third certified questions were contingent on finding the NCAA ticket distribution a lottery, the court chose not to consider those questions.
Impact on Sport Marketing
Though a cumbersome process, the NCAA is not the only sport governing body that utilizes a lottery system for fans. In June 2010, Major League Baseball (MLB) instituted a ticket lottery for post-season play whereby selected fans could "purchase the right to buy seats at face value if the fan's chosen team hosts the selected playoff game" (Michels, 2012, p. 399). To enter the lottery to reserve a seat, fans were required to pay MLB a non-refundable transaction fee of $1 per entry, along with a non-refundable service fee ranging from $10-$20 per seat requested; the service fees increased as the playoffs progress. For example, a fan entering the lottery for two seats to the World Series would pay $41 to enter; a $20 per seat service fee and a $1 transaction fee.
Additionally, the National Football League (NFL) has used a similar but more financially user-friendly process to acquire tickets to the Super Bowl ("Frequently asked questions," 2012). In addition to the participating teams' season ticket holders' lottery (Reese, 2004), the NFL also provides an allocation of Super Bowl tickets to the general public. Distribution is intentionally limited to two tickets per person to maximize the number of fans who may succeed in acquiring tickets (Reese, 2013). Since governing bodies distribute the majority of tickets to corporate sponsors, the percentage of tickets available for fans is limited when compared to the total number of tickets available for the event. The NFL does not publicize the number of tickets available for fans through the lottery process. The NFL ticket lottery is limited to two tickets per entry with only one entry allowed per mailing address. However, unlike other governing bodies, the NFL does not charge a handling fee to apply for lottery tickets.
Some NFL teams, such as the New York Jets, charge an up-front annual fee to remain on the team's season ticket wait list (Sherman, 2007). However, this fee is considered a deposit and is credited back to the fan, once their account comes to the top of the wait list and tickets are purchased. The primary reason for such a deposit is to ensure that only fans with a sincere interest in obtaining tickets are placed on the wait list.
Further, service and handling fees are sometimes used legitimately to offset the cost of staffing or supplies, or to purchase enhanced technology in order to better service fans. Unfortunately, in some situations, excessive service and handling fees are used as a pure profit center to capitalize on supply and demand. There is a wealth of literature suggesting the use of excessive fees to generate additional profit (Branch, 2010; Dickler, 2007; Williams, 2009).
Since the court in George v. NCAA did not address the allegation that the handling charges grossly exceeded any costs associated with the ticket distribution system, it is not beyond reason to suggest that the $6.00 fee per ticket is being used as a pure profit center for the NCAA. However, regardless of the legitimacy or excessive nature of the handling charge, the Indiana Supreme Court decided the case on one factor, the presence (or in this case, the absence) of a prize. This finding, although decided only under Indiana law, creates a precedent for other sport organizations, both amateur and professional, that seek to impose handling fees for ticket distribution lottery-based systems.
Branch Jr., A. (2010, August 4). NCAA and Ticketmaster dealt a potential blow over Final Four ticket lotteries. Ticket News. Retrieved from http://www.ticketnews.com/news/NCAA-and-Ticketmaster-dealtpotential-blow- over-Final-Four-ticket-lotteries081004832
Dickler, J. (2007, October 11). Ticketmaster charges: A concert killer. After paying a 30% to 40% premium over the face value of a ticket, some concert goers have had enough of Ticketmaster's hefty fees. CNNMoney.com. Retrieved from http://money.cnn.com/2007/10/11/pf/raw_deal_ticketmaster/index.htm
Frequently asked questions. (2012). Retrieved from http://www.nfl.com/help/faq
George v. NCAA, 613 F.3d 658 (7th Cir. 2010)
George v. NCAA, 439 Fed. Appx. 544 (7th Cir. 2010)
George v. NCAA, 945 N.E.2d 150 (Ind. 2011)
Lesher v. Baltimore Football Club, 476 N.E. 785 (Ind. Ct. App. 1986) Ind. Code 35-45-5-3
Michels, C. S. (2012). Note: Major League Baseball and the National Collegiate Athletic Association: Private lotteries and enforceable contracts. Vanderbilt Journal of Entertainment and Technology Law, 14, 395.
Reese, J. T. (2004). Ticket operations in a professional sports team setting. In U. McMahon-Beattie & I. Yeoman (Eds.), Sport and leisure operations management (pp. 167-179), London, UK: Thomson Learning.
Reese, J. T. (2013). Priority systems. In J. T. Reese (Ed.), Ticket operations and sales management in sport (pp. 33-45). Morgantown, WV: Fitness Information Technology.
Sherman, L. (2007, September 7). Toughest NFL waiting lists. Forbes.com. Retrieved from http://www.forbes.com/2007/09/07/nfl-football-ticketsforbeslife-cx_ls_0907tickets.html
Williams, G. (2009, September 29). OK, I knew Ticketmaster prices were excessive, but ... DailyFinance.com. Retrieved from http://www.dailyfinance.com/2009/09/29/ok-i-knew-ticketmaster-prices-were-excessive-but/
Mark Dodds, JD, is an associate professor in sport management at SUNY Cortland. His research area is focused on legal issues of sport, the use of sport in civic engagement, sponsorship activation, and sport brand equity creation.
James T. Reese, EdD, is an associate professor in the sport management program at Drexel University. His research interests include ticket operations and ticket sales, ethics, and facility and event operations.
Kristi Schoepfer-Bochicchio, JD, is an associate professor in sport management at Winthrop University. Her research areas focus on legal issues in sport, risk management, and event management.
DISCLAIMER: Inquiries regarding this feature may be directed to series co-editors Steve McKelvey at mckelvey@ isenberg.umass.edu and John Grady at firstname.lastname@example.org. McKelvey is an associate professor and graduate program director in the Mark H. McCormack Department of Sport Management at the University of Massachusetts Amherst. Grady is an associate professor in the Department of Sport & Entertainment Management at the University of South Carolina.
The materials in this column have been prepared for informational and educational purposes only, and should in no way be considered legal advice. Readers should not act or reply upon these materials without first consulting an attorney. By providing these materials it is not the intent of the authors or editors to enter into an attorney-client relationship with the reader. This is not a solicitation for business. If you choose to contact the authors or editors through email, please do not provide any confidential information.
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|Author:||Dodds, Mark; Reese, James T.; Schoepfer-Bochicchio, Kristi|
|Publication:||Sport Marketing Quarterly|
|Date:||Sep 1, 2013|
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