Wednesday, July 21, 2010

“Final Four” Ticket Distribution Process Might Be Illegal Lottery

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

The National Collegiate Athletic Association and Ticketmaster could have conducted an illegal lottery by charging nonrefundable “handling fees” to unsuccessful applicants for tickets to the 2009 NCAA men’s basketball “Final Four” games, the U.S. Court of Appeals in Chicago has ruled.

Unsuccessful ticket applicants who forfeited fees brought a proposed nationwide class action. They seek a declaration that the ticket allocation process constituted illegal gambling under Indiana law and assert violations of the Indiana Deceptive Consumer Sales Act, as well as common law claims of unjust enrichment, civil conspiracy, and monies had and received.

Nonrefundable Fees

According to the complaint, each person who applied for tickets to Final Four games submitted a single application with up to 10 entries. Each entry was a chance to win, at the most, two tickets and required a payment of a $6 “non-refundable handling fee.”

An applicant could win only once but was required to submit the full face value of the tickets for each entry. In order to maximize the chances for winning a single pair of $150 tickets, an applicant would have to submit $3,060 (the face value of ten pairs of tickets plus a $6 handling fee for each of 10 entries).

A successful applicant would receive a pair of tickets via overnight mail and, eventually, a $2,700 refund (the total ticket price for the remaining nine entries).

The $60 in handling fees would be forfeited to the NCAA. An unsuccessful applicant would receive a $3,000 refund (the entire up-front investment minus the handling fees).

Prize, Chance, Consideration

Under Indiana law, three elements are necessary to establish a lottery: (1) a prize, (2) an element of chance, and (3) consideration for the chance to win a prize. The NCAA argued that its ticket distribution process only granted an opportunity to purchase tickets at full price, which was not a prize.

The court held that the unsuccessful applicants alleged all elements of a lottery. They allegedly paid a per-ticket or per-entry fee (consideration) to enter a random drawing (chance) in hopes of obtaining scarce, valuable tickets (a prize).

The NCAA sought to rely on the bona fide business transaction exception to Indiana’s gambling statutes. However, Indiana law made it unlawful to conduct a lottery without regard to statutory provisions defining “gambling,” according to the court.

In Pari Delicto

Finally, the suit was not barred by the equitable doctrine of in pari delicto—“where the wrong of both parties is equal, the position of the defendant is the stronger.”

Indiana law made it unlawful to conduct lotteries or otherwise gamble knowingly. As alleged, the NCAA’s acts of knowingly conducting an unlawful lottery demonstrated a greater degree of fault than the applicants’ acts of unwittingly entering that lottery, the court determined.

The decision by federal district court in Indianapolis, holding that the doctrine of in pari delicto barred the unsuccessful applicants from seeking relief, was reversed and remanded on all counts. The claims under the Indiana Deceptive Consumer Sales Act and the common law all incorporated and to some extent relied on the lottery allegations, the appeals court noted.

The July 16 opinion in George v. National Collegiate Athletic Association will be reported at CCH Advertising Law Guide ¶63,913.

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