By Joe Forward, Legal Writer, State Bar of Wisconsin
Oct. 18, 2010 – Recognizing the “far-reaching effects” of a court holding regarding “sports ticket distribution systems utilized by the National Collegiate Athletic Association (NCAA) and others,” the Seventh Circuit Court of Appeals will wait to determine whether the NCAA violated Indiana’s law prohibiting illegal lotteries.
The case, George, et al. v. NCAA, No. 09-3667 (Oct. 18), could ultimately impact ticket-distribution schemes as-applied to Wisconsin, which also prohibits illegal lotteries.
The plaintiffs in the class action suit brought a diversity action against the NCAA and Ticketmaster, alleging that a ticket-distribution system used to sell NCAA Division I basketball and hockey tickets constituted an illegal lottery.
The distribution system required plaintiffs to apply for tickets by submitting an application with up to 10 entries. Each applicant was eligible to obtain one pair of tickets, but applicants could purchase multiple entries to maximize the chances of winning the pair.
Each entry required the applicant to pay the ticket prices upfront plus a $6 handling fee. Unsuccessful applicants received a refund for the prepaid tickets, but not the handling fee.
The plaintiffs argue that “the handling fees, along with the NCAA’s temporary retention of the applicants’ money, qualified as consideration paid for the chance to win tickets,” and the tickets were prizes because they were scarce and worth more than face value. This type of system constitutes a “lottery” and violates Indiana law, they argue.
The NCAA claims the scheme does not qualify as a lottery under Indiana case law, an exception for bona fide business transactions applies, and an in pari delecto defense precludes recovery.
The Indiana federal district court dismissed the case, and the plaintiffs appealed. The Seventh Circuit Court of Appeals on July 16, 2010 found the plaintiffs “pled sufficient facts to show that the NCAA system constituted an illegal lottery.”
It also held the statutory exception for bona fide business transactions and the defense of in pari delecto – precluding recovery when parties are of equal wrongdoing – did not apply. The NCAA petitioned for a rehearing.
The appeals panel granted the petition for rehearing, vacated the July 16 opinion, and certified the case to the Indiana Supreme Court. It stayed further proceedings until the Indiana Supreme Court clarifies whether the NCAA’s distribution system violates Indiana law.
Specifically, it asked the court to clarify whether the scheme constitutes an “illegal lottery” under Indiana law and whether the “bona fide business transaction exception” or in pari delecto exceptions apply to preclude recovery.
“[A]ffording the Indiana Supreme Court the opportunity to interpret the application of the Indiana statutes involved here appears to be the most prudent course of action,” the appeals panel wrote.
Under Indiana case law, a “lottery” is a “scheme for the distribution of prizes by lot or chance; esp., a scheme by which one or more prizes are distributed by chance among persons who have paid or promised a consideration for a chance to win. …” Tinder v. Music Operating, Inc., 142 N.E.2d 610, 614 (Ind. 1957). Wisconsin’s definition of “lottery” is similar.
Under Wis. Stat. Ch. 945, Wisconsin prohibits lotteries not otherwise proscribed by statute, where a lottery is defined as “an enterprise wherein for a consideration the participants are given an opportunity to win a prize, the award of which is determined by chance. …”
When the case ultimately returns to the Seventh Circuit Court of Appeals, a final decision may impact ticket distribution schemes as applied under Wisconsin law.
