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Lawsuit Against NCAA Seeks to Remove Athletic Scholarship Limits

By Adam Ramirez on October 26, 2010 2:45 PM

The NCAA has been sued in a class-action lawsuit initially brought by a student-athlete who lost his scholarship and alleges a violation of federal antitrust laws.

The suit alleges that the NCAA, colleges and universities are part of a conspiracy that creates limits on athletic scholarships. Attorneys are suing over the scholarship limits and are seeking an injunction to prohibit the NCAA from continuing their limitations.

The NCAA, according to the lawsuit filed in the Northern District of California, is making money off of the backs of college students and simultaneously standing in their way of getting a better deal. Annual revenues for the NCAA were $614 million while the direct expenses for operating the games totaled $59 million.

Interestingly, the NCAA would willingly admit that it sets limits on athletic scholarships at member schools, which are the vast majority of educational institutions nationwide. Multi-year scholarships are not allowed, and each sport has various scholarship limits on the number that can be awarded. The suit alleges that these restrictions are unfair and illegal and that if there was an open market, scholarships would increase and student-athletes would benefit.

"We believe the monopoly is designed to safeguard the school sports programs' profitability, which spawns multi-million-dollar coaching contracts and rich revenue streams for the schools," said Steve Berman, managing partner of Hagens Berman Sobol Shapiro LLP.

The potential class for the lawsuit is large. It seeks to include any student that enrolled at a NCAA school and received a scholarship but had it reduced or removed.

Annual revenues for the NCAA's 2007-2008 fiscal year were $614 million. The organization's financial operations are also highly profitable. The direct expenses for operating the actual games amounted to just $59 million, making it possible for NCAA executives to treat themselves to perks normally associated with Fortune 500 companies. The organization's Indiana headquarters cost an estimated $50 million, and the NCAA plans a $35 million expansion, according to the suit.

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