Appeals Court Preserves Two-in-Four Rule: In a decision issued last week, the Sixth Circuit Court of Appeals upheld the NCAA's "Two-in-Four rule", overturning a lower court decision that the rule violated antitrust laws.



The rule limits NCAA basketball teams to playing in an "exempt" tournament only twice in a four-year period. An exempt tournament is one in which the three or four games only count as one for the purposes of the maximum 28-game regular season. The exempt rule was created to encourage participation in tournaments in hard-to-reach places such as Alaska and Hawaii. The limitation was recently imposed because the NCAA was concerned that only "marquee" schools were being invited to the tournaments each year. The top programs such as Duke and Arizona like the tournaments because it provides a neutral site at which to face both the best teams in the nation, as well as the mid-major schools that can present such a problem to a team in the NCAA Tournament.



A group of tournament promoters sued the NCAA in 2000, claiming that the rule was an unlawful restraint on free trade. The lower court agreed, stating that "the undisputed decrease in output in the relevant submarket of school-scheduled events is sufficient to show that the Two in Four Rule has led to an adverse effect on competition." Worldwide Basketball and Sports Tours, Inc. v. NCAA, 273 F. Supp. 2d 933 (S.D. Ohio 2003).



The appellate court reversed. The panel ruled that the district court erred in applying the "quick look" test, which allows a court in some circumstances to adjudge a rule anticompetitive based on only scant data. Application of test is determined on an ad hoc basis, and the appeals court felt that the district court used it inappropriately.

Far from being a case in which “an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets,” (emphasis added), here the relevant market is not readily apparent and the Plaintiffs have failed to adequately define a relevant market, thereby making it impossible to assess the

effect of [the rule] on customers rather than merely on competitors. (citations omitted)

In addition, the court ruled that the Plaintiffs had failed to define the relevant market in which the anticompetitive effect was to be judged, meaning that the court did not even need to reach the question of whether the rule, in fact, stifled competition.

Because the Promoters failed to meet their duty to define the relevant market and submarket, this court has insufficient information to reach the question of whether the Promoters suffered an antitrust injury–that is, an injury resulting from interference with “the economic freedom of participants in the relevant market.” (citations omitted)

You can read the full text of the opinion here.



Hat Tip: Reader John Infante.

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