Last year, we posted about a lawsuit alleging that the NCAA’s method of distributing Final Four tickets was an unlawful lottery. According to the complaint, each person who applied for tickets could submit an application with up to ten entries and a non-refundable handling fee. People who didn’t win tickets would give up the handling fees they had paid. (A more complete description of the process appears in our first post.) The Seventh Circuit ruled that this could constitute an unlawful lottery, but later vacated the opinion and certified three questions to the Indiana Supreme Court.
Last month, the Indiana Supreme Court unanimously ruled in favor of the NCAA. At the outset, the Court determined that under Indiana law, a lottery is “a scheme for the distribution of prizes by lot or chance among those who provided or promised to provide consideration.” Under this definition, a promotion must include each of the following three elements for it to constitute a lottery: (1) a prize; (2) chance; and (3) consideration. In the decision, the Court focused only on the prize element.
The Court determined that a prize is something of more value than the amount invested. In this case, consumers invested the price of the tickets plus a handling fee, and would receive in exchange either the tickets minus the handling fee or the price of the tickets minus the handling fee. Thus, because those consumers who receive tickets would not get anything of greater value than those who receive refunds, the tickets were not prizes. Because there was no prize, there was also no lottery.
The decision is good news for the NCAA and other companies that run similar promotions. Nevertheless, companies should be careful any time they offer a promotion that requires people to pay money for an uncertain benefit. Indeed, the Court also noted that the decision “would not prevent a prosecutor or plaintiff from attacking a similarly structured scheme that is merely a ruse for a traditional lottery.”