July 8, 2020 – Varsity Brands Facing Another Antitrust Class Action
A Clarkston, Michigan All-Star Cheer academy has filed at least the second proposed class action alleging Varsity Brands, Varsity Spirit, Varsity Spirit Fashion & Supplies and U.S. All Star Federation have engaged in unlawful conduct to suppress competition and charge inflated prices within the All-Star Cheer competition and apparel markets.
Echoing the complaint detailed on this page, the 60-page lawsuit out of Pennsylvania federal court claims the defendants have over the last 15 years come to gain and maintain monopoly control over “every aspect” of All-Star competitive cheerleading—a “notoriously expensive sport”—by systematically buying up actual and potential rivals, weaponizing exclusionary contract terms, and utilizing their market leverage to relegate would-be challengers to “B-league status.”
“Varsity has used its dominant market power in the Relevant Markets to substantially foreclose competition in both markets and thereby maintain and enhance its dominance in both markets,” the lawsuit summarizes. “In so doing, Varsity’s Exclusionary Scheme has led to reduced output, supracompetitive prices, and reduced choice in both Relevant Markets.”
During the time period described in the suit, Varsity and its co-defendants have collectively controlled roughly 90 percent of the All-Star Cheer competition market—including all three national championship events—and approximately 80 percent of the sport’s apparel market, according to the lawsuit, which can be found here.
A California All-Star Cheer gym alleges in a lawsuit that Varsity Brands and a group of subsidiaries have violated federal antitrust laws by charging artificially inflated prices for participation in All-Star competitions and for All-Star apparel.
The 49-page lawsuit alleges the defendants—Varsity Brands, Varsity Spirit, Varsity Fashion & Supplies and U.S. All Star Federation, Inc.—have come to dominate the market for All-Star cheerleading through a continued and systematic series of acquisitions and other anticompetitive conduct.
According to the complaint, the defendants’ conduct has allowed them to acquire, maintain and enhance control over the three most important national cheerleading championships—the Cheerleading World Championships, The Summit and the U.S. Finals.
All-Star Cheer, as defined by the USA Federation for Sport Cheering, is a discipline involving two-and-a-half minute routines comprised of tumbling, stunting pyramids and dance, the lawsuit says. Notably, All-Star Cheer, with a focus on gymnastics and acrobatics, is separate and apart from traditional school cheerleading, such as that seen on the sidelines of a football game, in that an All-Star cheer team exists as a club open to all area athletes, the suit adds.
A “notoriously expensive team sport” ranging from $3,000 to $6,000 per participant, All-Star Cheer is typically facilitated through privately owned and operated companies that organize training and practices, the complaint explains. More specifically, All-Star gyms such as the plaintiff coordinate teams’ participation in competitions by paying registration fees, handling schedules and logistics, and buying All-Star apparel. Per the case, the level of athleticism required of an All-Star team makes membership highly coveted and competitive.
The lawsuit alleges, however, that Varsity Brands and its co-defendants have charged All-Star gyms such as the plaintiff thousands each year at artificially inflated prices as part of a multi-tiered scheme aimed at eliminating competition. According to the complaint, in acquiring and maintaining monopoly power over the All-Star cheer competition and apparel markets, the defendants, through an alleged “exclusionary scheme,” have sought to:
Impair and buy up actual and potential rivals who could possibly threaten Varsity’s dominance;
Impose exclusionary agreements or terms on All-Star gyms, forcing them to agree to patronize Varsity exclusively (or near exclusively) in the competition and apparel markets; and
Leverage their control of All-Star cheer’s governing bodies, including the U.S.A. Federation for Sport Cheering, by impairing actual and potential rivals to the point where they’re driven out of business or relegated to effective “B-league” status.
With regard to the “exclusionary agreements” wielded by the defendants—dubbed the “Network Agreement” and “Family Plan”—the lawsuit claims Varsity has required the largest All-Star gyms, i.e. those with the top cheerleaders and teams, to buy apparel exclusively from the defendants and to fill the limited number of events in each competition season solely with Varsity’s All-Star competitions. Further, gyms who sign with Varsity do so under the condition that they will not have to pay “penalty prices” for goods and services in the competition and apparel markets given their exclusive patronage, the complaint continues.
In all, Varsity, through a series of acquisitions, has come to dominate the All-Star cheer competition and apparel markets, the suit alleges, claiming the defendants hold roughly 90 percent of the former and 80 percent of the latter. From the complaint:
“The All-Cheer [sic] Competitions are, in part, market-dominant trade shows, and Varsityforbids or severely restricts its All-Star Apparel rivals from displaying wares in those events’ ‘showrooms.’Moreover, Varsityrewards All-Star Gyms that purchase Varsity’s All-Star Apparel for their All-Star Cheerleaders to use in Varsity’s market-dominant All-Star Competitions, withextra pointsawarded at All-Star Competitions. Given that Varsity’s competitions are the dominant events and comprise the majority of an All-Star Team’s schedule, and that it would be prohibitively expensive for most participants to purchase multiple competition uniforms for a season, Varsity’sexclusion of competing sellers of All-Star Apparel has a powerful exclusionary effect. Varsity’s conductblocks rivalsfrom both a key marketing channel which comprises the main, if not only reason, All-Star Gyms buy All-Star Apparel in the first place—for use at All-Star Competitions.”
The lawsuit looks to represent individuals and entities in the U.S. who directly paid Varsity Brands or any wholly or partially owned subsidiary for registration, entrance, or other fees and expenses for participation by an All-Star team or cheerleader in one of the defendants’ competitions, or for apparel from March 26, 2016 through until the time the “exclusionary scheme” alleged in the complaint ends.
Get class action lawsuit news sent to your inbox – sign up for ClassAction.org’s newsletterhere.