Why the NCAA’s No-Transfer Rule Is No Good

Earlier this year, after suffering from depression, University of Michigan football lineman James Hudson applied to transfer to the University of Cincinnati. Hudson aimed to start anew at Cincinnati, immediately joining the school’s football team. But unfortunately, Hudson’s hopes were dashed. The NCAA’s “year-in-residence” rule requires Division I college athletes to sit out a year after transferring. And even though the NCAA could have granted a waiver, it refused to do so.

Hudson is not unique. This year alone, the NCAA turned down waiver requests from football players Brock Hoffman and Luke Ford, who each responded to significant family health concerns (a mother who had a brain tumor removed and an ailing grandfather, respectively). The NCAA has also delayed granting a waiver to Jordan Travis, who was the victim of a coaching change.  

In our recent Michigan Law Review Online article, College Athletics: The Chink in the Seventh Circuit’s Law and Economics Armor, we explained how the year-in-residence rule violates antitrust law. In particular, we showed how the Seventh Circuit in Deppe v. NCAA was able to uphold the rule only by applying an inappropriate antitrust analysis based on four fundamental errors.

First, the Deppe court misread antitrust precedent, relying on dicta from a decades-old Supreme Court case, Board of Regents v. NCAA, to create a wholly new analytical framework. Applying this framework, the court failed to assess the NCAA’s year-in-residence rule by balancing the rule’s anticompetitive and procompetitive effects, as courts traditionally do under antitrust law. Instead, it deemed the rule to be automatically legal if it related to athletic eligibility. Such a determination, however, misapplies Board of Regents, which had held that the NCAA’s television broadcast restrictions violated antitrust law.

Second, the Seventh Circuit misconstrued antitrust law by neglecting the longstanding “Rule of Reason” analysis that emphasizes consumer welfare. Standard application of this doctrine provides that courts apply a burden-shifting analysis by which (1) the plaintiff shows a significant anticompetitive effect, (2) the defendant offers a procompetitive justification, (3) the plaintiff can show that the restraint is not reasonably necessary or that the defendant could obtain its objectives through a less restrictive alternative, and (4) the court balances anticompetitive and procompetitive effects. Brushing aside more than a century of antitrust analysis, Deppe created a new framework out of whole cloth, proclaiming that a restraint was automatically legal if it maintained the “revered tradition of amateurism in college sports” or the “preservation of the student-athlete in higher education.” Such an analysis sounds lofty. But it is completely unsupported.

Third, the Seventh Circuit ignored the procedural posture of a motion to dismiss, making up facts benefiting the defendant rather than—as hornbook law makes clear—applying facts in the light most favorable to the plaintiff. For example, the court declared that the NCAA’s “year-in-residence requirement is plainly an eligibility rule” simply because the rule “appears in the eligibility section of the NCAA Division I Manual.” By adopting such a “fact,” the court avoided scrutinizing the plaintiff’s claim that the rule actually limits competition between colleges in offering benefit packages related to class offerings, training facilities, and coaching staffs.

Fourth, the court ignored the economics that show the anticompetitive effect of the year-in-residence restriction on student-athletes. More specifically, the court failed to consider how the rule related to enhancing revenue, restraining costs, or deterring players from transferring from the NCAA’s most powerful schools. If the court had engaged in this economic analysis, it could have concluded that the rule’s true purpose was to protect schools in college football’s strongest conferences by making it easier for them to keep star players as reserves despite the greater demand for these athletes in starting roles at lesser-ranked schools.

These four flaws are significant. We find it particularly ironic that it was the Seventh Circuit—home of retired Judge Richard Posner, the Chicago School of Economics, and analysis based on markets and economics—that ignored the realities of the NCAA rule. In Deppe, this court upheld the rule by relying on legal formalisms, not economic analysis.

It does not seem right that James Hudson, Brock Hoffman, Luke Ford, and Jordan Travis, each of whom presented cogent reasons for transferring to a new school, must wait a year before playing. If a court applied appropriate antitrust scrutiny, the NCAA year-in-residence rule would have been overturned. The court in Deppe avoided that result only by ignoring antitrust law, precedent, and economics. Hopefully future courts will more justifiably apply antitrust law and economics to strike down the year-in-residence rule, thereby increasing competition and benefiting student-athletes.