U.S. DOJ Joins Action Against NCAA Transfer Rules

Department of Justice joins Antitrust Lawsuit Against NCAA, aims to remove multi-transfer restrictions

On Thursday, at the same time as the highly publicized 11th Congressional Hearing on Name, Image, and Likeness, substantial government-backed action broke in an interrelated issue looming over college sports: the United States Department of Justice (DOJ) has inserted itself into a multi-state action challenging the NCAA’s transfer rules.

Ten States, the District of Columbia, and now the DOJ have joined as plaintiffs against the NCAA, alleging that the NCAA’s transfer rules prohibiting student-athletes from transferring more than once violate antitrust law, specifically Section 1 of the Sherman Act, which forbids horizontal agreements between competitors. 

What is at stake?

After the conclusion of the 2023 college football regular season, the transfer portal once again dominated national sports headlines.  Tremendous amounts of impact players sought new programs to join, at least partly to bolster their earning potential through NIL Collectives.  These collectives have become increasingly transparent in their practice of offering athletes salaries thinly veiled as endorsement contracts as inducements to leave their former programs.  

In 2021, the NCAA implemented rule revisions that granted student-athletes the ability to have one penalty-free transfer; previously, student-athletes were ineligible to compete in the first season after a transfer (some exceptions for immediate eligibility did exist).

Over the past two years, the simultaneous implementation of the NCAA’s 2021 rule change and the lack of regulation on NIL Collectives' "pay for play" deals have created a proxy free agency market within both Football and Men’s Basketball.  At the end of every season, those with remaining penalty-free transfer eligibility can hit the open market and see what deal they could be offered from other schools.  Those schools with the most robust NIL resources have shown to be the best at recruiting top tier talent from the transfer market.

The goal of the current lawsuit against the NCAA is to remove restrictions on multi-transfer athletes.  In this system, transfer portal free-agency will be open to every player after every season.  This change would vastly increase the number of players willing to enter the portal; often, the penalty of sitting out one year of competition is too high of a price to justify a transfer for many athletes.       

The Lawsuit

The plaintiffs in the lawsuit include: Ohio, Virginia, Colorado, Illinois, Minnesota, Mississippi, New York, North Carolina, Tennessee, West Virginia, Washington D.C, and now the federal government via the DOJ.  The lawsuit, which originally centered around West Virginia multi-time transfers RaeQuan Battle and Noah Farrakhan, has already shaken up the NCAA.  In December, a ruling in favor of a Temporary Restraining Order allowing the Mountaineer basketball players to take the court led to an out-of-court agreement for the NCAA to suspend any multi-transfer penalties for the 2023-2024 season, effectively acting as a preliminary injunction until the end of spring.

Now, this coalition of states and the federal government looks to make this change permanent.  The complaint, which can be read here, states that: “Defendant NCAA, by and through its officers, directors, employees, agents or other representatives, and its member institutions have entered an illegal agreement to restrain and suppress competition in the relevant markets through the adoption and enforcement of the Transfer Eligibility Rule. Specifically, the NCAA and NCAA member institutions have agreed to unlawfully restrain the ability of Division I college athletes to transfer to other Division I schools without loss of athletic eligibility.”

The group of states and DOJ present a case in which players and consumers are hurt by the current transfer restraints.  The complaint alleges that "college athletes’ current and future earning potentials" are negatively impacted by these rules.  The current earning impact is noted through the diminution in value of a player's NIL value while sidelined from the probationary period, and the future earning reduction comes from the lack of a player to showcase his talents during the probationary period for scouts at the professional level, harming his draft stock and other professional earning metrics.  In addition, players' mental health and well-being are also positively impacted by maintaining autonomy over what university they choose to play for.

For consumers, the plaintiffs present that the NCAA's policy serves to "decrease fan interest in a team’s season by making popular players ineligible for competition and decreasing a team’s competitiveness on gameday."  Their argument hinges on the assumption that allowing transfers to play would increase parity within the NCAA.  Depending on what schools the majority of impact transfers attend, this argument could likely fail; the data could even help the NCAA establish a pro-competitive effect on competition.  

In the era of NIL inducements, the schools that are making a killing in the transfer market are often those with the resources to secure top players.  To the eyes of sports fans seeing the reality of the transfer portal, the argument highlighted by the plaintiffs seems misleading at best.  Although the era of NIL has limited data points, so far, it appears that with transfers, the rich get richer, and the poor get poorer.  If transfer restrictions are lifted on all students, and players can enter the transfer portal every year, this cycle will only be exacerbated.   

It remains to be seen if this pro-competitive justification will be enough to support the control of transfers.  Under the Rule of Reason, the traditional standard of review governing the NCAA, the courts will analyze if the pro-competitive justification for the restriction outweighs the anti-competitive harms done.  The plaintiffs state: 

“The Transfer Eligibility Rule yields few, if any, benefits to competition in Division I collegiate athletics to the NCAA’s member institutions, to college athletes, or to consumers of NCAA athletics contests. Any such benefits are far outweighed by the harm to competition and to the college athletes who are subject to the Transfer Eligibility Rule. Furthermore, the NCAA bylaws already contain less restrictive alternatives that accomplish the NCAA’s goals for the Transfer Eligibility Rule.”

A clear pro-competitive justification of promoting parity seems to help an argument for the NCAA to have the ability to prevent teams from purchasing their way to success via NIL inducements.  However, it is indeterminate if this outweighs the rights of players.  

What is the significance of the DOJ joining this suit?

Nicola Sharpe, Professor of Law and Director of the Chicago Business Law Program at the University of Illinois College of Law, notes that the move to join the suit by the DOJ is significant and unique.  

According to Sharpe, the move by the DOJ indicates that "the NCAA transfer policy is an issue of national concern, and the U.S. has a strong interest in the correct application of federal antitrust regulations as it relates to this case." 

Sharpe notes it is very uncommon for the DOJ to join as plaintiffs in an ongoing case; "this is not a normal course of action; typically, in cases where the DOJ has a compelling concern in the outcome of a case, they will file a statement of interest to help the court in evaluating the merits of the case." 

To Sharpe, the seemingly unprecedented move by the DOJ is not entirely shocking as "the antitrust actions taken by the DOJ and FTC under the Biden administration have been very aggressive." 

As for the case itself, "The DOJ offers merit and national legitimacy; with it comes expansive resources and highly skilled federal attorneys to advocate against NCAA transfer regulations."  

The entrance of the DOJ to this lawsuit presents a major setback to the NCAA's chances of maintaining restrictions on student-athlete transfer regulations.  With the deck being increasingly stacked against the NCAA, it increases the likelihood of a similar out-of-court court concession to the 2023-2024 multi-transfer waiver to be made by the NCAA.  To what degree remains uncertain.  

Any change that loosens transfer restrictions, made either by the courts or out-of-court NCAA concession, will catalyze transfer portal free agency.  The country remains split on the central issue of the case: what do we value more: the prosperity of student-athletes or the parity of athletic teams?