### In the 

# United States Court of Appeals For the Seventh Circuit

____________________ No. 17

- 1711 P ETER D EPPE , on behalf of himself and all others similarly situated , Plaintiff

- Appellant ,

v.
N ATIONAL C OLLEGIATE A THLETIC A SSOCIATION , Defendant

- Appellee

.

____________________ Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division

. No. 1:16

- cv
- 00528

- TWP

- DKL

— Tanya Walton Pratt , Judge

.

____________________ A RGUED S EPTEMBER 13, 2017

— D ECIDED J UNE 25, 2018

____________________
Before B AUER , R OVNER , and S YKES , Circuit Judges

. S YKES , Circuit Judge

. This case raises a n antitrust challenge to the NCAA ’s 1 “ year in residence ” r ule , which requires student

- athletes who tran sfer to a Div ision I college to

1 National Collegiate Athletic Association.2 No. 17

- 1711

wait one full academic year before t he y can play for t h eir new school

. A Division I football player filed a class

- action lawsuit alleging that the rule i s an unlawful restraint of trade in v iolation of § 1 of the Sherman Act. The district court dis missed the suit on the pleadings

. W e affirm

. The yea r - in

- residence requirement is an eligibility rule clearly meant to preserve the amateur character of college athletics and is therefore presumptiv ely procompetitive under N CAA v. Board of Regents of University of Oklahoma , 468 U.S. 85 (1984), and Agnew v. N CAA , 683 F.3d 328 (7th Cir. 2012). I. Background
T he case comes to us from a dismissal on the pleadings , see F ED

. R. C IV

. P. 12(b)(6), so we take the following fact ual
a ccount from t he complaint , accepting the allegations as true

. Peter Deppe was a star punter in high school , and

s everal schools recruited him to play college football . He chose Northern Illinois University ( “ NIU ” ) , a Division I school , and enrolled in June 2014 as a preferred walk

- on . In other words , NIU invited him to join the football team but did not offer him an athletic scholarship. Deppe decided to “red shirt” his first year ; this meant that he practiced with the team during the 2014 season but did not compete, and the clock did not run on his four years of NCAA athletic el igibility. Shortly after Deppe enrolled , an NIU football coach told him that he would start receiving an athlet ic scholarship in January 2015. That c oach soon left NIU, however, and the head football coach later informed Deppe that he would not receive the scholar ship after all. Sometime in 2015 NIUNo. 17

- 1711 3
signed another punter, reducing Deppe’s chances of getting playing time or receiving an athletic scholar ship , s o in the fall of 2015 he start ed shopping around for a new football program

. T he University of Iowa , another Division I school , was interested

. Coaches at Iowa told Deppe they wanted him to join the team if he would be eligible to compete during the 2016

– 2017 season . Depp e’s parents asked the NCAA about their son’s eligibility to play . The NCAA responded that under its year
- in

- residence rule , Deppe would be ineligible to compete for one year following his transfer. The year

- in

- residence bylaw app ears in the eligibility section of the NCAA Division I Manual

. It provides:
14.5.5.1 General Rule. A transfer student from a four

- year institution shall not be eligible forintercollegiate competition at a member institution until the student has fulfilled a residence requirement of one full academic year (two fullsemesters or three full quarters) at the certifying institution. NCAA Division I Manual , 183, http://www.ncaapublications. com/productdownloads/D118.pdf

. The NCAA permits a one
- time transfer wit h immediate athletic eligibility in certain limited circumstances . T h e so
called one
- time transfer exception is available to a Div ision I football player only if he transfer s from a school in theFootball Bowl Subdivision to a school in the Football Championship Subdivision with two or more seasons of athletic eligibility remaining, or if he transfer s from a F ootball C hampionship school that off ers athletic scholarships to a4 No. 17

- 1711

F ootball C hampionship school that does not. Id

. , 184

– 85, § 14.5.5.2.10. The exception was unavailable to Deppe because he intended to transfer from one F ootball B owl school to another. In addition, a player who transfer s due to difficult personal or family circumstances or other extenuating circumstances may apply for a waiver of the NCAA’s requirement that a student

- athlete’s four years of playing time be completed in five calendar years

. Id. , 79, § 12.8.1; id. , 81, § 12.8.1.7; id. , 8 8

– 89 , § 12.8.6. The NCA A informed Deppe that if he wanted to try to obtain a waiver, the school to which he planned to transfer wo uld have to initiate the process on his behalf. In November 2015 the University of Iowa granted Deppe academic admission. But a few days later, Iowa football staff notified him that the team had decided to pursue another punter who had immediate eligibility and the school would not initiate the waiver process for him

. Deppe sued the NCAA on behalf of himself and a proposed class alleging that two of the A ssociation’s bylaw s violate § 1 of the Sherman Act : th e year
- in

- residence requirement , and a rule c ap ping the number of athletic scholarships a school can grant each year. He dropped his

c hallenge to the scholarship cap; only t he year

- in

- residence rule remains at issue. Deppe a rgued that the bylaw is an unlawful restraint of trade and that student

- athletes would receive more generous athletic scholarships if they could transfer more freely. The NCAA moved to dismiss the complaint under Rule 12(b)(6) , arguing that the year

- in

- residence bylaw is an eligibility rule and thus is presumptively procompetitiveNo. 17

- 1711 5

under Board of Regents and Agnew and need not be tested for anticompetitive effect under a full r ule

- of

- r eason analysis

. The district judge agreed and dismissed the case. II. Discussion We review the judge’s dismissal order de novo. Tagami v. City of Chicago , 875 F.3d 375, 377 (7th Cir. 2017). Section 1 of the Sherman Act declares illega l “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce

. ” 15 U.S.C. § 1. To prevail in a suit alleging a violation of § 1, the plaintiff must prove three elements: “(1) a contract, combination, o r conspiracy; (2) a resultant unreasonable restraint of trade in [a] relevant market; and (3) an accompanying injury.” Agnew , 683 F.3d at 335 (quoting Denny’s Marina, Inc. v. Renfro Prods., Inc. , 8 F.3d 1217, 1220 (7th Cir. 1993)). This case centers on the second element

— s pecifically, whether the NCAA’s year
- in

- residence bylaw is an unreasonable restraint of trade. The Supreme Court consider ed the antitrust implications of NCAA regulations in Board of R egents . The case raised a Sherman Act challenge to the A ssociation’s restrictions on televising college football games. 468 U.S. at 91

– 92. The detail s are not important here ; for our purposes, it’s enough to note that the Court found the restrictions unlawful under § 1 of the Act. Id

. at 120. Along the way to that holding, the Court had this to say about antitrust challenges to the NCAA’s bylaws more generally :It is reasonable to assume that most of the regulatory controls of the NCAA are justifiable means of fostering co mpetition among amateur athletic teams and therefore procompetitive6 No. 17

- 1711
because they enhance public interest in intercollegiate athletics. The specific restraints on football telecasts that are challenged in this case do not, however, fit into the same mold as do rules defining the conditions of the contest, the eligibility of participants, or the manner in which members of a joint enterprise shall share the responsibilities and the benefits of the total venture. Id

. at 117 . T he Court closed its decision by o b serving that “[ t ] he NCAA plays a crucial role in the maintenance of a revered tradition of amateurism in college sports” and

“ needs ample latitude” to play that role , and that “the preservation of the student

- athlete in higher education adds richness and d iversity to intercollegiate athletics and is entirely consistent with the goals of the Sherman Act

. ” Id

. at 120. In Agnew w e read th is language from Board of Regents t o mean that although the Sherman Act applies to the NCAA,

“ most [ of the Association’s] regulations will be a ‘justifiable means of fostering competition among amateur athletic teams [] ’ and are therefore procompetitive.” 683 F.3d at 341 (quoting B d

. of Regents , 468 U.S. at 117). W e also understood th es e passages as “a license to find certain NCAA bylaws that ‘fit into the same mold’ as those discussed in Board of Regents to be procompetitive ... at the motion

- to

- dismiss stage ” without the need for analysis under the rule

- of

- reason framework

. Id. (internal citation omitted) (quoting Bd. of Regen ts , 468 U.S. at 117, 110 n.39). Accordingly, we held that “the first

— and possibly only

— question to be answered when NCAA bylaws are challenged is whether the NCAANo. 17

- 1711 7
regulations at issue are of the type that have been blessed by the Supreme Court , making them presumptively procompetitive.” Id. Agnew involved a challenge to the NCAA ’s scholarship cap and its prohibition of multi year scholarships. Id

. at 33 2

. Extrapolating from Board of Regents , we distilled the following legal standard for de termining whether a § 1 challenge in this context may go forward or should be dismissed on the pleadings : an NCAA bylaw is presumptively procompetitive when it is “clearly meant to help maintain the ‘revered tradition of amateurism in college sports’ or the ‘preserv ation of the student

- athlete in higher education.’” Id. at 342

– 43 (quoting Bd. of Regents , 468 U.S. at 120). On the other hand, “if a regulation is not, on its face, helping to ‘preserve a tradition that might otherwise die , ’” no such presumption is warran ted. Id. at 343 (quoting Bd. of Regents , 468 U.S. at 120). Importantly here, we also explain ed that “[m]ost

— if not all

— eligibility rules ... fall within the presumption of procompetitiveness” established in Board of Regents

. Id

. After all,

“ the Supreme Court explicitly mentioned eligibility rules as a type that ‘ fit [ s ] into the same mold ’ as other procompetitive rules. ” Id

. (alteration in original). And b ecause eligibility rules “ defin e what it means to be an amateur or a student

athlete, ” th ey are “essential to the very existence of the product of college football.” Id

. T he rules challenged in Agnew did not govern athletic eligibility or otherwise “fit into the same mold” of the presumptively procompetitive regulations mentioned in Board of Regents. Id

. at 344

– 45. But the absence of a procompetitive presumption did “not equal a finding that [the rules] are8 No. 17

- 1711
anticompetitive;” rather, it simply meant that they could not be presumed procompe titive at the pleadings stage. Id

. at 345. So we moved t o the next step in the § 1 analysis and determined that the complaint failed to identify a relevant cognizable market and affirmed the dismissal of the suit on that basis. Id

. at 345

– 47. Unlike the bylaws at issue in Agnew , t he year

- in

residence requireme nt is plainly an eligibility rule

. I t appears in the eligibility section of the NCAA Division I Manual . On its face, it governs a transfer student ’ s eligibility for intercollegiate athletic competition . In particular, the bylaw suspends a transfer student’s athletic eligibility until the student has spent one full academic year at his new college. Deppe insists that t he year

- in

- residence rule does not “fit within the contours of a traditional eligibility bylaw

. ” On the contrary , the rule falls neatly in line with other rules courts have characterized as eligibility rules. In Agnew we gave the example of a class

- attendance requirement to explain whyeligibility rules are entitled to a procompetitive presumption

. W e said : “ T here m ay not be such a thing as a student

athlete, for instance, if it was no t for the NCAA rules requiring class attendance, and thus no detailed analysis would be
necessar y to deem such rules procompetitive.” Id

. at 343 (internal quotation marks and citation o mitted). B ylaws that have been classified as eligibility rules include : a bylaw revoking a student

- athlete’s eligib ility to compete if he enter s the professional draft or hires a professional agent, Banks v. NCAA , 977 F.2 d 1081 , 1082

– 83 (7th Cir. 1992) ; a rule allowing the suspension of a college football program for illicitly compensating players beyond scholarships , McCormack v. NCAA 845 F.2d 1338, 1343 (5th Cir. 1988) ; and a bylawNo. 17

- 1711 9
making student

- athletes ineligible to compete at a graduate school diff erent from their undergraduate institution, Smith v. NCAA , 139 F.3d 180, 186 (3d Cir. 1998), vacated on other grounds by NCAA v. Smith , 525 U.S. 459 (1999). We have no difficulty concluding that t he year
- in

- residence bylaw is an eligibility rule. As we’v e noted, m ost NCAA eligibility rules are entitled to the p rocompetitive presumption announced in Board of Regents because they define what it means to be a student

athlete and thus preserve the tradition and amateur character of college athletics

. Agnew , 683 F.3d at 343. Deppe has not persuaded us that the year

- in

- residence requirement is the
rare exception to th is general principle

. Indeed, the complaint alleges t hat Division I football student

- athletes would transfer more often if not for the year

- in

- res idence rule

. W ithout it student

- athletes could be “ traded ” from year to year like professional athlete s

. A college player could begin the season playing for one school and end the season playing for its rival. Uninhibited t ransfer s with immediate eligibili ty to play would risk severing the athletic and academi c aspects of college sports , t hreatening the character of intercollegiate athletics

. The year

- in

- residence rule guards against that risk and thus is “clearly meant to help maintain the ‘revered tradition of amateurism in college sports.’” Id. at 342 (quoting Bd. of Regents , 468 U.S. at 120)

. Deppe points to the exceptions and the possibility of a waiver of the Association’s five

- year rule , arguing th at if these forms of relief are available, then the year

- in

- residence

r equirement is actually unnecessary to the survival of college football. This argument is a nonstarter . To begin , the test under Agnew is not whether college athletics c ould survive10 No. 17

- 1711

with out this bylaw, but rather whether the rule is clearly

m eant to help preserve the amateurism of college sports

. And scrutinizing the NCAA’s bylaws as Deppe suggests conflicts with the Supreme Court’s admonition in Board of Regents that the NCAA needs “ample latitude” to preserve the product of college sports . 468 U.S. at 120. T h at the NCAA allow s some avenues for relief does not suggest that the year

in

- residence requirement is aimed at an objective other than the maintenance of th e amateur character of the college game

. Instead it suggests that the NCAA is willing to allow players certain flexibility where doing so will not damage the product of college football. Next, Deppe argues that the NCAA enforces the year

- in

residence requ irement for economic reasons and not to preserve t he product of college football

. He asks us to infer an economic motive from the fact that the one

- time transfer exception is unavailable to most Divis ion I football, basketball, and ice

- hockey players

— the h ighest

- revenue sports programs in the NCAA. This argument ignores the innocent explanation that these are precisely the athletes who are most vulnerable to poaching . Without transfer restrictions, the players in these high

- revenue sports could be traded li ke professional athletes. Deppe also a rgues that because the year

- in

- residence r equirement impedes transfers, it lowers the administrative costs associated w ith player movement, including recruit ing and retention expenditures. That is , schools are savin g money they would otherwise need to spend on more generous scholarships to tempt their student

- athletes to stay, as well as money necessary to recruit and train new players to replace those who leave

. But the fact that colleges may saveNo. 17

- 1711 11
money as a consequence of the year

- in

- residence requirement does not mean that the bylaw i s fundamentally a imed at containing costs rather than preserving the amateur character of college football

. Last, Deppe argues that at bottom, the year
- in

- residence rule serves economic interests because it “preserves the hegemony o f the top ‘Power 5’ conferences ”

— the most powerful group of schools in the NCAA. He asserts that these schools recruit the most talented high

- school athletes and that the year

- in

- residence rule prevents those student

ath letes from transferring to less powerful schools. But the rule impedes transfers in both directions. Without it , the

“ Power 5 ” schools could poach rising stars f rom smaller schools, which would risk ero ding the amateur charac ter of the college game. In sum, the year

- in

- residence rule is, on its face, a presumptively procompetitive eligibility rule under Agnew and Board of Regents. Accordingly, a full rule

- of

- reason analysis is unnecessary. Deppe’s Sherman Act chal lenge to the NCAA’s year
- in

- residence bylaw fails on the pleadings

. A FFIRMED

.