Noncompete Agreements and Firm Competition: Lessons from Collegiate Athletics

Abstract

In 2021, the National Collegiate Athletic Association eliminated a highly restrictive rule requiring athletes to sit out a year if they transferred schools. Using matched player-team data across eight sports, we investigate this policy change to understand how industry-wide noncompete agreements shape the allocation of talent across firms and the competitive dynamics among incumbents when there are barriers to entry, which shuts down the spinoff channel through which noncompete removal is argued to increase competition. We find that removing the noncompete minimally alters cross-sectional competitive balance, yet there is dynamic entrenchment of the top and bottom teams consistent with elite organizations leveraging their resource advantage to "vacuum up" star talent. The effect is strongest in sports where star talent has the highest marginal value. Recruiting shifts away from incoming freshmen towards transfers, and teams invest less in developing freshmen, allocating more playing time to transfers.

Keywords: noncompete agreements, employment law, competition, labor mobility, worker training

JEL Classification: J4, J6, K31, L41, M5