David R. Henderson  

NCAA Fesses Up--in Prime Time

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The (subsidized) fix is in.

There are over 400,000 NCAA student athletes. And just about all of us will be going pro in something other than sports.
While the NCAA, with the above as its advertising line for the last few years, seems to think that this line makes the organization look good, it does the opposite for those who are willing to think about its implications.

The NCAA runs a tightly controlled cartel whose "profits" go to colleges and coaches. It's not simply a private cartel but one backed by government force. Armen Alchian and William Allen, in their 1964 textbook, University Economics, were the first people I know to point this out. They pointed out that those colleges that decided to pay athletes would find their academic accreditation at risk. So why don't new schools sense a profit to made and then enter and compete players away by paying them? Alchian and Allen answer: "[N]o new school could get subsidies from the state or major philanthropic foundations without recognition by the present accreditation group." They add, "We have finally arrived at the source of the value of membership in the NCAA and related organizations: subsidized education."

One could argue, "Well, the student athletes will cash in on their skills later when they go on to become professional athletes." Not so, as the NCAA admits in its advertising.

Moreover, as Richard Vedder and Matthew Denhart pointed out in a Wall Street Journal article last year:

Of course, for the students who go on to the pros, putting off their financial bonanza won't be a big deal. But most college athletes do not make the pros. They may not even end up with the basic skills necessary to succeed in other workplaces, since only a minority of student-athletes in major sports even graduate (25% in top-ranked University of Connecticut men's basketball, for example). Long practices and missed classes make it difficult to succeed academically. A recent study funded by the Andrew W. Mellon Foundation shows the academic performance of athletes is lower than non-athletes even at Division III schools.

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COMMENTS (15 to date)
eccdogg writes:

Well the fact is that for most student athletes their athletic skills have a market value of zero or at least well below tuition, room, board plus the added benefits of getting in to an institution that they would not be able to get into were it not for their athletic skills plus heavy tutoring once they are in.

Only 2 sports make any money. Mens Basketball and Football and they fund all the rest of the sports. Womens Basketball, Baseball, Softball, Tennis, Golf, Soccer, Track, Wrestling, etc all lose money.

So it is pretty hard to see how athletes outside of Football or Basketball are being exploited in any way since the average player is getting more in benefit than their market value.

Plus for Baseball, Soccer, Golf and Tennis you have the option to play minor leagues at any age, and even in football and basketball you can go pro after one year of college. Yet large numbers of players choose instead to take a college scholarship or play out all four (five) years of their eligibilty that should tell you something.

Also nothing is stopping new leagues from not forming in football and basketball that take younger players. Many have tried, most have failed.

The thing I think most critics of the NCAA don't realize is that most of the value is the name on the front of the jersey not on the back of it. I pull for my school and buy tickets to their football games because they are my team not because of star player x. Do I want them to win more? Heck yes! But that would still be the case if all the guys who had NFL talent skiped college entirely, and I would still buy tickets.

John Goodman writes:

David, think of the social value I get from watching the University of Texas (semi) pro team play football and pretending that there is actually some connection between the players and me.

Actually, when I was a student, there was some modest connection. We were in the same fraternities and went to the same parties and did other things together. But those days are long gone.

John Goodman writes:

David, think of the social value I get from watching the University of Texas (semi) pro team play football and pretending that there is actually some connection between the players and me.

Actually, when I was a student, there was some modest connection. We were in the same fraternities and went to the same parties and did other things together. But those days are long gone.

rpl writes:

Going pro after a single year may be an option theoretically, but how many players can seriously expect to be picked up by a pro team after their freshman year?

The thing I think most critics of the NCAA don't realize is that most of the value is the name on the front of the jersey not on the back of it. I pull for my school and buy tickets to their football games because they are my team not because of star player x. Do I want them to win more? Heck yes! But that would still be the case if all the guys who had NFL talent skiped college entirely, and I would still buy tickets.
If that is generally true, an athletic director would have to be a fool to consider paying for a top college player. Why, then, are all the rules prohibiting players from accepting money and gifts necessary? Clearly colleges would pay or otherwise compensate players if they were allowed to, which is why the rules were instituted in the first place. That suggests something is wrong with your reasoning.
eccdogg writes:

RPL

It is more about leveling the economic gains between players, not the total paid out to players.

In a "free" market for college athletics only football and basketball players would get paid anything. Maybe a hand full of baseball players and womens basketball players as well.

Within football and basketball, most players would get paid less than the value of their current room + board + other perks but a few players would get paid very large sums of money.

The rules exist first to perpetuate the charade that these folks are just regular old students, and second to keep the current distribution between sports and athletes.

As to the likelihood of pro ball, most players cannot make the NFl or NBA. But they could make the CFL, or play semi pro football http://www.semiprofootball.org/ for football or they can play in the NBA development league right out of highschool, or anywhere in europe or australia for basketball. The fact that this option is much less prefered by athletes should give you an idea that most of them are getting something they value quite a bit from the current system.

In baseball, soccer, golf, tennis, there are no age restrictions.

eccdogg writes:

Also numerous baseball players are drafted into the minors every year but instead decide to go to college. There must be a reason.

Heck even Tiger woods decided to stay in college for 2 years.

Patrick R. Sullivan writes:

I think there is some misunderstanding about just how stifling is the control the NCAA has over the ahtletes. Not only can they not share in the revenues they produce for the schools (and the NCAA) they can't capitalize in any way on their skills and fame.

They can't endorse products--which is a more lucrative source of income for pro golfers and tennis players than prize money. They can't work as greeters at pizza parlors and car lots. They can't be paid to work at clinics that teach youngsters the basics of their sports.

The NCAA even investigated Michael Oher's adoption by the Tuohy family--what they did for the young man is legally duplicated a thousandfold by birth parents all over the country. They made former NBA player Greg Anthony close a business he'd created while playing at the U. of Nevada Las Vegas. Clerly the NCAA is a cartel in restraint of trade.

Aldebert writes:

A bit off topic, but thanks for the reminder of the Alchian and Allen textbook (still on my bookshelf) from which I learned "Law and Economics" taught by the great Henry Manne at University of Rochester back in the '70s.

Evan writes:

I don’t believe there is anything wrong with the NCAA. The colleges do make money on some sports, but they also put a lot of money into their sports programs and their players. A college education is very expensive these days. A lot of the athletes may not of been able to go to college without the scholarship they are given. It is also a lot of kids’ dreams to play a college sport. I played football and basketball in high school, and it would have been a dream come true to play in college. Athletes that play a college sport either love the sport or love the scholarship they are getting. If it wasn’t worth it to them to play then simply wouldn’t.

Elvin writes:

College atheletes may not be paid in wages, but they get a lot in experience and compensation. Interns sometimes don't get paid, but students line up for the opportunity to work at media centers or assist legislators for free. Similarly, a lot of athletes look at college as an opportunity to get the exposure and experience to cash in on even bigger opportunities down the road.

Also, let's not forget about the perks: adoring co-eds, alumni buying your tickets for thousands of dollars, flying charter, staying in four star hotels, adulation of your peers (status). Gee, it's so unfair. Throw in the free tuition for the 25% who graduate and this is a great deal.

The NCAA is close to being a cartel, but the only reason I conclude that it is not one is that I don't think there is any law requiring membership into the NCAA. There is the NAIA, for example. Except for football, there is essentially some sort of pro outlet for the players to turn to if they don't like the deal. As long as the government doesn't do anything to legislate college athletics, it's hard to criticize the end result. (Maybe you don't like the distribution of income and think that the government should step in a rewrite the property rights.)


tom writes:

Whenever college athletics comes up on blogs, economists seem to be remarkably uninformed about the situations of college athletes:

1. cause/effect a: I doubt that any studies show that participating in athletics hurts academic performance. How on earth do you get the control group of kids who are just like the participating athletes in every way except playing the sport in college? Playing sports is such a big difference throughout pre-college education that the people who are capable of doing it at college are a small subgroup of incoming students.

2. cause/effect b: I'd bet that an awful lot of the kids who went to big basketball/football factory schools and did not graduate would not have graduated or would not have gone to college at all if not for the chance to play. The school may be giving a spot on the team to a non-student, but they are not keeping him from getting knowledge that he would otherwise have gotten.

3. pay for services: at every school, guy athletes have more chances to get girls because of their being on a team. This may not be a strategy for long-term happiness, but it could be a pretty good 4 years.

4. how would the new model work: I've never read anyone describe the model for how a salaried market in 17 year-old college athletes would work. A handful of players on big football teams, and most members of a few big basketball teams, would probably get money. But these people would already be the narrow subset that would be looking for a chance to be pros in a few years. They'd have to balance the pay with the coaching and the ability to develop. How would that even begin to work? Also, would there be a draft like in MLB and the NFL to preserve competitive balance? Would there be slotted salaries for each of the top 50 or 100 picks? Would there be bonuses? I'd love to see where someone has thought this through, because I can't understand how it would work and preserve anything like the type of competition and excitement that something like NCAA March Madness has now.

rpl writes:
It is more about leveling the economic gains between players, not the total paid out to players.
Why on earth would we want to support such a goal? We don't make an effort to "level the economic gains" between computer programmers, or small business owners, or any other profession, so why is it desirable here?
Also numerous baseball players are drafted into the minors every year but instead decide to go to college. There must be a reason.
Undoubtedly the reason is that minor league ball isn't that great a deal for those players, but I'm not sure how that matters one way or the other. Nobody ever said that college athletes get no benefit from being in school, just that they get less benefit than they could get if the NCAA were not allowed to act as a cartel to limit their earnings.
College atheletes may not be paid in wages, but they get a lot in experience and compensation. Interns sometimes don't get paid, but students line up for the opportunity to work at media centers or assist legislators for free.
Yes, and they do so by their own choice, without the need for a government-backed cartel to prevent prospective employers from paying them. Of course, some exceptionally talented interns do get paid, and no cartel steps up to "level their economic gains." By contrast, college athletes are prohibited from being paid in any way, even if other students would normally be paid for doing the same job, and maintaining that situation requires a cartel with government support.
As long as the government doesn't do anything to legislate college athletics...
The whole point of this discussion is that government does precisely that. Colleges who buck the NCAA rules lose their accreditation. Without accreditation, they are ineligible for all sorts of government funding. Thus, the government, through its legislative decision to make funding contingent in part on conforming to the NCAA's standards, has dictated the terms of students' participation in college athletics. You might argue that it is justified in doing so (though nobody here has), but to argue that it hasn't happened is just weird.

All of the arguments put forth here for the NCAA's cartel keep coming back to the same point: "College athletes aren't suffering, so why should we worry about helping them?" But these arguments sidestep the fundamental question here, which is, why should we use government to support the creation of a cartel that interferes in a transaction between two willing parties? College athletics (for some sports, anyhow) is an enormously profitable enterprise. Why should we actively prevent the line workers in that enterprise (i.e., the athletes) from taking home their market share of the proceeds?

If you press people on it, you eventually find that they want to maintain the fiction that college sports teams are just regular students competing for the love of the game. But for the big money-making sports those notions are just that, fictions. The students on those teams are not "regular students," and the business of college athletics has long since overtaken the love of the game as the primary motivation. We do neither ourselves, nor college athletes any favors by pretending otherwise.

eccdogg writes:

Agreed Tom most academics discussing this subject seem to have little knowledge of how the system works today or what a true free market in college sports would look like.

Most really want to change the distribution of income (likely away from coaches and to players) but don't really want any real free market.

So here is a thought experiment.

Poof NCAA is gone what happens.

1) Zero admission standards so kids that did not graduate high school and have a sub 500 SAT can now be admitted to school and play sports. Some schools would push this to the limit to win. Others would not, but the ones who didn't cave would lose to the ones who did.

2) Zero academic standards, so kids would not even have to go to class or really be students at all they would purely be semi pro athletes loosely associated witht the university. Again this would vary by institution, but the schools with higher standards would be disadvantaged.

3) Graduation rates would be worse because worse student athletes would be admitted and there would be less incentive to have them graduate.

4) Some players would get paid and some would get paid a lot, others would probably have to pay their own way to school. A player would have to balance out pay vs exposure vs training vs other amenities in evaluating where he wanted to play. I would assume there would need to be a contract between the player and the team. Currenly the NCAA handles this with national signing day and a penalty for switching teams (must sit out one year).

5) Would there be age restrictions? Could someone play at 15?

6) Would there be limits on how long you could play (currently 4-5 years). Could you have college sports lifers like you have in the minor leagues?

7) Coaches salaries would go down, right now the only thing you can control are coaches salaries and they have the biggest marginal impact since they recruit as well as coach.

8) In basketball no more NCAA tournament, and no mid majors, NIT would could probably replace NCAA tourney but there would be little incentive to include smaller schools with small fan bases.

9) No limits on team size, so rich teams could hoard players, this could be offset by the chance for early exposure. So a player would have to judge the tradeoff between playing early for a less prominent team or riding the bench and playing later for a good team.


10) Reduced funding for all sports but Football and Basketball. If revenues remain largely constant then every extra dollar spent on a football and basketball player has to come from the same pot of money that currently goes to fund other sports.


Those are just some thoughts. Personally even though I REALLY enjoy college sports. I think the system is pretty stupid. Something more similar to a club system with teams unattached to the universities probably makes more sense. But I don't think that is what most critics want. They want the system to remain a cartel but just change its policies.

Also it should be noted that ALL sports leagues in the US are cartels.

Elvin writes:

rpl,

My unwritten point is that the government is regulating through accredidation, not directly at athletics. I agree that this distorts things and is an unnecessary government intervention. The root problem is government funding.

My guess is that if this were loosened, college athletics would still be similar to its current structure. Maybe the "stipends" for some of the athletes increase, but this is merely restructuring the way compensation is paid. Universities fund a lot of activities that would not pass many cost-benefit tests: music programs, education degrees, tenured faculty, too much administration. These are non-profit institutions for a reason.

Steve writes:

This is the kind of libertarian argument that puzzles me.

The students probably are worse for not spending time on sports instead fo studying. But that is their choice. They are invested in whatever seems fun or like it has a higher rate of return. Whatever it is, shouldn't we let them make their own choices?

Also, isn't the argument for markets generally cast an argument for effieiceny. Yet here its not clear paying the ball players would make the NCAA more efficient. It would still be a cartel, because it would still have the same set of universities competiting and everyone else excluded, but now sharing profits with the players. Why is it immoral to not pay someone who is willing to work for free? That sounds like the case people are making against unpaid internships, a case few libertarians are sympathetic too.

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