The Market Structure of the NCAA

As I prepare to watch the Men of Troy take on the Sun Devils, I reflect on a broad based misunderstanding of the economics of college sports expressed by most fans including my students.  We love the product and perhaps this affection causes us to accept the way that product is brought to market.  My analysis will be descriptive rather than numerical.  Examples are taken from Huma and Staurowsky, "The Price of Poverty in Big Time College Sport.” 

The NCAA is a monopoly producer of college athletics.  It is probably a complement to both the NFL and the NBA meaning that as a fan consumes more NCAA sports he or she is more likely to consume NFL or NBA sports as well.  The NCAA is big business and highly professional organization.  In 2008, more than 100 million people attended a college sporting event.  Broadcasting contracts are in the billions of dollars.  CBS and Turner Sports will pay $10.8 billion over 14 years to broadcast NCAA division I men’s college basketball. 

The NCAA is virtually a monopsony buyer of 18 to 24 year-old football and basketball players.  Although estimates vary, college football and basketball would be paid in excess of $150,000 annually.  Top players would be paid more than $1 million annually.  My guess is that most players will never command such a value in their “professional” careers if they are not drafted into the NFL or NBA and I am somewhat mystified by suggestions that such valuable employees are somehow “amateurs” when their value over a four year period greatly exceeds the median household income.

They are amateurs only because the NCAA has branded them as amateurs to suppress their wages.  Michael Rosenberg reports the following conversation with former NCAA President Myles Brand.  Brand begins

They can’t be paid.

Why?

Because they’re amateurs.

What makes them amateurs?

Well, they can’t be paid.

Why not?

Because they’re amateurs.

Who decided they are amateurs?

We did.

Why?

Because we don’t pay them.

Their wages (the scholarship money) fall short of covering college related expenses by approximately $3,222 and more than 85 percent live below the poverty line of $10,890 for a single individual.  The NCAA recognizes the penury the scholarship system produces advising students on the acceptability of food stamps, forcing taxpayers to subsidize a multibillion dollar industry.

Food Stamps.  A grant-in-aid recipient who lives and eats off campus may use the money provided for his or her board to obtain governmental food stamps, provided the stamps are available to the student body in general.  Additionally, the student-athlete must be eligible for such stamps without any special arrangements on the part of athletics department personnel or representatives of the institution’s athletics interest. 

NCAA rules make it difficult to take advantage of the educational opportunity that scholarships are claimed to provide.  In 1973, the NCAA changed scholarships from four year contracts to one year renewable contracts.  If you do not live up to your expected athletic value, it’s one and done.  The NCAA surrendered basketball game scheduling to television broadcasters for larger television contracts.  Broadcasters predictably spread games throughout the week reducing time that athletes could spend in class.  The NCAA rules limit practices to 20 hours per week during the relevant playing season but allow “voluntary” practices.  Athletes who do not attend these practices are not physically ready to play and are frequently dropped from teams.  The average football and basketball player works over 40 hours per week.  Given the rigors of athletic training, it is amazing the graduation rates of a little less than 50% are not lower. 

I believe that colleges should bid for athletes just as the bid for faculty staff and students but Huma and Staurowsky make a more modest proposal that would dramatically improve the welfare of students.  I believe that their most important recommendations are

1. Support legislation that will allow universities to fully fund their athletes’ educational opportunities with scholarships that fully cover the full cost of attendance.

2.  Lift restrictions on all college athlete’s commercial opportunities by allowing the Olympic amateur model.  The Olympics’ international definition of amateurism permits amateur athletes access to the commercial free market.  They are free to secure endorsement deals, get paid for signing autographs, etc.

3.  Promote the adoption of legislation that will allow revenue-producing athletes to receive a portion of new revenues that can be placed in an educational lockbox, a trust fund to be accessed to assist in or upon the completion of their college degree.   

As a reminder, students are free to disagree with my normative values.  Students who wish to disagree the ideas expressed in this post may start with my characterization of NCAA sports as a monopoly and a monopsony.  They may also believe that NCAA sports products are a substitute for rather than a complement of the NFL and NBA.

Read more!

Cowen on Immigration

Tyler Cowen presents evidence that immigration has a net positive impact on the economy in “How Immigrants Create More Jobs.” 

Over all, it turns out that the continuing arrival of immigrants to American shores is encouraging business activity here, thereby producing more jobs, according to a new study. Its authors argue that the easier it is to find cheap immigrant labor at home, the less likely that production will relocate offshore.

The study, “Immigration, Offshoring and American Jobs,” was written by two economics professors — Gianmarco I. P. Ottaviano of Bocconi University in Italy and Giovanni Peri of the University of California, Davis — along with Greg C. Wright, a Ph.D. candidate at Davis.

The study notes that when companies move production offshore, they pull away not only low-wage jobs but also many related jobs, which can include high-skilled managers, tech repairmen and others. But hiring immigrants even for low-wage jobs helps keep many kinds of jobs in the United States, the authors say. In fact, when immigration is rising as a share of employment in an economic sector, offshoring tends to be falling, and vice versa, the study found.

In other words, immigrants may be competing more with offshored workers than with other laborers in America.

Cowen also presents evidence that immigration does not cause unemployment. 

We’re all worried about unemployment, but the problem is usually rooted in macroeconomic conditions, not in immigration or offshoring. (According to a Pew study, the number of illegal immigrants from the Caribbean and Latin America fell 22 percent from 2007 to 2009; their departure has not had much effect on the weak United States job market.) Remember, too, that each immigrant consumes products sold here, therefore also helping to create jobs.

When it comes to immigration, positive-sum thinking is too often absent in public discourse these days. Debates on immigration and labor markets reflect some common human cognitive failings — namely, that we are quicker to vilify groups of different “others” than we are to blame impersonal forces.

These results fall into the mainstream of economic thought.  Immigrants, both legal and illegal, are resources.  They expand the production possibilities frontier, what we as a nation can produce.  With a little time for adjustment, markets utilize resources.   
Read more!

Staurowsky and Sack on the Use of the Term Student-Athlete

In “Reconsidering the Use of the Term Student-Athlete in Academic Research (Journal of Sport Management, Vol. 19, 205) Staurowsky and Sack argue for discontinuance of the term “student-athlete” by scholars who write about high school and college sports.  They also argue for the adaption of the Drake Group’s proposals that are designed to treat college athletes like other students.  They begin by tracking the history of the term “student-athlete.”

In order to appreciate the importance of this revelation, one must examine the events that led to the creation of the term itself. The stated purpose of the NCAA, from its inception in 1906, has been to maintain intercollegiate athletics as an integral part of the educational program and athletes as an integral part of the student body (National Collegiate Athletic Association, 2003). The NCAA’s early opposition to athletic scholarships reflected this concern, that athletes be regular students rather than skilled athletic specialists recruited and subsidized primarily on the basis of athletic ability. Much to the NCAA’s credit, it remained steadfast to this fundamental amateur principle for the first 50 years of its existence. By the 1950s, however, the pressures of rampant commercialism and the widespread practice of paying the educational and living expenses of athletes in defiance of the NCAA’s amateur code led the NCAA to reverse its position on athletic scholarships. This decision represents a watershed in the history of collegiate sport in America and can be viewed as the first of a number of NCAA rule changes that have made scholarship athletes virtually indistinguishable from employees.

Although the NCAA continues to present itself to the public as a defender of time-honored amateur principles, rule changes since the 1950s have cut the NCAA adrift from its amateur moorings. In 1957 the NCAA formally incorporated professionalism into its bylaws by allowing athletic scholarships that pay the room, board, tuition, fees, and laundry expenses of athletes who have no financial need or remarkable academic ability (National Collegiate Athletic Association, 1956).  Walter Byers, executive director of the NCAA at the time, has recently described the scholarship system in his book Unsportsmanlike Conduct as a nationwide money-laundering scheme whereby money formerly given to athletes under the table can now be funneled through a school’s financial aid office (Byers & Hammer, 1995). 

At first NCAA rules allowed athletic scholarships to be awarded for 4 years.  In other words, athletic scholarships were gifts to talented athletes to help them further their education.  Athletes could arguably withdraw voluntarily from sports and retain their scholarship aid. In the 1960s many athletic directors were concerned that athletes were accepting 4-year grants-in-aid and then refusing to participate.  One athletic director in that period complained to Walter Byers that “approximately 10 students who accepted their scholarships to compete in our program . . .have decided to not participate. I think it is morally wrong.” He then argued that “regardless of what anyone says, this is a contract and this is a two-way street” (Smith, 1966). It is clear from this quote that at least some athletic administrators wanted athletic scholarships to be binding contracts rather than educational gifts.

In 1967, the NCAA passed a rule that allowed scholarships to be withdrawn from athletes who voluntarily withdraw from sports, thus making athletic participation a contractual obligation. This rule, referred to as the “fraudulent misrepresentation rule,” has appeared in the NCAA Manual ever since and makes it clear that students who withdraw from sports or who reject the directions of athletic staff members can lose athletically related financial aid immediately (National Collegiate Athletic Association, 1968). The rule also applies to athletes who make only token appearances at practice or who do not show up at all. Whether one thinks such a rule is necessary or appropriate in collegiate sport, it seems clear that by making athletic performance a contractual obligation and allowing withdrawal of financial support for insubordination, athletic scholarships take on some of the trappings of an employer–employee relationship. 

Once the athletic scholarship system was established, colleges began to fear that athletes might be identified as employees by state industrial commissions and the courts. According to Walter Byers, the term student-athlete was created by the NCAA to convince workers’ compensation boards, as well as the general public, that scholarship athletes are students just like any others. It was, of course, true that athletic scholarships were a significant departure from time-honored amateur principles (Byers & Hammer, 1995). By retaining the word amateur, however, and by insisting that the word student always be coupled with the word athlete, Byers hoped to maintain a clear distinction in the public consciousness between college athletes and paid professionals, even though making that distinction was becoming increasingly problematic.

The Drake Group Proposals read

1.  Retire the term student-athlete.

2.  Make the location and control of academic counseling and support services for athletes the same as for all students.

3.  Establish university policies that emphasize the importance of class attendance for all students and ensure that the scheduling of athletic contests not conflict with class attendance.

4.  Replace 1-year renewable scholarships with need-based financial aid (or) with multi-year athletic scholarships that extend to graduation (5-year maximum).

5.  Require students to maintain a cumulative grade point average of 2.0 each semester to continue participation in intercollegiate athletics.

6.  Ensure that universities provide accountability of trustees, administrators, and faculty by public disclosure of such things as student’s academic major, academic advisor, courses listed by academic major, general education requirements and electives, course GPA, and instructor.

The proposals ignore two important facts, both related to the students’ roles as athletes.  First, some athletes earn their universities millions of dollars and are paid a small fraction of that amount.  I can think of no other group of students that are so severely exploited.  Second, for elite athletes, their most valuable education comes in practices and games, not in the classrooms.  The Drake Group proposals offer little benefit and potential harm to these elite athletes by forcing them to take and complete classes that have little value relative to their athletic activities.  Th are simply not typical students.

Any attempt to deal fairly must begin with a higher wage for high-value athletes.  Colleges should bid for their talents as they do for professor and other employees.  For some, the contracts may run into the millions and for others, the contracts may only cover books.  Competitive bidding would end the economic exploitation college athletes.  It would also limit the cross subsidization of athletes and sports that do not turn a profit.  It might limit quality and scope of competition.  I can live with that.   
Read more!

Portents of Things to Come?

(HT Drudge Report)  Two articles highlight financial problems in France and Greece.  I believe that they illustrate how difficult it is for a government to cut government spending.  Given the size of our deficits and the growing unfunded entitlements, I fear that the United States is headed for similar social conflict.  From France, some protesters are not concerned with the consequences of mounting deficits (“French strikers, marchers defy Sarkozy on pensions.”)

PARIS (Reuters) - Striking public sector workers disrupted travel across France on Tuesday and sporadic violence flared at protest marches as opponents of President Nicolas Sarkozy's pension reform made a last-ditch attempt to stop it.

Refinery workers, airport staff, train drivers, teachers, postal workers and guards who supply cash machines went on strike and students set off rowdy protests in a day of action against plans to raise the minimum retirement age to 62 from 60.

At least a million protesters demonstrated in cities across France in the biggest and most persistent challenge to economic reforms anywhere in Europe, where governments are struggling to curb budget deficits and reduce debt mountains.

"To hell with the national debt. We'll give them nothing and we don't give a damn about their AAA!" read one protest sign, referring to the AAA credit rating the government says could be at risk unless it gets its pension shortfall under control.

From Greece, budget cuts are also protested (“Riot police, protesters clash at Acropolis.”)

Greece is in the midst of a tough austerity program which has cut public workers' salaries and trimmed pensions in an effort to pull the country out of a severe debt crisis. The austerity plan has led to a series of strikes and demonstrations as workers' unions protest the cutbacks.

Guards and workers at archaeological sites have long been complaining they are owed months of back pay, and they have shut down the Acropolis before in protest, though usually only for a few hours at a time.

Read more!