Wednesday, March 12, 2008

Free market ideologues

Below is an article published this week in my local paper. I have reproduced it here in its entirety.

NCAA rules are asking to be broken By Arthur Foulkes The [Terre Haute] Tribune-Star (originally published 3/10/08)

March Madness is fast approaching and much of the nation’s attention will soon be turning to Selection Sunday, brackets and “the road to the Final Four.”

All this can be a lot of fun and very entertaining. But in recent years, college sports have seen a number of messy scandals.

To find a recent example, we don’t have to look further than Bloomington and the troubles surrounding Indiana University’s ousted basketball coach, Kelvin Sampson.

But IU is not alone. Several colleges and universities have recently found themselves in trouble.

For example, the NCAA has leveled sanctions against the University of Michigan and against Notre Dame after school boosters were uncovered giving valuable gifts to student athletes.

The University of Kansas has been penalized for “improper benefits” to student athletes and their families. Ohio State’s football coach was fired for giving money to a player. The University of Minnesota was caught helping basketball players cheat on term papers, and the University of Wisconsin was penalized after members of the football team got unauthorized discounts on shoes.

The NCAA also recently has sanctioned California State University at Fresno, the University of Central Oklahoma, Montana State and Oklahoma.

Even smaller schools, such as Pennsylvania’s Slippery Rock University, have felt the NCAA’s wrath in recent years. The NCAA penalized Slippery Rock for improper financial aid to student athletes.

All this might lead us to think college athletic programs simply attract an unusually high number of unethical people. But, another thing to consider might be the NCAA’s rules, themselves. Maybe there is something about them that invites violations.

Apart from offering them scholarships and other minor benefits, the NCAA prohibits schools from paying their athletes. Athletes are also prohibited from receiving money or gifts from school boosters.

But success in college sports, such as the upcoming March Madness basketball tournament, can mean big money. As Business Week noted in 2005, top performing teams in the NCAA basketball tournament can generate millions of dollars for their schools in television contracts, sports memorabilia and ticket sales.

Athletic success can also help a school attract new students and increase alumni donations.

In short, very talented athletes can bring a lot of revenue to their schools; however, NCAA rules prohibit these athletes from receiving more than a tiny fraction of that revenue.

This is where the economic problem can be found.

Ordinarily, in a competitive labor environment, people can expect to be paid about what they contribute to an employer’s or a firm’s revenue. If workers are paid much less than this amount, another employer has an incentive to bid them away by offering more.

In college sports, however, universities reap the revenue generated by star basketball players, football players and others. The athletes receive very little. In short, the NCAA rules attempt to stand in the way of normal economic behavior.

George Mason University economist Russell Roberts, using an analogy provided by Adam Smith, compares NCAA rules to someone who believes he can arrange human beings like pieces on a chess board. That person forgets that those chess pieces have their own wills and their own goals.

“The rules imposed by the NCAA are not natural. They are designed to inhibit the movement of the chess players,” Roberts writes.

“The real scandal is the exploitation of players who would normally receive some of the largesse that … fan interest generates. The NCAA keeps that largesse largely in the hands of its member institutions rather than in the hands of the players,” he writes.

Certainly most college athletes contribute nothing or very little to university revenues. But the fact that some athletes receive much less than they would if schools were forced to openly bid for their services means we will continue to see NCAA scandals for a long time to come.


Arthur Foulkes writes a weekly column on business and economics. The Tribune-Star reporter is a Terre Haute native and long-time resident. He can be reached at (812) 231-4232 or arthur.foulkes@tribstar.com.

The conclusion of Foulkes' column is that college athletes are exploited, a notion I do not wish to disagree with. However, I will argue with the analysis he produced because it is not economic analysis, instead it is economic ideology.

One cannot compare university athletic programs to firms, any more than one can compare professional sports teams to firms. Firms who outcompete their competitors grow market share and gain market position and the losers, in the extreme, go out of business. A local store that outcompetes a local competitor is better off when the competition is weakened or gone. (We might not be, but that firm is) However, if the Yankees don't have competitors, then they have nothing, which is the same for the NCAA member universities. We the fans also lose.

The product these universities produce (along with professional sports team) is entertainment. The ultimate in pershiables. If the consumer doesn't believe the sport is competitive, no one watches. If no one watches, the money is shut off. If the free market were let to run, the rich schools eventually would have all the good players and the outcomes would become predictable. The same goes in every professional sports area: NFL salary caps, NBA salary caps, the "rules" of NASCAR (which are all geared to make the sport cheaper to maintain the competition), same with IRL, and baseball is coming along the same way. Universities are no different. Each conference engages in revenue sharing, even if only one or two of the teams really generate any interest. But to be a champion, one needs (credible) competitors.

Eliminate the competition is the watchword of the "normal" abstract firm in economic ideology. But not all actors act in this way. Sports is a good example.

Which athletes are exploited? The female softball players? how about the hockey team? Track and field athletes? Arguably, the only ones who are exploited are from the so-called revenue sports, football and men's basketball.

There is no question, that even for the few "soon to be" professional athletes, they are exploited, in the narrow accounting of what do you get for what we earn....the accounting in the short term. But how much is the value of the education and social capital gained from playing DI sports? An economic analysis would have to consider the future value of the education in terms of the "exploitation." I say this and I'm more sympathetic to arguments about exploitation and inequality than any free market ideologue.

For the record, I think college sports is corrupt as can be. has been for a long time, even before the big money flowed in. I'm all for the universities getting out of the entertainment sports business, pay the players as a minor league system for the NFL and NBA, it could be structured similar to the minors in baseball, with a limit of 4 years eligibility.

Leave ideology for religion.

1 comment:

Robert Guell said...

It seems to me that the NCAA rules with regard to recruiting and compensation of "students athletes" are in place to preserve a small shred of "student" in that term and to allow schools to comply with Title IX without going bankrupt. If there were a bidding war for a highly talented quarterback, there would be no money left over to provide scholarships or opportunities in other (non-revenue) sports.

My daughter is a perfect example of someone who is likely to be on the receiving end of this purposeful "exploitation." She is a very talented distance swimmer. Swimming is the very model of a non-revenue sport (in college swimming athletes typically outnumber spectators 10 to 1). Should a highly toughted quarterback or power forward subsidize my daughter's education? If your goal is economic efficiency, the answer is clearly no. That is not the goal. The goal is to provide educational opportunities to men and women from a variety of backgrounds.

Look at another issue: Social Security. If you look at it like an investment, using the "rate-of-return" metric you quickly discover that Social Security is a terrible retirement program to anyone under age 50 with earned income higher than the poverty level. Social Security's backers would say that it wasn't intended to be a good investment: it was intended to be an insurance policy.

The point is this: when you disagree on the yardstick, you'll disagree on the measurement everytime. College athletics is not about economic efficiency so if you measure it using the tools that measure economic efficiency, you'll come to conclusion that it is not economically efficient.

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