Daniel Sutter: Money and March Madness

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March Madness just concluded with Villanova winning the title. Given the ongoing college basketball bribery investigation, the bigger question may be whether the Wildcats will eventually vacate the title.

The bribery case first broke last September with ten arrests, including four assistant coaches, based on an FBI investigation dating from 2015. The scandal has already claimed Louisville coach Rick Pitino, fired before this season. The extent of the bribery remains unclear. News reports have implicated twenty top programs as targets, and claimed that the FBI has hours of recorded phone calls. Of course these reports may prove inaccurate.

Shoe manufacturer Adidas and sports agents funded the payments leading to September’s arrests. Adidas allegedly paid to lure top recruits to teams using their shoes and uniforms. The sports agents allegedly paid to get stars to commit to use them as agents when entering the NBA. The payments clearly violate NCAA rules, since college players are student-athletes, not professionals.

Of course, the NCAA basketball tournament is big business. March Madness earns over $1 billion annually in ticket sales, broadcast rights fees, and sponsorships. Universities and the NCAA market basketball and football like commercial properties.

NCAA March MadnessSome sports economists claim that the NCAA is a cartel. A cartel is a group of independent businesses which coordinate to act like a monopolist, restricting production to increase profits. OPEC, the Organization of Petroleum Exporting Countries, is probably the world’s best-known cartel.

OPEC sells a product to consumers, while the NCAA “employs” players. So the NCAA tries to suppress players’ “salaries.”  Successful cartels must resist competitive pressures. Sellers of oil want to cut their price a little to sell more oil, while college teams want to pay top recruits to win more games and championships.

Economic theory highlights why cartels form and collapse. Being the only cheater on a cartel agreement is the best of all possible worlds for an oil exporter or basketball program. Consequently a cartel tries to detect and punish cheating, but doesn’t always succeed.

The fear of cartels, or trusts, led to the passage of our anti-trust laws outlawing anti-competitive collusion. Research shows, however, that cartels are not terribly successful, except under certain circumstances. The diamond cartel, sustained by a small number of mines, is probably the most effective. Cartels also succeed by “capturing” government agencies tasked with regulating businesses. Railroads, trucking, and airlines in the U.S. used regulation to maintain cartels until deregulation in the late 1970s.

The NCAA has successfully argued that sports are an element of education. Indeed, sports certainly help student-athletes learn valuable life lessons.  And athletes receive scholarships, room and board, tutoring help, and now cost of attendance as compensation.

Players clearly do not get paid a competitive share of the revenue they generate. Economics identifies the effects of not fairly compensating players. One is increased spending on other elements of sports programs, like coaches’ salaries and facilities. Another is the use of athletics revenue to pay for other university programs, like non-revenue sports and music (through marching bands).

Perhaps the most unfair element of college sports is preventing a talented three point shooter or defensive lineman from pursuing a sports career if they cannot succeed in unrelated academic tasks like conjugating a verb or calculating the slope of a line. The NFL effectively makes playing college football a requirement by restricting draft eligibility to players three years out of high school. The NBA’s “one and done” draft rule has a similar impact. Still, few Americans get very angry about any injustice done to college athletes.

More serious harms connected to college sports, like sexual abuse or assault, represent the greatest cost of not paying players. The culture of secrecy which hides illicit payments to athletes seems to enable predators like Michigan State’s (and USA Gymnastics’) Dr. Larry Nassar and Penn State’s Jerry Sandusky. Athletes get paid to play and benefit, while the victims of sexual predators are scarred for life. The façade of amateurism in college sports would be farce if not for the real harms it shields.

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Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

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