Tuesday, September 27, 2011

The Abuse of the NCAA - A Counter Point

Conroy's post about the NCAA is interesting for the legal and economic issues it raises, in particular the antitrust problem that the NCAA faces. The fact that the NCAA is a cartel—a coalition of colleges agreeing with each other to restrain trade—organized as a monopsony helps explain its egregious behavior. Cartels are generally unstable, so enforcement and credibility are key. If anyone steps out of line, the hammer must fall. That's why the NCAA is so strict in enforcing its rules. And the NCAA is a best described as a monopsony—a single buyer—rather than a "monopoly"—a single seller. Its member colleges "buy" the labor of college athletes with scholarships, etc., but they have agreed not to compete with each other over the terms of the sale. A monopsony will drive prices down, which is what the NCAA has done.

So college players are exploited in the sense that they are paid less than what they would be paid in a competitive market, in which colleges would bid against each other for the athletes, driving the price up; and they also have less control over their own labor than they would if they had more bargaining power. And the NCAA is apparently able to get them to sign over their publicity rights, permanently. Contrast that with a typical non-compete agreement, wherein generally the restraint  has to be reasonable in time and location. Finally, bear in mind that the money these athletes could have earned, by for example selling their autographs, is transferred to other students, in the form of scholarships and cheaper ticket prices. This means that the NCAA effectively transfers money from athletes, who are often from underprivileged backgrounds, to students who are on average wealthier. It's not only inefficient but inequitable.

But often, when firms cannot compete by lowering (or, in a monopsony, raising) prices, they compete in some other dimension. So athletes reap other kinds of benefits. In fact, college athletes derive significant non-pecuniary benefits from being college athletes. They are revered, for one thing, even if not forever. It reminds me of the exchange in the movie Eight Men Out between Rothschild and Atell (the ex-boxer):
Arnold Rothstein: Altogether, I must've made ten times that amount betting on you and I never took a punch.
Abe Atell: Yeah, but I was champ. Featherweight champion of the world!
Arnold Rothstein: Yesterday. That was yesterday.
Abe Atell: No A.R. you're wrong. I was champ, and can't nothin take that away.
Of course, the NCAA creates more rules to limit competition in these dimensions, and generally it is more efficient to compete over prices, so these facts are not relevant to an antitrust analysis. Such an analysis would begin by noting that they NCAA is a cartel in which members are restrained in their ability to freely negotiate contracts—it's a horizontal price fixing arrangement. This makes it a "per se" violation of the Sherman Act. But when the Supreme Court examined the NCAA, it chose not to invalidate the arrangement as a per se violation. Instead, it applied the "rule of reason" and considered pro-competitive benefits that might justify the restraint of trade. The Court did so, because it believed that the "product," the college athlete—unpaid (i.e., amateur), attending classes, etc.—simply would not exist without the cartel:
This decision is not based on a lack of judicial experience with this type of arrangement, on the fact that the NCAA is organized as a nonprofit entity, or on our respect for the NCAA's historic role in the preservation and encouragement of intercollegiate amateur athletics. Rather, what is critical is that this case involves an industry in which horizontal restraints on competition are essential if the product is to be available at all.
This argument is not meritless. There are reasons to believe that if the NCAA were eliminated, college sports would suffer. Colleges would face higher costs. Labor costs would obviously rise, but there would also be tax and legal costs. Colleges might have to pay taxes on the income they derive from their teams, since they would be operating a business remote from their educational mission. They would also open themselves up to lawsuits brought under Title IX for discrimination, since female players would be paid less than male players. And converting college teams into professional teams would reduce team loyalty—alma maters would feel less connection to the players (and therefore the teams), be discouraged by trades, and feel less inclined to donate; and players would feel more pressure to take alternate offers and less loyalty to their teams.

The quality of the players might increase, and more resources might be diverted into college sports. But perhaps our society already puts too much emphasis on, and invests too much in, competitive sports. After all, it's a market characterized by superstars and arms-races, and for that reason prone to inefficiency. Choosing to participate in college sports means spending less time in the classroom. Eliminating the NCAA would make that trade-off more dramatic. It's a competitive world on and off the field, and we would do better as a society by investing more heavily in education and less heavily in sports.

1 comment:

  1. The Man,

    Excellent points, and I really appreciate you applying your economic and legal expertise to this subject. Clearly there are some beneficial reasons for the NCAA "cartel" to operate as it does - for the colleges and athletes.

    I think we could agree that at a minimum colleges, coaches, the NCAA should be more responsible to the education side of their "student-athletes." Currently there are few incentives for colleges and coaches to emphasize academic performance. This shouldn't be the case.

    Most players will never turn professional, everyone knows this, so the focus should be on using the opportunity of a college scholarship to earn a degree.