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The Athletic Cartel

Lots of people make money from college football and basketball—everyone except the players.

By Thomas Grennes

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February 17, 2009

(Thomas Grennes is a professor of economics at North Carolina State University. His research has dealt with many aspects of globalization, and current research topics include sovereign wealth funds, offshore outsourcing, and determinants of state-level business cycles.)

Like many other students, players in the major revenue sports—football and basketball—work long hours at jobs that support them in college. Their job is playing on a team. For these students, however, a double standard has emerged. They are treated better than other students in some ways, but much worse in other ways. Specifically, they operate under wage rules and freedom-of-movement restrictions that anti-trust laws banned long ago for most people in this country. Is this fair?

College athletics is controlled by a powerful cartel. That cartel, managed by the National Collegiate Athletic Association (NCAA), provides a good livelihood for the adults involved—coaches, athletic directors, team doctors, sports announcers, and college presidents. Those adults receive handsome, competitive salaries that sometimes exceed $1 million per year.

But the athletes themselves miss out on the benefits of competition. Hoping to become highly-paid professional players (only a minuscule portion do), football and basketball players accept scholarships for room, board, and tuition. Payment is called a “scholarship” in order to qualify for tax advantages.

No college is allowed to pay more, and anything resembling a gift is exhaustively scrutinized. A star athlete cannot receive more compensation than an obscure teammate who sits on the bench most of the time.

Essentially, the NCAA is acting as a buyers’ cartel just as OPEC acts as a sellers’ cartel for oil-producing countries. It makes sure that the normal forces of supply and demand do not operate. If competition for outstanding athletes prevailed, outstanding athletes, like outstanding coaches, would be very well paid. Colleges don’t want to pay those high wages, and the NCAA is acting as their agent.

Although the best football and basketball players are harmed, it should be kept in mind that not all college athletes are harmed. Some of the cartel revenue is used to subsidize non-revenue sports.

The fact that schools cannot compete for talented players on the basis of wages does not keep coaches and athletic directors from competing. The NCAA is obliged to distinguish between acceptable and unacceptable forms of competition. In fact, there is a giant superstructure of rules and regulations designed to keep enterprising coaches from getting ahead of other schools. The rules defy logic, and loopholes are closed as soon as they are discovered.

Schools can offer elaborate physical facilities, for example, and the services of expensive coaches, medical doctors, and tutors. They can offer lower admissions standards for talented athletes who are weak students. However, they are not allowed to offer gifts to students or their families or lucrative summer jobs. College booster clubs cannot compensate players. Rules have become so complex that schools often hire full-time bureaucrats with titles such as Athletic Director in Charge of Compliance.

Rules even restrict the number and timing of phone calls by coaches to high school recruits. Former Indiana University coach Kelvin Sampson was fired for improper phone calls. He tried to circumvent the phone call restrictions by substituting text messages, but the tactic did not save his job.

Each time the NCAA prohibits a particular kind of competition, enterprising coaches switch to another form. Recruitment has moved to younger athletes, and coaches have already offered scholarships to middle-school students. In response to this pursuit of youth, the NCAA recently restricted contact between college coaches and seventh graders at summer basketball camps. A sign of the incongruity of this rule is that while the NCAA prohibits contact with young athletes, most people consider college summer camps for young science and foreign language students to be wholesome institutions.

Suppose a college wants to improve its team by persuading players to transfer from other schools. Although offering higher pay is not allowed, the school might hire a better coach or build better facilities. But the NCAA considers transferring an unacceptable practice that justifies punishment. If students transfer, they cannot compete for one year. The restriction against student transfers applies even if a student’s coach—who is often the reason why the athlete chose the college in the first place—takes another job.

A current Alabama high school star, DeMarcus Cousins, is challenging the arrangement. He has made a verbal commitment to the University of Alabama-Birmingham, but refuses to sign a written agreement unless the UAB athletic director agrees in writing to let him transfer if the coach takes another job. So far, UAB has refused the request. NCAA officials have privately expressed concern that other athletes might seek the same transfer provision in their agreements.

Another rule is designed by the NCAA to keep outstanding high school players from going directly to professional basketball. The NBA and the NCAA have an agreement that no players will be hired until they reach the age of 19. Although the agreement has kept 18-year olds out of the NBA, it has also resulted in many players going to college for one year before turning pro (“one and done”). Maybe they should be called “temporary” student-athletes.

To avoid that year of low pay, a California high school player, Brandon Jennings, went directly to the Italian professional league. He is earning $2 million this year, while waiting to join the NBA. Other players are expected to follow his example, although this escape is only available to the very best players.

Perhaps the most extreme example of the cartel-like arrangement in these sports is the cooperation by colleges with the professional basketball and football drafts of college students. For example, when the NFL has its annual draft, each eligible player is selected by one team; all teams agree they will not offer jobs to draftees of other teams. If a player is drafted by Cleveland but wants to play in New York, his only option is to try to persuade Cleveland’s management to trade him to New York.

Americans wouldn’t tolerate such an arrangement anywhere else. Imagine if colleges gave the right to hire their electrical engineering graduates to a group of employers who would, one by one, have exclusive rights to negotiate with each graduate. The graduate would have to accept employment with the employer that “drafted” him, or search for a job outside electrical engineering. No one would think that fair, but the public accepts such a practice for sports.

There is a way to treat athletes in revenue sports fairly: pay them competitive salaries, just as coaches and other employees are paid. The best players would receive higher pay than average players, just as more productive employees do in many occupations. As a result of competition, some of the revenue now controlled by athletic directors and the NCAA would be transferred to the athletes who have a critical role in generating it.

While space is limited for discussing this proposal (and other proposals have been made for addressing the problem), it could take a couple of forms:

1. Pay competitive salaries under current rules that require players to be full-time students.

Or,

2. Relax the idea the players must also be students. Thus, they would be employees, like coaches, medical doctors in infirmaries, or plumbers. Most universities have film and drama series that entertain in a way similar to spectator sports, but the workers involved don’t have to be students.

Considering the ethically dubious regulations that characterize the current cartel arrangement, those approaches are worth considering.

 


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