The economics of sports 5th by michael a leed and allmen chapter 11

• Intercollegiate athletics echoes many themes • Athletic departments balance “profit” against alternative goals • Colleges and conferences exert monopoly power – The NCAA has a lucrativ

Trang 1

Chapter 11

The Economics of

Amateurism and College Sports

FIFTH EDITION

The Economics of Sports

MICHAEL A LEEDS | PETER VON ALLMEN

Trang 2

• Intercollegiate athletics echoes many themes

• Athletic departments balance “profit” against

alternative goals

• Colleges and conferences exert monopoly power

– The NCAA has a lucrative broadcast deal

• Colleges provide facilities to athletic teams

– Intercollegiate sports provide public goods and externalities

• Colleges exert market power over athletes

– They reduce pay

Trang 3

Learning Objectives

• Appreciate how the “Olympic ideal” of amateurism developed and was integrated into intercollegiate

sports

• Identify the benefits and costs of intercollegiate

sports to a university and explain why colleges might want to support athletics even if they are not

profitable

• See how the NCAA can be viewed as a regulatory

agency, a club, and a cartel and how each framework affects the interpretation of the NCAA’s actions

• Recognize how student-athletes benefit—and fail to benefit—from their college experience

Trang 4

11.1 The Troublesome Concept of Amateurism

• Much of the controversy in college sports stems

from its perceived professionalization

• Critics hearken back to a time when “it made sense

to regard athletics as an educational undertaking” (Knight Commission)

• Colleges place restrictions on themselves because they see student-athletes as athletes first

Trang 5

A Brief History of Amateurism

and the Olympic Ideal

• The Olympic Games no longer require their

Trang 6

The Original Olympic Games

• They began in 776 BC to honor Zeus

• They were an integral part of a set of four religious

festivals The other three were

• Held in Corinth, they honored Poseidon

• The word athlete comes from the Greek word athlos,

which means “conflict” or “struggle”

– The struggle brought them closer to gods

Trang 7

The Original Olympic Games

• The ancient Olympians were not amateurs

– Cities rewarded them, especially winners

•Local pride played as much a role then

as now

– Some athletes earned enough to train full-time

• The Romans further professionalized the Games

• The ancient Games were suppressed by the

Christian emperor Theodosius in 393

Trang 8

The British Ethic and War

• Recall the impact of the Industrial Revolution on

professional sports in Chapter 1

• By the 19th century, the British took to heart

Juvenal’s claim mens sana in copore sano (“a sound

mind in a sound body”)

• The Duke of Wellington was convinced that his

victory over Napoleon at Waterloo in 1815 was

attributable to British athleticism

– “The Battle of Waterloo was won on the playing fields of Eton”

Trang 9

The Origin of Modern Games

• The modern Games were created by Pierre de

Coubertin, a French aristocrat

– He felt humiliated by French defeat in the

Franco-Prussian War in 1871

– He wanted to show France how to restore its vitality – and beat the Prussians

– The name “Olympics” came from a local British

festival – not from an appeal to ancient Greece

– De Coubertin was a great Anglophile

– Women were barred from the first games in 1896

Trang 10

Amateurism in American

Colleges

• Just like the upper classes felt threatened by the athletic

participation of the working classes, the expansion of colleges and sports generated social conflict

• Yale and Harvard responded to losses in crew to “lesser”

colleges by withdrawing from intercollegiate competition in 1875

• Similarly, The British Rowing Association defined an amateur as

• Any gentlemen who has never competed in an open

competition, or for any public money, or for admission money,

or with professionals for a prize, public money, or admission money, and who has never in any period of his life taught or assisted in the pursuit of athletic exercises as a means of

livelihood; nor as a mechanic, artisan, or labourer.

Trang 11

Amateurism in American

Colleges

• US colleges were based on the British system

• Colleges emphasized character as well as

knowledge

– Sport rose as religiosity declined

• The NCAA Manual explicitly calls sport “an

avocation”

– Participants are “motivated primarily by

education and the physical, mental, and social benefits”

– This has led to the NCAA to limit aid to athletes

Trang 12

11.2 The Costs and Benefits of

College Athletics

• Should athletic programs show a profit?

– Fans have trouble accepting profit-seeking in

professional sports

– Do we ask philosophy departments to show a

profit?

• But programs that not show profits are criticized as

a drain on university resources

Trang 13

The Revenue from Intercollegiate Athletics

• Almost all revenue comes from

football and men’s basketball

– Most comes from football

– Table 11.1 shows the revenue, profit, and market value of the top football programs

Trang 14

Table 11.1

Trang 15

Gate and Venue Revenue

• Tickets used to be the sole source of revenue

– They now account for about 25% of the revenue

of state university football teams

• Unlike professional teams, college teams cannot

move

• Like professional teams, they have begun to sell

naming rights and offer luxury boxes

Trang 16

Broadcast Revenue

• The major conferences all have their own versions of RSNs

– Example: “The Big 10 Network”

– Some colleges have their own deals

• Notre Dame’s deal with NBC (the “Notredame Broadcasting Company”)

• Texas has “The Longhorn Network”

• This has equalized revenue within conferences

– As with professional leagues, the conferences share the revenue

• It has worsened inequality among conferences

– See Table 11.2

Trang 17

Table 11.2

Trang 18

Television and Basketball

• The NCAA Basketball Tournament

– The 14-year contract (2010) with CBS & Turner is worth $10.8 B

– The NCAA received $680 M in 2011-12

– This was almost 90% of the NCAA’s total revenue

• About 60% of this revenue goes directly to colleges

– It provides supplemental aid to student athletes – It bases payments on the number of scholarships

or sports a college offers

– This tends to reward the big programs more than the small ones

Trang 19

Rewards for Performance

• Conferences – not teams – receive payments for

successful performance

– In 2011, this totaled $180.5 million

– For each tournament win, a conference receives

$250,000 per year for 6 years

– UK’s championship run was worth $1.25M/year to SEC

– Even appearing once and losing is worth a total of

Trang 20

The Revenue from Bowl Games

• Bowl Games began as tourist attractions

• They matched a local team (to draw local fans) with a distant team (to draw tourists)

– The Rose Bowl traditionally paired a West Coast team (Pacific 12) with one from the Midwest (Big 10)

• Television altered the equation

– It became important to have a nationally attractive game

– TV gave rise to the Bowl Championship Series (BCS) – See Table 11.3 for selected bowl payouts

Trang 21

Table 11.3

Trang 22

The BCS

• The BCS is not an NCAA organization

– It was created by TV networks and the

“major” football conferences

– Its goal is to generate revenue for these two groups plus the Bowl organizing

committees

• Schools from non-BCS conferences earn far less

from TV appearances and other bowl appearances

Trang 23

How the BCS Stacked the Deck

• The big conferences automatically put a team in one of five BCS

Bowls see Table 11.4

• Schools that are not “automatic qualifiers” must compete for one of four remaining spots

– There are only 3 spots if Notre Dame qualifies

– To qualify, an outside school must

• Rank in the top 12 or

• Rank in the top 16 and be ranked higher than the champion

of one of the BCS conferences – There is no guarantee for a second school that meets the criteria

• This led the University of Utah to file an antitrust suit against the BCS

• The payoffs from the upcoming playoff system seem similarly

skewed

Trang 24

Table 11.4

Trang 25

The Cost of Intercollegiate

Athletics

• Athletic departments may resemble commercial

enterprises, but they are unique in one key respect: they do not pay their labor force

• Universities have been accused of engaging in an athletics arms race, with athletic budgets steadily rising, even as the rest of their budgets are being cut

Trang 26

• Scholarships are the biggest single cost

– 14% of average athletic department’s budget

– Many feel this overstates the burden

• What do scholarships cost?

– They are not an explicit cost – they are not paid– The opportunity cost could be close to zero

• Would the athlete have paid to attend?

• Does s/he displace a paying student?

– If not – there is no cost

• A partial scholarship might even generate revenue

Trang 27

Coaches’ Salaries

• Head coaches averaged ~$1 million/year in 2011

– Nick Saban (Alabama football) will average $5.62 million through 2020

– John Calipari (Kentucky basketball): $3.7 million

in 2012

• Salaries rose 650% between 1986 and 2010

– Faculty salaries rose 39%

• At the 20 most valuable football programs, the

coach’s salary was 5.2% of total team revenue

– This would pay NFL coach about $15 million/year

• More than double that of highest paid NFL coach

Trang 28

Capital Expenditures

• Average expense at FBS program is $27 mill./year

– This exceeds operating expenses

• University of Michigan in 2006 spent $226 million

on capital improvements to Michigan Stadium

• Colleges spend a large absolute amount on athletics but a relatively small fraction of their overall budget – On average about 3-3.5% for FBS programs

– This is means that athletic departments are a

much bigger presence in universities than

professional sports are in cities

Trang 29

Do Colleges Profit from

Athletics?

• Counting all revenues, 72% of all BCS schools are profitable

– This includes revenue allocated by university

– Counting only revenue generated by the athletic department, less than 30% are profitable

• Deleting scholarships (recall MC = $0), over 80% of BCS schools are profitable

• Non-BCS schools all lose money

• All sports except football and men’s basketball lose money

Trang 30

Spillovers from Athletics to the University

• Like cities, universities must look beyond profits

• Sports can be seen as public goods

– Athletics provide a sense of identity at large

schools

• We have seen that professional teams have done the same for cities

– Most of the big programs developed in small

Midwestern or Southern university towns

• Professional sports did not have a foothold in these locations

Trang 31

Admissions

• Several studies find that big-time athletics

increases the quantity and quality of applicants

– Many of these studies use only one year of data

• One year makes hard to separate out forces that affect both academic success and broad appeal

• Recent studies have looked at how schools have

performed over time

– Longer time frame makes it easier to isolate

athletic impact

– These studies have mixed results – some support previous findings but others do not

Trang 32

Donations and State Funding

• Donations are 22% of athletic revenues

– It can be hard to separate donations from

investment in tickets

– Studies suggest that there is little spillover to

giving to non-athletic programs

• Some schools have used sports to spur state funding

– Michigan State successfully used football in the 1950s

– The University of Oklahoma president asked

legislators for “A university our football team can

be proud of”

Trang 33

11.3: The Role of the NCAA

• It is the largest – but not the only – intercollegiate association in the US

• It can be viewed many ways

Trang 34

The NCAA as a Regulatory

Agency

• College sports were originally controlled by the

students

• Control shifted in the late 1800s to the faculty and

to the NCAA in the early 1900s

• An early goal was to control the “tramp athlete”

– Football players selling their services to colleges– Some made college sports a career

• Colleges found it difficult to police themselves

– They were caught in a prisoner’s dilemma

– See Table 11.5

Trang 35

Table 11.5

Trang 36

The NCAA as a Club

• We have treated conferences as clubs

• We can think of the NCAA subdivisions as clubs

– Originally in three divisions (I – III)

– Division I split into Football Bowl Subdivision (IA) and Football Championship Subdivision (IAA)

• The formation of finer subdivisions comes from the rule for the optimal size of a club (MR=MC)

– The MB of adding Swarthmore to the FBS is tiny– The MB of adding the University of Georgia is

much greater

Trang 37

The NCAA as a Cartel

• Most cartels arise because a group of producers

desire monopoly power over their output

– They want to restrict their output to raise prices– The NCAA can exercise monopoly power

• The NCAA can also use its market power to exercise monopsony power over its inputs

Trang 38

NCAA as a Monopoly

• Cartels must agree on a common price

– Then they allocate output and hence profit

• An efficient cartel allocates the most output and

profit to the most efficient member

– See Figures 11.1 and 11.2

– In colleges, the BCS schools are the most

“efficient” at producing football

– Less efficient schools get less output/profit

– Some schools get none at all

Trang 39

Figure 11.1

Trang 40

Figure 11.2

Trang 41

The NCAA as a Monopsony

• A former director of the NCAA has said,

“Amateurism is not a moral issue; it is an economic camouflage”

• Critics view the NCAA as a monopsony that drives down the cost of labor

• Restrictions on player movement drive down the

market power of the intercollegiate labor force

• See Figure 11.3

Trang 42

Figure 11.3

Trang 43

• Negative view: Standards create a barrier to entry

– Established powers keep out new competing

entrants

– Competitors cannot pay athletes more

– With standards, competitors cannot take weaker students either

Trang 44

NCAA’s Current Standards

• To qualify for an athletic scholarship

– Student must complete 14 core courses in high school

– Must satisfy a sliding scale for GPA and SAT

scores

• 2.0 core GPA requires 1010 SAT

• 3.55 core GPA requires 400 SAT

• Schools must maintain an adequate Academic

Progress Rate (APR) for individual sports as well as for the overall athletic program

Định dạng
Số trang	57
Dung lượng	2,19 MB