Economics of Sports

1. Economics of Sports Unit 8: Amateurism and College Sports

2. Amateurism and the Olympic Ideal • Ancient Olympians were not amateurs • Winners were well rewarded by home cities

3. Amateurism and the United States • Commercialism and corruption were ever-present • The first intercollegiate competition had corporate ties • Harvard v. Yale in crew (1852) • Was sponsored by a railroad promoting a nearby resort • The rematch brought the first eligibility scandal • Harvard’s coxswain had already graduated • The first football game and the first scandal • Rutgers v. Princeton November 6, 1869 • Four of Rutgers’ players were flunking math

4. The NCAA and Monopsony Power • Does it defend academic ideals? • Restricted movement prevents “tramp athletes” • In early 20th century athletes were hired guns • Transferred from school to school for best deal • Does it just drive down pay? • Players have highly limited mobility • Players have no say over compensation • Star players are worth millions to schools • But all they receive is tuition and some fees

5. Athletic Scholarships • Now source of great excitement • Not always the case • NCAA forbade them until 1956 • NCAA rules often ignored • They were the cause of the “Seven Sinners” fiasco • The NCAA’s justification of scholarships • They would be easier to police if out in the open • Analogous to drugs or prostitution • Prevented workman’s compensation claims

6. The “Student Athlete” • Scholarships created a problem • Students were effectively employees • They began to seek workmen’s compensation for injuries “on the job” • Student athlete is a legal term • Players must disavow any desire for pay • As a result, colleges do not have to provide workmen’s compensation

7. The NCAA as a Cartel • Controls access to desirable broadcasts • Bowl games • Basketball tournament • Has to figure out how to divide profits • An efficient cartel will base rewards on efficiency

8. The NCAA as an Efficient Cartel • Allocates greatest share of profit to colleges that are “most efficient” • Schools that progress farthest in tournaments • Schools that belong to “major” conferences • Football divided into Divisions • Smallest are Division III and Division II • Largest schools are subdivided • Football Championship Subdivision • Football Bowl Subdivision

9. The Bowl Championship Series • 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 • Schools from non-BCS conferences make far less • University of Utah has begun an antitrust suit against the BCS

10. College Athletics as an Investment • Very few college athletes make it to the professional ranks • It might still pay • Long and Caudill (1991) show that athletes make more in later life than non-athletes • Study does not separate athletes by college or sport • A Swarthmore squash player counts as much as an Ohio State football player

11. Athletic Success and Academic Success • Most successful men’s programs often have poor graduation rates • Graduation rates of players at top 25 football programs in 2008 • On average they were 10% below other student-athletes • Only one school (Cincinnati) had a higher graduation rate • The same pattern holds for men’s basketball in 2008-2009 • Women’s programs did not show the same trade-off • Students at the top programs generally had higher graduation rates than the typical student athlete

12. Why do Some Sports Do Worse? • Some athletes less prepared for college • SATs, class rank, and gpa lower • True for “money sports’ like basketball and football • Not true for softball or golf • Dropping out might be a rational investment • Do football players go to Florida to get to NFL? • Do football players go to Harvard to become physicists?

13. Academic Standards • Preserve academic integrity • Don’t recruit unqualified students • Create a barrier to entry • Established powers keep out new entrants • Competitors cannot pay athletes more • Now cannot take weaker students either

14. History of Standards • No uniform rules until 1965 • 1.600 Rule – a complex formula projected gpa • To play needed projected 1.600 gpa • 1973: Replaced 1.600 with 2.00 rule • Ostensibly created higher standards • Actually needed C+ average in high school • Could take any courses • Worst abuses came under this rule

15. Proposition 48 • Provisions • Needed SAT=700 & GPA=2.00 in 11 core courses • If not: no scholarship in 1st year & cannot play • Was Prop 48 Racist? • Disproportionately affected black athletes • SATs for blacks average 200 points lower • Are SATs a valid predictor of college performance? • Still – graduation rates rose for whites and blacks • A concession: Partial Qualifiers • Could receive aid if pass one criterion

16. Proposition 42 • Meant to eliminate partial qualifiers • Again accused of racist impact • Partial qualifier restored – and widened • Under Prop 48 scholarship “counted” against college’s athletic limit • Under 42 it did not count

17. Proposition 16 • Created a sliding scale • Lower gpa permitted if SATs higher & vice versa • Clearinghouse evaluated individual courses • Understaffing caused embarrassing errors • Honors classes with unusual names got flagged • Allows partial qualifiers to practice • Challenged in court • Students claimed disparate racial impact • Won initial case • Verdict overturned on technicality • NCAA does not disburse federal funds

18. Latest Revision • Eases initial restrictions • 14 core courses (up from 13) • Sliding scale • 2.0 core GPA requires 1010 SAT • 3.55 core GPA requires 400 SAT • No Partial Qualifier status • Stiffens progress requirements • Need 40% of degree requirement by 3rd year • Need 60% of degree requirement by 4th year • Need 80 % of degree requirement by 5th year

19. Academic Progress Rates (APR) • School scored for student progress • 1 point if athlete stays enrolled • 1 point for staying academically eligible • Computes % of total possible points • Consider a typical big-time basketball team • 52 possible points (13 players *2 points*2 semesters) • If one player is ineligible in spring – it loses 1 point • APR=100*(51/52)=981 • If its score falls below 925, the school could lose scholarships

20. Are Athletics Profitable? • Most men’s sports are not • Only football and basketball make money • Only for Division I & IA • Most FBS schools and almost all FCS schools lose money on athletics • Almost all women’s sports lose money • Women’s basketball is most profitable women’s sport • But almost all of them lose money

21. Then Why Bother? • Some say the benefits are understated • Athletics provide a sense of identity at large schools • Athletic success raises a school’s profile • Improves state schools’ chances for state funding • Attracts more and better students • Some say the costs overstated • What does a scholarship really cost? • The tuition of a displaced student • If no one is displaced there is no opportunity cost • Expenditure is endogenous • Athletic Directors do not maximize profit • As revenues go up – they simply spend more