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The NCAA Cartel is Collapsing

July 2, 2021

Competition drives efficiency in our economy. The NCAA cartel has restricted competition.

The unanimous U.S. Supreme Court decision in NCAA v. Alston portends change for college sports.  This case involves education-related benefits and is separate from cases about athletes’ “name, image and likeness.”  The NCAA’s 100 year effort to not pay student-athletes is close to ending.

          Justice Neil Gorsuch authored the opinion, but Justice Brett Kavanaugh’s concurring opinion has garnered more attention.  Justice Kavanaugh wrote, “The NCAA’s business model would be flatly illegal in almost any other industry in America. … The NCAA is not above the law.”  He seems to accept that the NCAA ss a cartel expounded by economists like the late Robert Tollison of Clemson University.

          A cartel in economics is a group of businesses (or universities) acting to restrict competition.  The best-known cartel is OPEC, which tries to keep the price of oil high to increase oil-producing nations’ profits.  Businesses also benefit from paying less for labor.  The amateur status of college athletes fixes compensation at the value of a scholarship and related benefits.

          The NCAA began by enforcing common rules for college football to reduce the level of violence.  Once college football began earning significant revenues, schools offered inducements to top players.  The NCAA barred such compensation of athletes, although Professor Tollison contended that it became an effective cartel only once it could discipline violators through probation.

          The NCAA cartel illustrates via contrast the normal operation of labor markets.  Economics shows that businesses can afford to pay workers up to the value their work creates.  Competition between businesses for workers bids wages up to this amount.

Colleges are not for-profit businesses, but the same principle of revenue creation should still apply.  If top recruits are worth $1 million and one school refuses to pay this full value, others will lure its recruits by offering payment.  NCAA punishment halts the normal competition for productive players.

          Sports often feature such cartel behavior.  Leagues generate enormous revenues, making stars worth millions per year.  Yet most players’ best alternative work option outside of sports might pay $50,000 a year.  Teams can potentially keep salaries way below market levels by not bidding for players.  Major league baseball accomplished this via the reserve clause until the advent of free agency.

          How will the looming pay-for-play affect college football?  I see three relevant considerations.  First, can colleges afford paying players, given that many athletics programs lose money on paper?  I suspect so.  Colleges are not businesses delivering profits to owners and athletic departments are not stand-alone entities.  Economics predicts that non-profit organizations will convert excess revenue (the $100 million plus top athletic departments generate annually) into excessive costs.  Excessive costs can be trimmed to allow compensation.

          A second issue is competitive balance.  Schools generating the most revenue will be able to pay more for players.  Large market teams similarly threaten competitive balance in pro sports, and salary caps and revenue sharing try to maintain balance.  The rules on compensation will determine the threat to competitive balance.

          Payments to players may well reduce Alabama’s current domination of college football.  Not paying individual players allows the Crimson Tide, given the juggernaut Coach Saban has created, to offer a great deal to many five-star recruits each year: a proven path to the NFL and likely a national championship.  Rivals need to offer extra compensation to be as attractive to recruits as Alabama.

          The third issue involves sustaining fan interest.  Many fans strongly prefer college to pro football despite the NFL’s higher skill level.

          Economists have no skill in psychoanalyzing consumers.  I can offer an observation.  Improved coaching, strength training, and nutrition allow players today to realize more of their athletic potential.  This significant element of professionalization has not reduced interest in college sports.

          Competition drives efficiency in our economy.  The NCAA cartel has restricted competition.  As college sports ventures into unfamiliar territory, remember that competition usually makes us better off.

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Author
Daniel Sutter is Affiliated Senior Scholar at the Mercatus Center and Professor of Economics at the Manuel H. Johnson Center for Political Economy at Troy University.
dsutter@troy.edu

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