The Economics of Sports FIFTH EDITION Chapter 11 The Economics of Amateurism and College Sports MICHAEL A LEEDS | PETER VON ALLMEN Introduction • 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 Copyright ©2014 Pearson Education, Inc All rights reserved 11-2 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 Copyright ©2014 Pearson Education, Inc All rights reserved 11-3 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 Copyright ©2014 Pearson Education, Inc All rights reserved 11-4 A Brief History of Amateurism and the Olympic Ideal • The Olympic Games no longer require their participants to be amateurs • In contrast, American colleges and universities still require their athletes to be amateurs • Many justify the requirement by appealing to the original Olympic amateur ideal • We examine the ideal to see how amateur it was Copyright ©2014 Pearson Education, Inc All rights reserved 11-5 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 – Pythian Games • Held in Delphi, they honored Apollo – Nemean Games • Held in Nemea, they honored Heracles and Zeus – Isthmean Games • 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 Copyright ©2014 Pearson Education, Inc All rights reserved 11-6 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 Copyright ©2014 Pearson Education, Inc All rights reserved 11-7 The British Ethic and War • Recall the impact of the Industrial Revolution on professional sports in Chapter • 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” Copyright ©2014 Pearson Education, Inc All rights reserved 11-8 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 FrancoPrussian 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 Copyright ©2014 Pearson Education, Inc All rights reserved 11-9 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 Copyright ©2014 Pearson Education, Inc All rights reserved 11-10 Academic Standards • Positive view: Standards preserve academic integrity – Standard prevent colleges from recruiting unqualified students • 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 Copyright ©2014 Pearson Education, Inc All rights reserved 11-43 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 Copyright ©2014 Pearson Education, Inc All rights reserved 11-44 Computing the APR • Each school receives an APR rating – It gets point if a scholarship athlete stays enrolled – It gets more point if s/he stays academically eligible • The APR is the % 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 point • APR=100*(51/52)=981 – APR must be at least 925 (930 by 2015-16) Copyright ©2014 Pearson Education, Inc All rights reserved 11-45 What if the APR Is Too Low? • The school is subject to sanctions that increase year by year – Stage 1: The school receives a public reprimand – Stage 2: The school loses scholarships and/or practice time – Stage 3: The school is banned from post-season play – Stage 4: The school loses membership in NCAA • School in trouble in 2012 include – UConn’s men’s basketball team, which is at Stage – Grambling State has this year (2012-13) to avoid Stage Copyright ©2014 Pearson Education, Inc All rights reserved 11-46 Academic Standards as a Barrier to Entry • Schools that oppose standard could be accused of trying to win at all costs • Less established athletic programs find it difficult to compete with traditional powers, which have an advantage recruiting athletes who meet the higher academic standards • Some studies find that higher standards decrease competitive balance – Penalties for violation of standards could offset the advantage Copyright ©2014 Pearson Education, Inc All rights reserved 11-47 11.4 The Returns to the Athlete • There are two ways to view student-athletes: – We can see them as underpaid entertainers – We can see them as obtaining a free education at a bargain price • We begin by examining the payment granted to student-athletes and what the term “studentathlete” really means Copyright ©2014 Pearson Education, Inc All rights reserved 11-48 Athletic Scholarships: The Grantin-Aid • National Signing Day is now a major event – It is first Wednesday in February for football • NCAA forbade athletic scholarships until 1956 – Penn State gave the first athletic scholarship in 1900 – Scholarships caused the “Seven Sinners” fiasco • After the Sanity Code failed, the NCAA permitted scholarships – It argued that it is easier to police support in the open • This is analogous to policing drugs or prostitution – Scholarships open door to workmen’s compensation claims Copyright ©2014 Pearson Education, Inc All rights reserved 11-49 The “Student-Athlete” • Athletic scholarships created a problem – They were given “regardless of financial need or academic merit” – They effectively turned students into employees – They allowed students’ seeking workmen’s compensation for injuries “on the job” • Student-athlete is a legal term – Players must sign that they are not being paid to play – They thus agree not to file for workmen’s compensation Copyright ©2014 Pearson Education, Inc All rights reserved 11-50 Measuring the Net Value of Athletes • The NCAA uses its monopsony power to generate economic rent – Excess return comes from depressing labor costs • A simple way to measure players’ value: – The average revenue of the 20 most valuable football programs is $62.25 million – In the NFL, 48% this goes to players ($29.88 million) – Assuming the team pays its 85 scholarship athletes • The average salary would be $355,000 • A star quarterback would earn about 15% of payroll – Eli Manning earns 15% with the Giants – This implies a star college quarterback is worth $4.4 million Copyright ©2014 Pearson Education, Inc All rights reserved 11-51 College Athletics as an Investment • Very few college athletes enter the professional ranks • See Table 11.6 for the probabilities of signing • It may still pay to participate in athletics – Long and Caudill (1991) show that athletes earn more in later life than non-athletes • They not separate athletes by college or sport – A Swarthmore squash player is indistinguishable from an Ohio State linebacker Copyright ©2014 Pearson Education, Inc All rights reserved 11-52 Table 11.6 Copyright ©2014 Pearson Education, Inc All rights reserved 11-53 Athletic and Academic Success • Graduation success rate (GSR) – GSR is percent of athletes who graduate within years – GSR does not include those who transfer out – GSR includes those who transfer in • GSR is very low for men’s basketball teams that made the At 2012 “Sweet 16”—Table 11.7 • Teams in the women’s “Sweet 16” had much higher GSRs—Table 11.8 • Differences appear even at small, elite colleges Copyright ©2014 Pearson Education, Inc All rights reserved 11-54 Table 11.7 Copyright ©2014 Pearson Education, Inc All rights reserved 11-55 Table 11.8 Copyright ©2014 Pearson Education, Inc All rights reserved 11-56 Why Do Some Sports Do Worse? • Some athletes are less prepared for college – Have lower SATs, class rank, and gpa • This is true for “money sports” like basketball and football • Not true for softball or golf • Leaving college early might be a rational choice – Athletes go to some schools to go to the NFL or NBA – Joining the NBA or NFL as an underclassman is a sign of success – not failure Copyright ©2014 Pearson Education, Inc All rights reserved 11-57 ... 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... 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... 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 Copyright