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Economics of Sports

Economics of Sports. Unit 8 : Amateurism and College Sports. Amateurism and the Olympic Ideal. Ancient Olympians were not amateurs Winners were well rewarded by home cities. Amateurism and the United States. Commercialism and corruption were ever-present

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Economics of Sports

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  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

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