Friday, January 1, 2010

Congress should bench the BCS

Los Angeles Times opinion editorial "Congress should bench the BCS" (January 1st, 2010) cavils at the NCAA's Bowl Championship Series, advocating its demise in the place of a national championship game. Atypically, the author admits his motivation for his support of Federal meddling is not borne of any concern for legitimacy for the NCAA but for his desire for revenue equity among colleges.

I say this because the Bowl Championship Series fronts for a mammoth fraud that threatens the very foundation of public higher education. College football is a billion-dollar business, but one in which the benefits go to the few while most of the schools are awash in debt. These were the sobering conclusions of the Knight Commission on Intercollegiate Athletics. Its report in October stated that the 25 top football schools had surpluses, on average, of $3.9 million in 2008. The other 94 schools in the top division ran deficits averaging $9.9 million each. 'We've reached an indefensible, unsustainable situation,' said commission co-chairman William Kirwan. 'We've got 75% of the [college] presidents saying we cannot continue on this path.'

Relevantly, the author also takes issue with high head coach salaries:

The commission also noted that head football coaches at state colleges are often the highest-paid public employees. This year's BCS national championship coaches are Nick Saban of Alabama, who has a $32-million, eight-year contract, and Mack Brown of Texas, who just received a $2-million-a-year raise, for an annual salary of $5 million, until the end of his contract in 2016.

This is an improper accounting and complaint for seven reasons.  First, even if there is "destructive" competition over inputs like coaches, we may not expect this to impact full revenue for schools.  Second, it is clear the NCAA is competing with the NFL for coaching assets.  Third, the increased competition is indeed benefitting someone. Fourth, it is unclear if increased competition gets larger donations. Fifth, it is unclear whether or not athletics programs should be expected to lose money. Sixth, concerns over money losses are diminished under beliefs about free entry and exit.  Seventh, there is nothing preventing the NCAA from fixing the BCS if it is not maximizing revenues.

The most significant error individuals who bemoan "destructive" competition make is to observe "over" competition. Take a matching market. Men may prefer taller women, let's assume a fortiori men care about height relative to their peers. It may be in the interest of women, therefore, to wear painful high heels. However, one notes that if all women wear high heels, they maintain the same relative height and gain nothing. However, it is unclear if women are worse off for this higher level of competition. It may simply be that they are able to extract compensatory income from their match. This is true of "overcompetition" in college athletics departments with state, alumni, and corporate donors. The principle of how destructive competition might not actually harm state departments is displayed graphically below (click to enlarge).

In the above diagram, we see that even though marginal costs have increased, economic profits stay zero (average cost of making goods is equal to the price).  Firms pass on the costs to consumers.  Just as firms pass on marginal competition costs to consumers, and women may pass on the cost of high heels to their mates, so too might universities pass on the cost of athletics programs to alumni donors, state supporters, and athletic event attendees.

Second, and perhaps more importantly, it is unlikely that college sports are living the a "relative" world above.  If they were competing for a fixed number of coaches, that might be the case.  But a substitute job for college football coaches has often been professional football.  A number of coaches have moved back and forth.  For all the NFL head coaches in 2007, whose careers we display graphically below (click to enlarge) we see that a number cross back and forth between College and Professional Football coaching, denoted by blue squares and red squares respectively (click to enlarge the legend).  The higher the level within color, the higher the position (broken up into assistants, position coaches, coordinators, and head coaches).

The above graph, which traced only the path of head coaches, does not necessarily fully represent the crossover between the NFL and the NCAA.  One can imagine a graph of all head coaches in the NCAA would provide a number of resumes with NFL experience (like Nick Saban, Alabama head coach and former head coach of the Miami Dolphins).  Nonetheless, the graph is adequate to give evidence for competition between the NCAA and NFL.  In this case, there appears little reason why reforming the BCS should change the cost of inputs.

Third, one might expect that quality college football programs provide positive consumer surplus to a state populace in a manner too difficult to extract and with high fixed cost (a good which would be supplied privately under a situation allowing perfect discrimination).  This situation is depicted graphically below (click to enlarge).

Fourth, it is important to note that the Knight Commission is unable to properly calculate the real amount of revenue due to college athletics departments. Take T. Boone Pickens's cumulative donations of $400 million to Oklahoma State University, $265 million of which was directed specifically towards athletics. It is unclear how large a gift would have been given if OSU had not athletic department (or a smaller one).

Fifth, were High Schools to use a similar revenue-generation criteria of determining the success of athletics departments, the vast majority of High School athletics would collapse.  It may be that revenue is not the relevant manner in which to judge athletics programs.  Increases in school spirit, socialization, and other vectors other than revenue may justify spending money on them.

Sixth, the author's concern about school losses doesn't make an enormous amount of sense to Corrections.  The University of Chicago withdrew from Division I sports in 1946.  Northeastern dropped its football program last November, 2009, and Western Washington University did the same in January 2009.  There exists free entry and exit into these ostensibly money-losing sports.

Finally, if there are revenue concerns, there appears nothing to prevent the NCAA from changing the BCS freely.  The formation of a cartel would appear to be quite easy, as monitoring is easy and production of a game requires two defectors.

1 comment:

  1. Not to mention the fact that Congress has absolutely and positively no business with the regulation of college football. There is nothing in the enumerated powers that would remotely anticipate the idea the the federal government should be setting the standards for how a private sports organization chooses to organize their tournaments.