O’Bannon and Econ 101

Any time I see an editorial on college athletics mention Adam Smith, I’m gonna toss a nod in its direction.  And this is a particularly good point made in response to the Jim Delanys of the world:

O’Bannon’s response to the NCAA may be the most powerful case ever assembled against the association’s propaganda machine. Among other things, it systematically dismantles the NCAA’s argument that the vast majority of its members lose money on sports. In fact, most Division I schools are not caught in an expensive arms race for coaches and athletic facilities. They have simply obscured the profitability of their football and basketball programs with accounting tricks, such as shifting revenue from sports concessions to the food service budget.

The NCAA advances these false claims of poverty so it can argue that its member schools can’t possibly afford to spend more money on sports, much less pay their athletes. O’Bannon’s lawyers put the lie to this, too, invoking foundational truths of economics dating to Adam Smith and David Ricardo: “Redistributing rents does not change true economic costs. It simply takes money from one person or group and shifts it to another.” Translation: Paying athletes wouldn’t result in schools spending additional money on sports. They would just spend less of it on coaches and facilities and more on students.

It’s not so much that I’m at the point where I want to see the schools cut checks to players as I am wanting to hear the O’Bannon defendants admit they’re FOS.

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11 Comments

Filed under It's Just Bidness, The NCAA

11 responses to “O’Bannon and Econ 101

  1. HahiraDawg

    “Whatever happens from here…
    that sounds like ’68 seconds, down by 4, 85 yards to go and no time outs’, can we go ahead and put this one in the end zone!
    “That system and its overlord — the NCAA — both deserve to be die.”
    I’m enjoying this case, thanks for the updates Senator, your bite-size look-ins are much appreciated.

  2. Stephen

    “Redistributing rents does not change true economic costs. It simply takes money from one person or group and shifts it to another.” Any economist would laugh at this. Redistributing rents, alone, may not change the size of the pie, but changing who can compete for slices of the pie [eg what the plaintiffs want] changes everyone’s equilibrium behavior, which for sure changes the size of the pie. See Grossman and Helpman’s 1994 article “Protection for Sale” in the American Economic Review, for example. [Never thought I'd get to break that one out in a GTP comment.]

    • The other Doug

      How would the size of the pie (revenue) change?

      • Stephen

        There are lots of potential ways. For instance, if players are getting paid, it probably decreases the attractiveness of college football for many spectators. Part of why people watch an inferior sport product compared to the NFL, is the “romance” of CFB, for lack of a better term. Also, if player salaries make the have’s vs have-not’s disparities really large, then it also makes many of the games that are currently mediocre less attractive. If the money is going to come out of coaching salaries, presumably, the product on the field will get worse. Creating an interest group, like a college player’s association, makes them better able to lobby for unnecessarily special treatment. Kind of like the arguments that some people use against unions.

        None of these are devastating. And all these effects occur on the margin. Nor do these arguments also don’t weigh in on whether players *should* be paid.

        My point was just that, to say “redistributing rents has no effect on revenue” is kind of silly. There’s been a lot of economics since Viner and the 1940’s. The plaintiffs lawyers need to put down their Econ 101 textbooks and either hire an economics consultant or stick to the law.

        • Monday Night Frotteur

          That list of worries is one-sided (enhanced professionalization and the elimination of black market administrative costs is just as likely to *increase* the pie as it is to decrease it) and speculative. Cutting against all of it is the long history that as sports professionalize, they get more popular and generate more revenue, not less.


          if player salaries make the have’s vs have-not’s disparities really large

          The have vs. have-not disparity is as large as it will ever be in CFB and CBB. If anything, it’s cheaper and more certain to compete by directly paying recruits and players than it is to compete indirectly, with expensive construction projects and black market activity. By allowing for more direct competitive activity, de-regulation and the elimination of the compensation cap could actually increase competitive balance.


          if the money is going to come out of coaching salaries, presumably, the product on the field will get worse.

          I doubt that. The single most important coaching activity is recruiting, which is a fake/market-restriction created trait. Coaches will be “freed up” to focus on strategy and development, and the staffs that are best at that will presumably receive some level of premium that will be redirected from the best “recruiters.” Also, coaches will probably make a little less, but the biggest hit will be shouldered by men’s non-revenue sports (and women’s coaching salaries). The same set of coaches who is currently coaching now will probably be coaching in a world where players receive something close to market compensation.

          • Stephen

            These are all great points. But they completely miss the forest for the trees. My point was that the quote the post was based on (“redistributing rents has no effect…”) was naive, because it didn’t take into account lots of other potentially important effects of player pay. To use an absurd analogy (and one that, ironically, the plaintiffs in this case are fond of): consider slavery. The quote from the plaintiff’s brief would be like saying “Abolishing slavery won’t have any fundamental effects on the Southern economy. It will only determine how the rents from cotton production are distributed.” That’s clearly incorrect.

            Now on the the line by line…

            Re “increased professionalization means increased popularity”: We already have the most professionalized football league in the world. Making CFB more professional isn’t something that keeps NFL execs awake at night, for fear that Ole Miss’ increased professionalization is going to eat away at their revenues as former NFL fans become more attracted to the increasingly professionalized CFB scene.

            Re “the gap is as big as possible”: The gap can always get bigger. Ask Ole Miss how they feel about player pay. It’s naive to think that player pay will eliminate the black market because it will make players slightly richer. A 5K payout to an 18 year old is pretty attractive whether that 18 year old makes $1,000 per year or $10,000 per year.

            Re “that coaching ramble at the end”: I’m not really sure what argument you’re making, but I think my original point was pretty simple. If rents are redistributed away from coaches and towards players, then NFL jobs become relatively more attractive. “Sorry Grantham, we can’t pay you oodles because we now have to pay the players” = Grantham more likely to stay in the NFL.

            • Monday Night Frotteur


              Making CFB more professional isn’t something that keeps NFL execs awake at night

              While that’s true, it’s irrelevant. CFB is not in a zero sum competition with NFL football. Nothing (expect maybe concussion research) keeps NFL execs awake at night. Right now the NFL pro bowl, a meaningless game that isn’t even played well, draws more viewers than many BCS bowl games and almost all regular season CFB games. If there were a war between the NFL and CFB, it would have been won by the NFL about 40-45 years ago. Now, if CFB stopped


              It’s naive to think that player pay will eliminate the black market because it will make players slightly richer.

              Players should be paid their market wages, which would by definition eliminate the black market. How much black-market compensation is there in major league baseball? Even in sports with salary caps that result in some players being wildly underpaid (e.g. LeBron), there’s almost no reported problem with black market compensation. Yes, a poorly constructed system that is nothing more than a slight increase in the salary cap would not eliminate the black market, but the black market will get smaller as players earn more and more of their market value.

              Ole Miss probably doesn’t want the system to change because they (probably) are benefiting from the black market.


              If rents are redistributed away from coaches and towards players, then NFL jobs become relatively more attractive.

              That’s already true now, and as Jim Harbaugh would tell you not just because the compensation in the NFL is higher. Successfully coaching in the NFL requires a different set of skills than coaching in CFB. A major portion of compensation for college coaching is paying for recruiting, something that is irrelevant to NFL coaches. The actual development is pretty commoditized, outside of a couple of rare birds (Saban…?)

              • Monday Night Frotteur

                Sorry, continuing my thought about “if CFB stopped,” if CFB raised academic requirements for eligibility and stopped serving as the NFL’s developmental league, the NFL and CFB could come into direct conflict. I think people severely underestimate how popular an NFL-marketed and run minor league would be. It wouldn’t be a rinky dink clownshow; it would look a lot like the NFL and would be marketed by the same people who convince 12 million people to watch the Pro Bowl.

  3. Dog in Fla

    Delany and Remy are going to need a bigger hose

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