College Sports: The All-American Economic Inefficiency

Upon further review, the Half-Asian Sports Guy and his fellow lethargic sports fan, Anthony Colarusso, took it upon themselves to dig deeper into the structure that was an earlier piece on the economic realities of American collegiate sports.  This time we will forgo the half-hearted attempt for an allegory to 19th century America, although he topic will be mentioned later on.

As previously explained, this whole issue began during a discussion about the objectivity of the NCAA Men’s Basketball Tournament in determining the “best” basketball team that is a member of the Division I section of the NCAA institution in this country (Note: notice how you know exactly what I was talking about in that last sentence without ever bringing up the word “college” or “university”; this will be important later on).  Despite an impasse to the discussion, the assertion that the entire system should be limited to a few teams was countered with (and I paraphrase) “that would just make it another professional sports league” with the intonation that such an outcome was unwanted and counter to the status-quo.

With that one statement, my mind was off to delve into what really defines our definition of “professional” when it comes to America’s sports leagues and the relative status bestowed upon athletics that are assigned to a collegiate institution.  Generally I would agree with the assumption of this statement and I’m sure most people in America would as well.  Sports that are played under the auspices of an institution of higher education are not “professional” in the context.  When it comes to our nationally accepted perception of “Amateur” and “Professional” sports, there are two general discrepancies that differentiate the two:  The former are governed by institutions of higher learning, of which accumulate its labor from a pool of mainly younger adults (with some exceptions) who are compensated with the product of these institutions: education.  Of course, inversely, the professional approach is governed by privately run, owned, and operated individuals or businesses and accumulate their labor pool from the general populace (with a few set of rules of entry) and abide by the commonly and legally accepted economic norms for management-labor relations, which in the United States entails just compensation, i.e. money.

These two approaches, which were to our dismay contrived within the aforementioned  19th century allegory, represent the source of my consternation with trying to understand and rationalize why American sports played under the auspices of higher academic institutions are NOT professional, both in perception and practice.  So where do we begin.  First, let’s define our component inputs here:

Products

1. Sports (specifically football and basketball).  While there are very minute nuances between the professional and collegiate versions of this product, invariably we are approaching the subject from a macro perspective.  For example, if we were looking at the automobile industry, we would understand that there are different product variations supplied and demanded.  Nonetheless, there is an understanding that the general product that is an automobile is completely different from other economic products, for example aircraft and computers, which themselves have different variations.  To sum and exemplify, sports:automobiles::football:SUV.  Therefore, football in both methods of production is in its final form is an economic substitute, the same as say Coke and Pepsi.

2. Education.  Culturally perceived as a “public good”, although access to higher institutions is highly reliant on financial means to retrieve this product.  Nonetheless, education in the United States (as it is in most Western nations) is generally perceived and practiced as a non for profit commodity.

Firms

1. Institutions of Higher Education (i.e. Universities and Colleges) — Produce both education and sports

2. Private individuals and businesses (professional sports private ownership) — Produce only sports

Labor

1. For Institutions of Higher Education: Athletes (product = sports) and Faculty (product = education)

2. For Professional Sports Ownership entities: Athletes (product = sports)

NOTE: Both firms adhere to self-imposed regulations on access to labor (e.g. the university athlete labor force must be a member of the institution, which itself has a barrier to entry, while the professional entities have regulations on individuals based on their age/education as a barrier to entry).  It should be noted that without the current system of collegiate athletics, the professional entities would still have access to their labor source to produce their product, while institutions of higher education would still have access to the faculty labor source to produce education.

Market

1. For Institutions of Higher Education: Students (for product = education) and general public (for product = sports)

2. For Professional Sports Ownership entities: General Public (for product = sports)

Economic Practice

1. For Institutions of Higher Education: adherence to unique model of Firm-Labor relationship. Firm is completely a non-profit entity; Products produced are public (education) and private (sports); Labor categorized as Professional (education/faculty) and Amateur (sports/athletes).  Unique practice in that private good is produced by non-profit entity with non-profit labor categorization.

2. For Professional Sports Ownership entities: Firm is a for profit, normal business entity; Products produced are private (sports); Labor categorized as Professional (sports/athletes).  Practice is not unique and adheres to most common norms associated with all other economic activity in the United States.

NOTE: Common legal and cultural economic activity norms which include, but are not limited to, financial compensation, worker and consumer safety regulation, taxation, etc.

So here we have it.  Two different firms that adhere to two different economic practices produce the same product (with sub-variations) with a substitute product relationship using a common labor force that is sold to the same market.  Going back to our original thought, what makes the collegiate product “not professional” it is clear that the answer is not in the product (e.g. football), labor (e.g. athletes) or market (e.g. general public) since these factors are the same.  Therefore, the difference has to be within the context of firms and their particular economic practice(s).

Let’s first look at the Institutions of Higher Education.  Their primary product of production is education.  As previously detailed, this product is a public good with little to no expectation for immediate financial profit to be gained by the firm (college) for its consumption (by the student).  While most products in this country are perceived to be produced an consumed with the intention of financial profit, we as a society have prescribed the unique economic characteristics of a “public good” to education.  The same can be said for other economic activity such as security (police, fire, military) and health care (oh wait, no).  Much like labor forces in those fields, universities compensate their labor pool associated with the production of education according to market prices; furthermore the “education market” is as a whole not for profit, thus financial compensation for the faculty is rewarded according to this type of market.

…However.  These same institutions produce another product, sports, but with an entirely different model.  Unlike education, the product is for profit and sold to a different market (general public).  To put this situation into context, professional entities produce the same good for profit to the same market.  The difference is the labor in professional entities are approached with the same economic practices in all other economic activities in the country (See NOTE under Economic Practice above).  So, why is the labor force in institutions of higher academics not approached with the same adherence to these economic practices as the professional entities?  The answer is quite simple.  This isn’t the same labor force.  In fact, this is a unique situation where we have created a labor force within our macro economy that does not have to adhere to the commonly accepted labor economic practices.

Now the plot thickens.  Why does this unique labor market with its own set of rules exist?  The answer is two fold.  This labor force is at the whim of the  public’s perception of right/wrong economic practice and the firm.  Let’s look at the public first.  This assertion is complete assumption, but a safe one nonetheless, in that the public does not see college sports as a private good.  Let me repeat that, college sports are not a private good.  The public perception is that since teams that play football and basketball  (and thus their athletes) are a component of the non-profit, public good producing university, then the product known as sports produced at colleges is a public good as well.  Therefore, both education and sports (the variation produced at a university) are seen as a similar commodity (more so than education and the professionally produced product).

But say we removed the overarching college association?  In fact, haven’t we already, subconsciously made this divergence?  When I asked my colleague in this endeavor what college football team would most people in the Philadelphia area be a fan of, the conclusion was most likely Penn State University.  When approached with the same question, except for basketball, the conclusion was Villanova.  Huh?  Doesn’t this contradict the association with the first answer, Penn State?  The immediate response was the people can be a fan of the New York Yankees and Philadelphia Eagles because the two variations of the product do not overlap.  And yes, this makes sense because the product at the professional level is not New York or Philadelphia, it is the business entity known as the Yankees or Eagles that is located in these respective cities.  We consume the team not its host institution.  Therefore, the same is applied to college sports.  When people say they are fans of the University of North Carolina, they aren’t fans of the institution of higher learning, they are fans of the 15 athletes that play basketball.  Nobody turns on March Madness expecting to see a video camera of the university library, they want the sports.   They are consuming the product known as basketball that is produced by a university, much like NBA fans consume basketball produced by a business entity known as ownership.  Remove the concept that universities are running the team and we reveal that college sports is just another private good for mass consumption.  Still, the status quo is that the public’s perception of the sport product is one of not for profit because it is a part of the non-profit university environment, although subconsciously we have already decoupled the two.

So, we understand that the public will let the universities approach sports under their auspices as a non-profit activity different from the consumption of other goods in the economy.  And you better believe that universities are fully aware of the opportunity given to them.  The firm (university/college) has created this unique labor market because they have in fact found a way to make an end around the free market’s most fortuitous barrier to profit maximization: labor costs.  The university/college knows that the public perception is, despite being demanded as a private good, the production of sports is supplied as a public good commodity since universities produce these things (aka education).  While the labor associated with producing education is compensated based on the market it exists in (e.g. universities competing with each other to produce education or otherwise face firm collapse), the universities have colluded (although not in the evil sense of the practice) to create a non-competitive labor market where all firms agree to abide by the same economic practice.  And so we see here the ultimate insult to the free market principles that are a foundation to our nation.   Labeling the labor as “amateur” and not “professional” is an agreed norm within these principles to give the firms a waiver from suffering the most common barrier to maximized profit: labor costs.  Universities are elated that the public accepts their production of sports not as a private, but a public good that is compensated according to the market it exists in (aka the colluded, constructed no labor cost market accepted by all firms) and will do what anyone in their position would do: use this market exception to maximize their profit.

That last sentence is where the entire system comes crashing down in regards to legitimacy.  We have allowed a system to operate outside the confines of our normal economic practices because we have intertwined the public good of education with the private good of sports.  Unfortunately, of the firms, market, and labor involved, everyone seems to be content with allowing this system to continue.  And thus the 19th century system comparisons.  Its not the moral aspects that slavery that are of concern here, but that an economic practice was allowed to continue that ran counter to the economic models practiced elsewhere within the macro economy that ultimately exposed the inefficiencies of the slavery system.  Unfortunately a culture (Antebellum South/college sports leadership fans) are in the way of allowing the economic model to be practiced with maximum efficiency as practiced by all other economic production in the United States.

The ultimate answer is for colleges and universities to treat their teams not as another department like English and Humanities, but a private business.  Just as if the University decided to buy and run a McDonalds on campus.  But in this scenario the firm and market adjust and ultimately lose their product.  Once universities began to run their product according to economic norms, they would be susceptible to market competition and thus smaller, less efficient firms would eventually fold under said competition.  To put it bluntly, the Texas’s and Ohio States will survive while the Oral Roberts and VCUs will succumb to market pressure.  But isn’t that the American way of life?  For example, if the NFL tomorrow decided to push the restart button and place 500 franchises in locales ranging from New York to Staunton, Virginia, which franchises would you expect to be more efficient and thus more profitable?  And we would be ok with this (proven by the fact that nobody in America is outraged that NYC has a team and Staunton doesn’t) because we would accept this product as a private good and expect maximum quality for us the consumer in return for maximum profit in return to the firm and labor force (the producers).  So inadvertently, when I proposed the March Madness Tournament be reduced in size for objectivity reasons only to be countered that it couldn’t happen because it would turn the NCAA into a professional sports league, well actually the counter only further proved my case.  College sports is a professional sports league owned by a non-professional entity adhering to a unique set of economic rules.

In other countries, institutions of higher education are not expected and do not practice to host sports for men age 16-22.  Yet Canadian boys that age play hockey and English boys that age play soccer.  Where?  In youth professional leagues often owned and operated by their respective adult counter-parts.  This is similar to the Major and Minor League Baseball relationship.  In this model, labor benefits because it is approached with the economic practices applied to any other labor force, and fairly so.  Of course, the firms (colleges) don’t want to see this happen.  Although the NFL and NBA will continue to find their labor talent, the “Professionalized” NCAA would most likely succumb to fan-ship ills of other young professional adult leagues around the world: no viewership.  Consequently, the financial gain of the current NCAA would just be readjusted to the labor pool and other forms of entertainment.

Now I’m not saying that we should get rid of college sports.  The sport during those 4 quarters or 2 halves is practically the same (with small differences in rules and quality) regardless of NCAA, NFL or NBA.  The difference is we as a society must stop viewing college sports as a non-private good and treat it as such.  It only makes pure economic sense.  Colleges should own their teams as a private business, with all the economic rules associated applied accordingly.  Yes, smaller schools could not compete, but that’s the nature of America and no one expects fairness to play out in most any other economic activity.  Universities around the world produce only one good: education, and for some reason our country decided to intertwine that with sports.  When analyzed at its core, this relationship seems incomprehensible and, as proven in other countries, unnecessary for the cultivation of our national athletic talent pool.  Of course, our culture will get in the way of economic efficiency, as it has in the past.  As for me, I’ll enjoy the pigskin tossed around whether it has stripes on it or not.  Its the big picture that I won’t be able to fully accept.  Professional sports leagues in America completely accept what they are.  It is to the dismay of the young male athletes that universities and ultimately the college sports fan have yet to look inside themselves and see accept who THEY really are.

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