Cartel Behavior in the NCAA

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Cartel Behavior in the NCAA

  1. 2. By: Brian Boucher & Peter Delvito Jr.
  2. 3. <ul><li>What is a Cartel </li></ul>
  3. 4. <ul><li>What is a Cartel </li></ul><ul><li>NCAA as a Cartel </li></ul>
  4. 5. <ul><li>What is a Cartel </li></ul><ul><li>NCAA as a Cartel </li></ul><ul><li>NCAA Rules & Regulations </li></ul>
  5. 6. <ul><li>What is a Cartel </li></ul><ul><li>NCAA as a Cartel </li></ul><ul><li>NCAA Rules & Regulations </li></ul><ul><li>NCAA limit on Outputs </li></ul>
  6. 7. <ul><li>What is a Cartel </li></ul><ul><li>NCAA as a Cartel </li></ul><ul><li>NCAA Rules & Regulations </li></ul><ul><li>NCAA limit on Outputs </li></ul><ul><li>Other Cartels (OPEC) </li></ul>
  7. 8. <ul><li>What is a Cartel </li></ul><ul><li>NCAA as a Cartel </li></ul><ul><li>NCAA Rules & Regulations </li></ul><ul><li>NCAA limit on Outputs </li></ul><ul><li>Other Cartels (OPEC) </li></ul><ul><li>Title IX </li></ul>
  8. 9. <ul><li>What is a Cartel </li></ul><ul><li>NCAA as a Cartel </li></ul><ul><li>NCAA Rules & Regulations </li></ul><ul><li>NCAA limit on Outputs </li></ul><ul><li>Other Cartels (OPEC) </li></ul><ul><li>Title IX </li></ul><ul><li>URI and the NCAA </li></ul>
  9. 10. <ul><li>Cartels are a group of firms that agree to coordinate their production and pricing decisions to act like monopolists. Well known cartels include Organization of Petroleum Exporting Countries, the Colombian drug cartel and the DeBeers diamond tycoon. </li></ul><ul><li>In order to achieve the goal of restricting output and charging higher prices, cartels need a mechanism to enforce the rules they make. </li></ul>
  10. 11. <ul><li>The NCAA has been described as displaying cartel behavior by using its monopolistic powers to enforce strict rules and regulations which can effectively reduce competition and allows them control over college sport revenue. </li></ul><ul><li>Since they lose money from the competition, schools with major revenue sports use the NCAA to create additional attendance standards and other requirements to keep smaller schools out of Division I status. </li></ul><ul><li>When more schools entered Division I status, they reduced the potential revenue pool for larger Division I teams </li></ul>
  11. 12. <ul><li>Organization of Petroleum Exporting Countries, (OPEC) uses controls to keep oil at a desired price </li></ul><ul><li>Made up of the 12 Oil producing counties of the world. </li></ul>
  12. 13. <ul><li>In the 1970’s OPEC limited the amount of oil produced and exported to the world. </li></ul><ul><li>The resulting decrease in supply caused the price to increase to new highs and make it hard for people to fill up their tanks. </li></ul>
  13. 14. <ul><li>In 1991, the NCAA set a maximum compensation level for certain assistant coaches. </li></ul><ul><li>These restricted earnings coaches had their earnings capped at $12,000 during the academic year. </li></ul><ul><li>This forced programs to spend more money on NCAA programs </li></ul>
  14. 15. <ul><li>In October 2003 OPEC was in negotiations to cut production due to market loss from emerging markets in Russia and Gulf of Mexico. </li></ul><ul><li>Their plan was designed to lower price and regain market share as companies bought their new lower priced oil. </li></ul>
  15. 16. <ul><li>The Association of Intercollegiate Athletics for Women (AIAW), which was founded in 1971. </li></ul><ul><li>In the beginning of the 1980’s the NCAA began scheduling women’s championships and offering incentives to women’s basketball </li></ul><ul><li>teams such as television </li></ul><ul><li>packages. The NCAA also </li></ul><ul><li>scheduled the finals to take place </li></ul><ul><li>at the same time as the AIAW’s </li></ul><ul><li>finals. As a result no one paid </li></ul><ul><li>attention to the AIWA and it was </li></ul><ul><li>gone by 1982. </li></ul>
  16. 17. <ul><li>Before 1984, the NCAA </li></ul><ul><li>controlled its members’ </li></ul><ul><li>access to televised games </li></ul><ul><li>In 1977 a group of schools </li></ul><ul><li>with major football programs </li></ul><ul><li>formed the CFA in efforts to </li></ul><ul><li> Negotiate a separate television </li></ul><ul><li> contract with NBC </li></ul><ul><li>The NCAA threatened to expel any school that signed the contract, which would eliminate the schools rights to the NCAA basketball tournament </li></ul><ul><li>In 1984 two of the CFA member schools sued the NCAA for antitrust violations and won their case, ending the NCAA’s control of Broadcasting rights </li></ul>
  17. 18. College Football Television Revenue Before and After the 1984 Supreme Court Decision Ending NCAA Control of Television Broadcasts (2004 Dollars) Year Number of games televised Total Revenue (millions) Revenue per game (millions) 1980 24 $70.46 $2.94 1981 24 $68.00 $2.83 1982 28 $114.52 $4.09 1983 28 $120.35 $4.30 1984 36 $39.66 $1.10 1985 42 $47.00 $1.12 1986 42 $46.17 $1.18 1987 42 $46.17 $1.10 1988 43 $44.33 $1.03
  18. 19. <ul><li>This data suggests that before the Supreme Court decision, the NCAA was indeed using its monopoly power to restrict output and raise price </li></ul>College Football Television Revenue Before and After the 1984 Supreme Court Decision Ending NCAA Control of Television Broadcasts (2004 Dollars) Year Number of games televised Total Revenue (millions) Revenue per game (millions) 1980 24 $70.46 $2.94 1981 24 $68.00 $2.83 1982 28 $114.52 $4.09 1983 28 $120.35 $4.30 1984 36 $39.66 $1.10 1985 42 $47.00 $1.12 1986 42 $46.17 $1.18 1987 42 $46.17 $1.10 1988 43 $44.33 $1.03
  19. 20. <ul><li>Limiting Pay to Athletes (requiring them to remain amateur) </li></ul><ul><li>Amount of Scholarships member schools can give-out </li></ul><ul><li>Roster Size, Age Limits </li></ul><ul><li>Restrictions on Pay of Assistant Coaches </li></ul><ul><li>Title IX compliance </li></ul><ul><li>Attendance standards </li></ul><ul><li>Etc… </li></ul>
  20. 21. <ul><li>Title IX of the Education Amendments of 1972 outlawed gender discrimination at educational institutions </li></ul><ul><li>More women in the student body </li></ul><ul><li>Increased high school girls’ participation in sports </li></ul><ul><li>Between 1990-95, 35% of Division I schools decreased men’s sports while 18% added men’s sports </li></ul><ul><li>In that same period, 83% added women’s sports while only 5% reduced them </li></ul><ul><li>To comply with Title IX, the male/female ratio of athletes must be equal to the male/female ration of undergraduate enrollment. </li></ul>
  21. 22. <ul><li>URI Fields 2 NCAA major revenue sports </li></ul><ul><ul><li>Basketball </li></ul></ul><ul><ul><li>(Division I, A-10) </li></ul></ul>
  22. 23. <ul><li>URI Fields 2 NCAA major revenue sports </li></ul><ul><ul><li>Basketball </li></ul></ul><ul><ul><li>(Division I, A-10) </li></ul></ul><ul><ul><li>Football </li></ul></ul><ul><ul><li>(Division I-AA, CAA) </li></ul></ul>
  23. 24. <ul><li>Rules </li></ul><ul><ul><li>Associate Director of Athletics, Compliance </li></ul></ul><ul><li>“ The Atlantic 10 Conference, in conjunction with the Athletics Department at the University of Rhode Island, as members of the National Collegiate Athletic Association, are primarily responsible for insuring that its various constituencies (i.e. University staff and faculty, student-athletes, alumni and friends) abide by the NCAA rules and regulations. Under those rules, alumni and friends can be categorized as representatives of the University's athletic interests.” </li></ul><ul><li>http://gorhody.cstv.com/compliance/uri-compliance.html </li></ul>
  24. 25. <ul><li>Re-certification </li></ul><ul><ul><li>NCAA certification means that an institution operates its athletics program in substantial conformity with operating principles adopted by NCAA Division I members. The designation is based on an extensive self-study that involves every facet of campus life and a visit from an NCAA peer review team, which last visited URI in May 2005. </li></ul></ul>
  25. 26. <ul><li>Meade Stadium </li></ul><ul><ul><li>NCAA holds attendance standards to remain in your respective division </li></ul></ul><ul><li>&quot;To remain competitive in the nation's best I-AA football conference, the Atlantic 10, and in our overall intercollegiate and student recreational programming, we need to improve our facilities,” </li></ul><ul><li>- Tom McElroy, director of athletics </li></ul>
  26. 27. <ul><li>Title IX </li></ul><ul><ul><li>During the 2005 NCAA re-certification process URI completed an extensive Title IX audit </li></ul></ul><ul><ul><li>Budget Cuts </li></ul></ul><ul><li>“ The University of Rhode Island athletic department announced its plans yesterday to cut the field hockey and men's tennis and swimming teams due to budget cuts within the department. Additionally, the women's lacrosse team will not become a varsity program as originally planned when the gymnastics program was cut in February... Along with meeting budget requirements, the planned cuts also needed to meet Title IX gender requirements. Title IX expert Janet Judge reviewed the plan for the university and found that it met all requirements.” </li></ul><ul><li>-Matt Pavao, The Good Five Cent Cigar </li></ul>
  27. 28. <ul><li>Big-time college sports appear to extract rents from revenue producing athletes by limiting pay and requiring them to remain amateur. </li></ul><ul><li>These rents are spent on other items such as facilities, nonrevenue sports and in some cases Head coaches’ salaries. </li></ul><ul><li>The NCAA in ways limit the outputs of its member universities. </li></ul><ul><li>There are many similarities in the way the NCAA and other cartels such as OPEC operate </li></ul><ul><li>The NCAA uses its monopolistic powers to enforce tedious rules and regulations to it’s member schools (including right here at URI) </li></ul>

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