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The economics of the NCAA Division I men's basketball league are peculiar because it fails to hire the best college-aged players and does little to enhance competitive balance within the league. The league's policy decisions and its ability to remain economically viable, despite its short-sighted governance decisions, are discussed.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Rottenberg, Neale, and the Governance Policies of Sports Leagues

Abstract
In this chapter, we discuss the trade-offs faced by league officials and participants when they perform the difficult and necessary task of ratifying a set of rules for league governance. Our discussion is inspired by the valuable insights on the governance process made over 50 years ago by two economists, Simon Rottenberg and Walter Neale. In separate articles, they wrote that leagues need to adopt policies that equalize the productive capabilities of resource-rich and resource-poor members in order to create exciting and uncertain contests. To meet these objectives, the four major North American leagues (MLB, NBA, NFL, and NHL) have adopted policies such as revenue sharing, reverse-order amateur drafts, and salary restrictions in order to offset the natural economic advantages that resource-rich members have over their rivals. As is the case with any policy that disrupts natural economic forces, policy implementation must be done carefully or leagues might suffer costly or catastrophic unintended consequences of their decisions. This chapter serves as a point of comparison to Division I basketball’s governance policies, which we begin discussing in the next chapter.
Todd A. McFall

Chapter 2. The NCAA’S Peculiar Economic System

Abstract
In this chapter, we compare the NCAA Division I basketball league’s economic system to the professional systems discussed in the previous chapter. Comparatively speaking, this league is peculiar as it relies heavily on finding ways to keep fans satisfied compared to hiring the best athletes and creating contests with uncertain outcomes.1 The Basketball Fund, which is the league’s de facto revenue-sharing plan, and the cartel’s pattern of rule enforcement reveal that the league holds little regard for adopting measures that enhance competitive balance compared with the professional leagues discussed in the previous chapter. Despite the league’s ban on athletes earning direct compensation, Rottenberg’s invariance principle still holds because the recruiting process allows for members to bid up the level of indirect compensation that players receive for enrolling at a particular member school. The ban has proven costly in recent years, as elite players have reduced the amount of time they play in college, an outcome that has harmed the quality of play in Division I basketball and forced the league to place more weight on policies that keep key fan bases satisfied, often to the detriment of competitive balance.
Todd A. McFall

Chapter 3. Technology, Legal Decisions, and Superstar Teams Undermine NCAA Authority

Abstract
In the first two chapters, we discussed ways in which members of major professional sports leagues and the NCAA govern themselves. Professional leagues place greater weight on creating close competitions that feature the best athletes in their respective sports compared to Division I basketball, which prefers to adopt policies that, above all, satisfy fans of resource-rich teams. In this chapter, we build on this discussion by exploring the effect of technological innovations on leagues’ governance decisions. We’ll use as a guide the prescient implications of Sherwin Rosen’s incredible article “The Economics of Superstars.1” In the article, Rosen shows that the spoils of supply innovations aren’t necessarily shared by all market participants, a fact that can cause superstars within a market to experience huge relative gains over their competitors. In the decentralized league of Division I basketball, the lion’s share of the benefits from broadcasting innovations have flowed to a select few members within the league, an effect that has virtually destroyed the NCAA’s ability to enforce cartel rules.
Todd A. McFall

Chapter 4. The Selection Committee’s Trade-Offs in Creating the Tournament Field

Abstract
In this chapter, we focus on the process by which the field for the Division I basketball tournament is created, paying particular attention to the Selection Committee, the group of representatives tasked with choosing over half of each season’s tournament field. The Selection Committee has a unique set of powers within the world of sports, as no other sporting event of the size of the Division I championship relies on the discretion of a committee to create its tournament field and draw. Since 1975, the year in which at-large bids were granted to teams, the Selection Committee’s power has grown steadily with the size of the tournament because it has been responsible for a larger share of the tournament field. With this power, the committee has, unsurprisingly, given resource-rich conferences priority for at-large bids into the tournament. Given the compensation structure of the Basketball Fund, the Selection Committee’s bias toward resource-rich teams has allowed the collective resources of the tournament to be consolidated further by resource-rich teams, an outcome consistent with the NCAA’s historical distaste toward finding ways to enhance competitive balance.
Todd A. McFall

Chapter 5. Trading Off Uncertainty for Revenue with the Pod System

Abstract
So far, we’ve discussed the governance structures of sports leagues, focusing much of our attention on the peculiar governance policies of Division I men’s basketball, a league that must leverage strong fan support to offset its unwillingness or inability to keep the best eligible athletes in its league and to increase uncertainty of the contests it produces. In this final chapter, we want to study the implications of the Division I tournament’s adoption of the pod system, a clever organizational design that the tournament has used since 2002. The Selection Committee’s power has increased yet again following the switch to the pod system as it has become less constrained by geography since the change. Unsurprisingly, the committee has used the pod system to provide resource-rich teams with more opportunities to play closer to home. With game results, attendance figures, and television ratings, we measure the costs of this system—reduced uncertainty of first-round contests—against the benefits the NCAA has accrued- increased attendance and better television ratings of first-round and second-round games. Unlike the Basketball Fund and the expansion of the tournament, which have affected the long-run level of competitive balance in Division I, the pod system has allowed the Selection Committee to alter more effectively the short-run outcomes of each tournament.1
Todd A. McFall

Backmatter

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