Sports Economics

Introduction

The National Collegiate Athletic Association (NCAA) has been characterized as a cartel, that is, “a combination of independent commercial or industrial enterprises designed to limit competition.” As we will see, this is an accurate characterization, especially as it relates to the labor market for student-athletes and coaches. More precisely, the NCAA acts as a buyer cartel or collusive monopsony. Under the auspices of the NCAA, the member institutions collude to reduce competition among themselves in an effort to reduce costs and thereby generate more profit for their athletic programs. As we saw in the preceding chapter, monopsony is the awkward label attached to the market structure in which there is a single buyer of a good or service. In the United States, this market structure is rare indeed, but collusive monopsony is not so rare. Examples can be found throughout the economy, but the NCAA is a particularly good example.

The NCAA's members collude on two key inputs in the production of athletic competition: the student-athletes themselves and their coaches. With respect to athletes, the agreement restricts quantities by placing a ceiling on the number of scholarships that a school may award in each sport. In addition, in the name of amateurism, the compensation of these athletes is limited to room, board, tuition, books, and incidentals. Bonuses for winning conference championships are limited to relatively inexpensive rings or watches. There have been several legal challenges to the NCAA's monopolistic behavior by student-athletes, which we examine here. With respect to coaches, the number employed in each sport is limited by NCAA Bylaws. In this connection, we examine the Hennessey v. NCAA litigation. The compensation of coaches is typically unconstrained, although there have been attempts to restrict the earnings of some coaches. In this connection, we examine the Law v. NCAA litigation, which led the NCAA to rescind its rule restricting the earnings of some assistant coaches.