Capitalism for the Cooperative: The NCAA and NFL Model of Parity and Profit

1
Capitalism for the Cooperative The NCAA and NFL
Model of Parity and Profit
2
Is equality among teams better for league
organizers?

• Do NFL Owners wants parity?
• Why?
• Do NCAA members want parity?
• Why?

3
NFL objectives Does this sound like
capitalism?

• NFL Commissioner Paul Tagliabue describes his
  leagues
• organizational structure as a prototypical
  capitalistic market
• that favors the little guy.
• NFL owners are earmarking nearly two thirds of
  their revenue
• to employees athletes/employees are agreeing to
  salary
• limitations to benefit their employers,
  companies are sharing
• revenue with their competitors, and competitors
  are
• agreeing to standardize output.
• Goal to maximize league profits.
• NFL strives for cooperation between members!

4
NCAA objectives

• Non-profit agency
• Safe environment for athletes
• Set rules on and off the field
• Goal level the playing field so that all members
  can compete
• The NCAA a model of cooperation!

5
Not the typical cartel.
NFL teams and NCAA member institutions need
competitors to maximize profit
6
How can these sports oriented organizations
inspire equality?

• Fixing games typically does not work? They engage
  in collusive behavior. How?
• Spread out the best players?
• The NCAA limits scholarships
• The NFL has franchise players and salary caps.
• New sports have attempted this approach.

7
2. Monopsony behavior

• NCAA players can not be paid Brown (1993)
  estimated the value of a Div I football player.
• NFL Salary Cap
• Vrooman (1995) payroll cap is a form of cost
  sharing collusion.
• Players receive a max of 64.25 of Defined Gross
  Revenue in 2004 range was 75 million to 63
  million

8
3. Side Payments

• Side Payments are necessary to maintain the
  loyalty of all members.
• NCAA Revenue Distribution Plan
• In 2003 they distributed 264 m
• - Top 6 (of 31) Conferences received 50
• - BCS is guaranteed revenue for major conferences
  
• - Negotiates tournament television contracts
• NFL Revenue Sharing
• Media Revenue/ 32, away gate receipts pooled/ 32
• League merchandise profits /32

9
Other side-payment methods developed to keep
members happy?

• - Allow each sports entity to set their own
  ticket prices
• Arkansas student price 1
• Notre Dame student price 24
• Patriots average price 75
• Bills 31
• - Sponsorships, luxury boxes, other sources of
  revenue are not shared.

10
4. Limiting Supply

• NCAA sets schedule, official start dates and
  ending tournaments
• NFL sets number of games, official start dates
  and playoffs.
• 5. Monitoring Cheating
• NCAA self regulates
• NFL teams must spend on minimum, violators are
  fined or loss draft picks

11
How can the NCAA and the NFL measure their
success?

• On the field parity
• NCAA in basketball over the past 22 years 17
  different winners in basketball, 38 teams to the
  final four
• NFL Since 1993
• 16 different teams played for the Super Bowl, 8
  different winners, 23 of the 32 have a chance
  with three weeks left

12
How can the NCAA and the NFL measure their
success?
Television contracts measures fan approval.
NCAA up 62 percent in 5 years NFL a new
multi-billion contract with NBC, Fox, CBS, ESPN,
Direct TV worth ????
13
NFL Annual Television Contract
14
Their Asset Valuation
15
NCAA Balance Sheet
16
NCAA Balance Sheet
17
NFL Profit
18
(No Transcript)
19
(No Transcript)
20
Summary The Goal of Parity

• Gene Upshaw, Executive Director of the NFL
  Players
• Association stated when we started this
  process, there were
• 14 teams above the average and 14 teams below,
  and everyone
• was close enough to keep it fair.
• Both entities have constructed regulations that
  appear
• contrary to pure capitalism to promote parity as
  a means of
• accomplishing their diverse goals.
• When it comes to sports, off-the-field
  cooperation leads to on-the-field parity,
  on-the-field parity leads to more fans, more fans
  leads to greater asset valuation.

21

• The End!!