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

Capitalism for the Cooperative: The NCAA and NFL Model of Parity and Profit. Is equality among teams better for league organizers?. Do NFL Owners wants parity? Why? Do NCAA members want parity? Why?. NFL objectives Does this sound like capitalism?.

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

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  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 objectivesDoes this sound like capitalism? • NFL Commissioner Paul Tagliabue describes his league’s • 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. 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.

  19. The End!!

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