Reprinted from GaryNorth.com
It is one of the biggest stories in the media today: four assistant basketball coaches have been accused of taking bribes. Here is a summary from CBS News:
“The picture of college basketball painted by the charges is not a pretty one,” Joon H. Kim, the acting United States Attorney for the Southern District of New York, said at a Tuesday afternoon press conference. “Coaches at some of the nation’s top programs taking cash bribes, managers and advisers circling blue-chip prospects like coyotes, and employees of a global sportswear company funneling cash to families of high school recruits. … For the 10 charged men, the madness of college basketball went well beyond the Big Dance in March. Month after month, the defendants exploited the hoop dreams of student-athletes around the country, allegedly treating them as little more than opportunities to enrich themselves through bribery and fraud schemes.”Each arrested coach is facing up to 80 years in prison.
Obviously, this is exceedingly serious business. I want to stress the word “business.”
I don’t want to discuss the legal issues involved. I am not a lawyer. If I were lawyer, I would find out how to make a buck on taking one side or the other, and I would cash in. But I am simply a lowly journalist, struggling to put food on the table.
Let’s talk about the economics of bribery.
BRIBERY VS. AUCTION PRICING
If you bribe a government official, it is obvious that you are after some kind of special treatment. It is illegal because it is a misuse of state power.
Throughout history, governments have passed laws against bribery because it is very bad public relations for the government when a government official takes money to rig the operations of the government. Governments don’t like this kind of bad publicity, so there are laws against bribery.
Politicians in a democracy want such bribery to be limited to voting, when they sell themselves to the highest bidders (political action committees). They don’t want competition from salaried bureaucrats and judges in selling government favors. Politicians want to defend their income from the government cartel. Their income is paid in votes on election day.
In the free market, if you want something, you offer money for it. The rule of the free market is simple: high bid wins. I recently completed a book on economics in which I describe the free market as a gigantic auction. I also have a section defending the moral legitimacy of this auction.
No consumer is accused of bribery merely because he offers a higher price than another consumer for whatever it is he wants to buy.
We are not going to read about someone arrested for bribery at an auction for offering a higher bid.
So, what has bribery got to do with college coaching?
What I am about to write, I am stealing from a great talk by the late Ben Rogge. Rogge (pronounced ROWEguee) was a first-rate free-market economist. He was a dean at Wabash College. He did not write much, but he was the best after-dinner speaker I have ever heard. He was funny. He was incisive. He was able to get his points across. It was widely believed that Leonard Read wanted Rogge to succeed him at the Foundation for Economic Education after he died, but Rogge died before Read did.
I must have heard Rogge’s presentation on the economics of college sports over 40 years ago. Here is his analysis.
AN INTERCOLLEGIATE CARTEL
The National Collegiate Athletic Association (NCAA) is a cartel. It exists in order to hold down payments to star athletes who are in a position to generate revenues for specific universities. University administrators want to have athletic programs. Major universities in the collegiate sports world, Rogge said, get huge amounts of money from ticket sales. They also get big donations from rich alumni who love collegiate sports. What he said 40 years ago of course applies today, except the amounts of money are so much greater because of televised sports.
Administrators in these sports-focused universities do not want to pay their most valuable athletes a market wage for the privilege of generating money from their performances. So, they collude. This is price fixing, pure and simple.
Unlike almost every other industry, the government allows the NCAA to establish rules forbidding market-based payments to star athletes. The athletes are allowed to receive scholarships, despite the fact that they are not scholars, but that is supposed to be the limit of payments to the athletes.
There is a movie about this: Blue Chips (1994). A college basketball coach who has won two national championships has fallen on hard times, recruiting-wise. He can no longer attract the best players. Other coaches have arranged under-the-table deals to pay more than he can pay to sign the top players. Will he break the no-pay rules? That is what the movie is all about. The movie has a cameo by Shaquille O’Neal, who plays one of the players that Nolte is after.
There is a scene in the movie that gets to the point. Part of it is clearly unscripted. It involves a cameo by the first great “showtime” player in NBA history, Bob Cousy of the Boston Celtics. He plays the athletic director. The scene takes place in the basketball gym. Cousy is standing at the free-throw line, shooting baskets. The dialogue is on target, until finally Nolte the actor can’t stand it anymore. He bursts out, “Don’t you ever miss?” Cousy was never one to miss. As a parting shot, he switches hands, just to make his point.
There is a fundamental rule of economics: unless they are defended by the government, cartels always break down. They can be sustained only by government intervention. The government protects the cartels from members of the cartel who break the rules of the cartel in order to increase market share and thereby increase net income. The government makes cartel-busting a crime. In the case of the movie and also in the case of the latest scandals, net income is really what it is all about.
What we are seeing is the intervention of governments around the country to defend the NCAA’s cartel. If it were not for government intervention to keep coaches from paying full ticket for the valuable services of the best players, major universities would be forced to pay millions of dollars to these players, just as professional sports teams have to pay their players. A free market would prevail.
Top collegiate basketball coaches today are paid multimillion-dollar salaries. The head coaches don’t want to lose this income. In contrast, assistant coaches are not paid huge salaries. They are tempted to do under-the-table deals that are against the financial interests of the NCAA’s cartel. None of the coaches being accused of bribery is a head coach. No head coach is going to risk his $4 million annual salary for penny-ante payoffs to recruit top players.
If we had a free market in college education, there would be no legal restriction on the use of the word “college” or “university” imposed by any state on profit-seeking educational ventures. There would be no government money used to build sports stadiums. There would be open entry. Private college tuition would fall at all but the premier schools. College athletes in the top-ranked sports universities would be paid full ticket.
If there were no NCAA, and if the government did not support it by threatening assistant coaches with long jail sentences, we would see a different pricing structure for collegiate athletics, especially inside the universities with the highest televised ratings. We would see lower tuition in private colleges.
We need the principle of the auction to prevail in all aspects of higher education. That principle is this: high bid wins. I don’t expect to see this system anytime soon.
There is a reason why nontenured professors of economics do not teach the economics of cartels by focusing on the NCAA as a classic example. They know where their bread is buttered. They know that they are not worth $4 million a year.
I wish the tenured professors of economics would teach cartel economics, beginning with the NCAA. But I don’t think they want to make waves. Two cartels get a free ride in college economics textbooks: higher education and the Federal Reserve System. Economics professors complain about the free-rider problem in the free market. They should examine the log in their own eye before criticizing the speck in the market’s eye.