ECON 4830

Exam 2 Review List

NCAA and Amateur (college) athletics

 US colleges based on British system, Sport rise as religiousness declined
 Participants “motivated primarily by education and the physical, mental, social
benefits.” Allows NCAA to limit aid to athletes..
History/origins of the NCAA
 Started as Intercollegiate Athletic Association of the United States (IAAUS) – Renamed
National Collegiate Athletic Association in 1910
History of college athletics since roughly 1900 (opposition faced, post WWII recruiting, etc.)
 Post WWII recruiting: Sanity Code
o Est. 1946. Supports amateur status, financial aid should be based on academics
o Abolished 1956. Ended to regulate money given to players
General profitability of college athletics
 72% of BCS schools are profitable with revenue from university
 30% of BCS schools are profitable on their own
 Non-BCS schools all lose money
 All sports except football and Men’s basketball lose money
 Universities must look beyond fiscal profits
o Sports can be seen as public goods
o Provide sense of identity like pro teams do for cities
NCAA priorities based on page counts in rule book
 19.6% of pages are admin bylaws, 15.78% playing in practice/ when they can, 11.6%
recruiting, 10.21% eligibility.
What type of school (small or large) are the majority of rule likely to benefit
Smaller Schools
Recruitment violations
Not many actual investigators. Mostly reported by whistleblowers
Detection and enforcement of NCAA rules
Punishment varies as stated in the NCAA rule book. If universities self-report,
punishments are lessened.
BCS and bowl payout incentives
Mid-Major conferences earn far less, Power 5 conferences automatically have a team in
the 5 big bpwls. University of Utah filed an Antitrust suit against the BCS.
Impact on competitive balance and profits in different conferences (big 5 vs. mid-major)
Payoffs are very skewed
Arguments on each side of the “pay the student athletes” debate
 Unpaid entertainers
o 48% of franchise revenue in NFL to players. Not nearly as much in NCAA
o Creates millions for NCAA with nothing in return
 Obtaining a free education at a bargain price
o Scholarships given regardless of financial need or academic merit
o Students now employees
o Players sign that they are not being paid to play, can’t file workmen’s
compensation

Sports Subsidies
Standard arguments on both sides of the sports subsidies debate
 ECON 4830
Exam 2 Review List

4 benefits named by proponents

5 costs/disadvantages named by critics
Owners could raise money themselves
Opportunity costs of money given by gov (could go to schools, etc.)
Doesn’t attract Fortune 500 companies
Mostly generates low-paying seasonal jobs
Unused for majority of the year

Trends is stadium construction (pre-1950s, 1950 – 1970s, post 1990)

1950: very few very small. Vast majority not publicly funded
1950’s-70’ : Many public multipurpose stadiums. Lots of franchises moved, lot of expansion
90s: 40 new major publicly funded major stadiums/arenas. Smaller with more luxury boxes and
amenities.
Economic Impact Studies
Why economists generally skeptical of ex ante Economic Impact Studies
Consultants are paid for their results and they usually lack precision because they’re done before the
stadium is built. They use shitty assumptions and there’s no penalty if they’re wrong
Keynesian multiplier and Noll and Zimbalist’s modification to it

Anatomy of a good economic impact study

Ex post study general consensus
With regards to development, growth, jobs, etc.
Salary Determination
Bilateral monopoly
Graphically and intuitively
Marginal Revenue Product vs. Reservation Wage
Influences of both
Contract zone
Negotiating strength
Measuring MRP
Scully (1974)
Krautman (1990)
Hybrid
Exploitation
Intuition and calculation
What factors have been shown to influence it?
Household Labor Supply
Substitution Effect vs. Income Effect
How do athletes adjust level of effort in response to higher salary?
Reserve clause
What does it mean to be “under reserve”?
Historical progress in MLB with respect to free agency and reserve clause
Key changes and challenges
What were the owners’ arguments in favor of the reserve clause?
Expected impacts of the reserve clause
Explain intuitively
Salary, player mobility, competitive balance, and team devoted player development
Final Offer Arbitration in MLB
 ECON 4830
Exam 2 Review List

Initial structure vs. New (current) structure

How do they differ in their incentives to player and team?
Players Unions and Collective Bargaining Agreements (CBAs)
Players Unions vs. traditional Employee Unions
Average and variance of marginal revenue product
Influences on contents of CBA (related to MRP)
Who benefits from CBA policies (rookies, veterans, owners)
Unexpected (although possibly intended) outcomes due to CBA policies
Rookie salary cap, prob. of injury, and college enrollment decision
Minimum age requirement—did it solve the problem?
CBAs allow for many policies that would otherwise be illegal under antitrust statute
Amateur drafts
Value across sports in terms of immediate impact
Know the below points related to why amateur drafts are common:

1. Drafted players are paid less than they would be without the draft. Thus, wealth is transferred from
incoming players to the owners. Owners have an incentive to keep the draft.
2. Owners have more money to spend on veteran players. Wealth is shifted from incoming players to
veteran players. Veterans have an incentive to keep the draft.
3. As low quality teams get initial signing rights, winning teams must pay for the transfer of the property
rights. Wealth is shifted from winning teams to losing teams. The majority of teams are not great and
thus a majority of team owners want to keep the draft so that they can receive rents sometime in the
future.

Academic Papers Assigned as Required:

Coates (2007)
Siegfriend & Zimbalist (2002)
PowerPoint Presentation: Sports Subsidies, Jan2016
Coates & Humphreys (2008)
Depken (2000)