Markets: Cartel Behavior and Amateurism in College Sports

Lawrence Kahn

Journal of Economic Perspectives, 2007, vol. 21, issue 1, 209-226

Abstract: This paper studies intercollegiate athletics in the context of the theory of cartels. Some point to the explicit attempts by the National Collegiate Athletic Association (NCAA) to restrict output and payments for factors of production as evidence of cartel behavior. Others argue that such limits enhance product quality by preserving amateurism. I find that the NCAA's compensation limits on athletes lead to high levels of rents from the entertainment revenues produced by the athletes, a finding consistent with the cartel interpretation. The athletes producing these rents are disproportionately African-American, while the beneficiaries are primarily white. The rents are typically spent on facilities, nonrevenue sports, and, possibly, head coaches' salaries. Big-time football and men's basketball programs earn accounting profits, although the athletic departments in which they reside make accounting losses on average. However, there is some evidence, albeit not unanimous, that sports generate alumni contributions, state appropriations, and additional student applications. But, arms race considerations suggest that there may be some societal gains to the aggregate limitation of spending on college athletics.

Date: 2007
Note: DOI: 10.1257/jep.21.1.209
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