Would Paying College Players Really Destroy Competitive Balance?

(Photo: Roger Smith)

March Madness is in the air. Over the next few weeks the nation will be focused on the fortunes of 68 college teams.  And all this focus on a supposedly amateur sport generates tremendous amounts of money.  For example, in 2010 CBS and Turner Broadcasting agree to pay the NCAA $10.8 billion to broadcast these games for fourteen seasons. This money represents more than 90% of the NCAA’s revenues.

Since colleges and universities tend to be non-profit, who gets all this money?  One person who seems to benefit is John Calipari, head basketball coach at the University of Kentucky.  Last summer, Kentucky extended Calipari’s contract, with a new deal that will pay him $36.5 million across the next eight seasons. Contracts like this – which seem comparable to what an NBA coach might command — are somewhat surprising. As economist Andrew Zimbalist has observed, the revenues of college sports – although apparently immense – pale in comparison to what we see in professional sports. And that leads one to wonder how a coach in college can command such a salary.

To understand why Calipari is worth this kind of money, consider the seedings for the NCAA tournament. Calipari’s Kentucky team is not just a number one seed in 2012, this team is the overall number one seed in the tournament. What’s amazing about this accomplishment is that Kentucky lost three prospects to the NBA draft in 2011 (four if you count Enes Kanter, a Calipari recruit who never had a chance to play for Kentucky).  This talent drain, though, was offset by players like Anthony Davis, Michael Kidd-Gilchrist, and Marquis Teague; three freshmen who might be selected in the 2012 NBA draft.  Yes, Calipari has an amazing ability to attract high school players who are capable of playing in the NBA at a very young age.  Given such talent, it’s not surprising that Kentucky under Calipari is consistently a contender. 

John Calipari. (Photo: Tennessee Journalist)

One might note, though, that Kentucky’s contender status – which contributes to the revenue generated by the Kentucky program – is created by the playing talent Kentucky puts on the floor.  And in a free market, this talent would be compensated for their economic contribution.  The NCAA, though, is not a free market.  The NCAA has passed a rule preventing NCAA members from compensating their workers (beyond a scholarship – that one-and-done players will never be able to use to complete a college education).

How does the NCAA justify such a rule? One of the big arguments offered is that paying the athletes will disrupt competitive balance.  The thinking is that if colleges could pay players, only the richest schools could afford the top talent and competitive balance in college basketball would be destroyed.

There is only one flaw with this argument: the NCAA really doesn’t have much competitive balance. 

 A few years ago, Jim Peach – a professor of economics at New Mexico State – offered a relatively straightforward analysis of competitive balance in college sports.  For NCAA basketball, Peach looked at how many different teams advanced to the Final Four over time.  He found that from 1950 to 2006, thirteen schools accounted for 50% of all Final Four appearances.

Let’s update this analysis by looking at Final Four teams from 1979 to 2011.  Across these 33 seasons there were 132 Final Four teams.  And of these, twelve schools — North Carolina, Duke, Kansas, Michigan State, Kentucky, Louisville, UCLA, Arizona, Florida, Georgetown, Indiana, and Connecticut – accounted for 72 of these slots.  Division I-A has 344 members.  And just twelve members – or 3.5% of the population – account for 54.5% of all Final Four appearances. 

What’s surprising about this result is the nature of the NCAA tournament.  As a single-elimination contest, one would expect a great deal of randomness with respect to outcomes.  And yet, the top schools are consistently able to navigate the tourney and reach the Final Four.

Part of this reflects the dominance of the #1 seeds in the tournament.  Since 1979, 40.9% of Final Four slots went to a number one seed.  And 82.6% of slots went to teams seeded in the top four. 

So if a team can assemble a collection of future NBA players, the odds of a high seed in the tournament – and a Final Four appearance – are dramatically improved.  Calipari seems to have the magic touch with future NBA players.  Consequently, we should not be surprised if Kentucky reaches another Final Four. 

What seems amazing – from the NCAA perspective – is that teams can achieve such consistency without paying their players.  And for the rest of us, we have to wonder how paying the players would change this outcome? 

Yes, Calipari would end up with less.  But it doesn’t seem like the dominance of the top teams would be impacted.   Teams like Kentucky, North Carolina, Michigan State, and Syracuse – the number one seeds this year — would still be great.  Teams with less money would probably not be as great.  And the NCAA – even with paid players – would probably look about the same.

Let me close with two more observations.

First, I think there is a sense that colleges don’t have much money to pay their players.  Last fall, I addressed that very same issue. Quick summary… I don’t buy the story the college are telling.

And because I wish to embrace my inner hypocrite, if you still need help filling in your brackets (and technically, since the games started on Tuesday, this should already be done), let me recommend the following three stories at The Wages of Wins Journal:

The Ultimate 2012 NCAA March Madness cheat sheet

More March Madness help

Arturo’s NCAA March Madness Tournament Bracket Buster

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  1. Bodger says:

    Who says they aren’t being paid now? What is a full-ride scholarship, hot and cold running tutors, lodging, travel, counseling and stipend worth? For some schools they are worth a serious amount of money. The fact that most ‘student athletes’ aren’t really students at all really doesn’t enter into it since they could, in theory at least, actually take real courses and earn a real degree if they wanted to (and the coaching staff would allow it). If anybody argues that the full-ride at an Ivy League school isn’t real money, please send an equivalent amount to me. I’ll even go to classes…

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  2. Nosybear says:

    Given the number of “perennials” or “powerhouses” repeatedly at the top of the NCAA rankings in any sport that makes money, can you tell me with a straight face that there is a competitive balance today? Let’s just make them NFL farm teams – they can pay the universities for the rights to play there – and be done with it. Anyone who isn’t in the NFL system can just play in Division 2.

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  3. Steve says:

    There are a lot of comments I would love to read here – but do not have the time. Overall, basketball needs a ‘baseball-like’ system to fix this problem. You can be drafted into the minor league out of high school — or you can play college ball. If you choose college X rules apply….if you choose minor leagues X rules apply. But, the NCAA and the NBA don’t use the NBDL like they should.

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  4. Ben says:

    There’s a very easy way colleges could pay players, as they should, while giving them an incentive to actually finish school, and maintain their status basically as amateurs. That is, a pension plan, with money going to the players account for every year they complete academically. And I would think that the amount that went into pension plan per the team per year should be at least equal to the coach’s salary.

    Though of course, I think players should be the ones, not schools and coaches, who are allowed to make money off of shoe contracts.

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  5. Just a thought says:

    I think each school should be able to offer a limited number of “preferred scholarships” (or call it whatever you want). For football for instance there is an 85 scholly limit. Allow each school to change 35 of those to a preferred scholarship that comes with the ability to pay the players up to a set limit (maybe $2,500/month or something). Make the normal schollys 4 year scholarships (sorry Saban) and the preferred schollys 1 year contracts. If a school yanks a players preferred scholly then the player would be able to transfer without having to sit out a year. If a football team maxed out its preferred schollys that is roughly $1,000,000/year, which is a drop in the bucket for a good portion of D-1 schools.

    I think this would actually do more to help parity as the non-powerhouses could practically guarantee a 3 or 4 star player a preferred scholly while they might not fall in the top 35 at a powerhouse.

    As for other sports, I’m definitely not a title IX expert but I think keeping a roughly 40% limit on current scholarship limits would probably fit most sports.

    An argument for a different day, but I believe they should also create a “professional athlete” major at most schools that provides courses in personal finance, basic law with a focus on athlete contracts, health and fitness, etc. Such a major would have far more benefit than a lot of the crappy joke majors that most schools already offer.

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  6. Erik Dallas says:

    “Beyond a scholarship – that one-and-done players will never be able to use to complete a college education.”

    The pay should be for a four year education / scholarship even if the education is taken post pro NBA career. Retiring professional player need to know how to manage their finances and how to plan for something to do for the rest of their lives. Life skills and second careers are very important, and these are the type of values and education often obtained in a college setting. If the player plays for all four years and gets an Bachelor degree then this scholarship should probably extend to a master program scholarship intended to be obtained immediately or post pro NBA career if the player is of that quality… Allow colleges to pay and attract the best players with a free education for life, and possibly also for immediate family members…

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  7. francisco says:

    they should be able to athletes because they deserve it more than the coaches

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