ISS 328 Exam 2

NCAA Scholarships

- # is limited - Head count sports: maximum number of players receiving scholarship and can range from $1-full ride (football, basketball, gymnastics, tennis and volleyball) - Equivalency Sports: funds = maximum # of full scholarships so money is allocated among any # of students but there may be school limits on roster size (all other sports D1-D2 bc D3 doesn't offer scholarships but other forms of financial aid)

NCAA basketball tournament and TV

- Began in 1939 - only 8 teams - Finals televised nationally in 1963 ($28,000) - NBC contract in 1969, $547,000 - National TV for final games only at this time - Even with the great UCLA teams of the 1960s national TV only for final round - Michigan State (Earvin Johnson and Greg Kelser)vsIndiana State (Larry Bird), 1979 - The 24.1 rating and 38 share for that game remain the highest for any college basketball telecast

College football playoffs (CFP)

- Began with the 2014 season - Replaces the BCS as the system to determine the FBS national champion - 4 Team, seeded post-season playoff - Selection Committee, not polls or computer rankings, to decide the 4 - Six Bowl Games - "The New Year's Six" - Rose, Sugar, Orange, Fiesta, Peach, Cotton - two will host semi-finals (top 4 teams - finals one week later (Monday) - Winners of the Power 5 Conferences (Big 10, Pac 12, Big12, ACC, and SEC) are guaranteed spots, plus 5 at large spots, and one for member of the Group of 5 Con.

Union is a Monopoly

- Cartel among laborers in an industry - Clayton Act 1941: exempted labor unions from antitrust law and subsequent federal laws gave workers rights

Origin of Modern (Amateur) Olympics

- Created by Pierre de Coubertin French aristocrat - Humiliated by France's loss of Franco-Prussian War (1871) - Wanted to show French how to restore its honor (and beat the Prussians) - Sound mind in a sound body

The Labor Demand Curve

- D = MRP - demand curve slopes down - both MP and MRP fall as labor rises

BCS

- Established in 1998 - Administered by Bowl directors and major conference commissioners,NOT NCAA - Objective: To bring order to the 39 Bowl games and to create a "national champion" - Participants: Winners of 6 BCS conferences plus 4 at large teams

Institutional constraints & Reverse Clause & Curt Flood Case

- In early years of baseball, owners and players operated in truly free market - In 1879, National League owners agreed that each club could reserve the rights to 5 players for as long as it wanted. - In 1889, this expanded to the entire roster - Owners interpreted this clause to mean that they had a perpetual option on the player. All they had to do was invoke the reserve clause and extend the contract at its stated price another year. - A team could thus restrict a player from selling his services to another team - In 1970, Curt Flood, filed a suit against MLB challenging the "reserve clause" and asked for "free agency," the right to sell his services to the highest bidder. - In 1972, the Supreme Court rejected his appeal but did not overthrow the reserve clause and eventually led to free agency in 1975

APR Penalties, 2018-2019

- Ineligible postseason - 9 teams, 6 schools - Ex: 1. AlabamaA&M: Men's basketball, men's golf, men's track and field, and women's cross country. 2. Gardner-Webb: Men's track and field. 3. Grambling: Softball. 4. MississippiValley:Baseball. 5. MorganState:Football. 6. WrightState: Men's tennis.

Tax Cuts and Jobs Act of 2018

- Lowered tax rates for individuals and businesses - Increased the standard deduction for individuals - Limited and eliminated some deductions for individuals - State and local taxes - Charitable deduction for college sports tickets - Eliminated some deductions for businesses - Business entertainment expenses

Numbers of Workers/Jobs

- MLB Players 1,280 - Pro Athletes 4,116 (MLB, NBA, NFL, NHL) - Police Officers 795,000 - Doctors 835,000 - Teachers 3,700,000

MRP

- MP X MR - monetary gain from another worker - the demand for labor

NBA Study (Berri and Brock)

- MRP estimated on points, rebounds, steals, blocks, PF and turnovers - Estimated MRP higher than what athletes actually being paid

What does each a monopoly union and monopsony employer try to do?

- Monopoly union tries to increase pay - Monopsony employer tries to lower pay The precise wage settlement would depend on the bargaining strengths of the two sides

How do business taxes work?

- Most are a tax on net income or profits (Revenue - costs or expenses) - Some tax gross revenue (sales) - Ex. of costs/expanses: Wages & salaries Purchases of materials & supplies Purchases of business services (advertising, legal, entertainment) Interest (debt) Rent Depreciation Contributions

NFL and work stoppages

- No salary arbitration as in MLB - Limited free agency due to Rozelle Rule: compensation paid to teams gaining free agents (so high that few occurred), named after former NFL Commissioner Pete Rozelle - owners usually united but players not so much - only league with no work stoppages that affected regular season league play since 1987 - usually failed bc players were different than MLB and had shorter careers and the fact that there were large "squads"meaning o-line and d-line but the QB's were usually the first to give in

Academic Progress Rates (APR) - 2005

- One of the most sweeping changes in academic standards monitoring -Focus on ability to graduate rather than on initial eligibility - Penalties not just on individual player, but also on teams and entire programs - temporary loss of scholarships

American Amateur Scene

- Originally similar to British ideal: importance of character - Baseball most important amateur team sport in 18th and early 19th Century - MSU - baseball started in 1865 (1st MSU sport) BUT this began to change towards the end of the 19th Century: - Football emerged as the national pastime on college campuses - originally resembled soccer, but then rules changed to make it more like rugby

Chance of Becoming ______ Compared to Major League Baseball Player ______ times more likely

- Police Officer: 600 times more likely - Doctor: 650 times more likely - Teacher: 2,900 times more likely

What do we know about ticket sales?

- Prices typically set below market price - Additional revenue from concessions - Additional revenue from donation seating (personal seat licenses) a. Price discrimination; higher price to buyers who are less sensitive to price b. School captures consumer surplus

Academic Standards, Progress Toward Degree, Continuing Eligibility

- Since 2005, however, NCAA has focused increasing attention on athletes' progress towards graduation (ability to graduate eventually) - main focus was progress towards degree - many students met requirement but then never graduated

How do craft unions affect pay?

- Some restrict access to skills - Some restrict access to jobs - Raise pay by shifting labor supply

What kind of unions are sports unions?

- Sports are a hybrid bc players have special skills but do not have a "goalie union" representing goal tenders in many sports (m & w hockey, m & w soccer, field hockey, ...) - work for particular employer but don't have a Detroit lions player association but instead have an NFL players association - unions bargain collectively not just for individual players but for all players so there is only one contract needed - Player agents to represent individual players seeking their highest financial position in their individual negotiations with the team

Assume the Union's goal is: maximize the total revenue (wage bill) paid to members of the union:

- That would be where: MR = 0 - If one more union member is hired, does the potential wage bill increase ? a. Yes, if MR is positive but when MR becomes zero, then the total potential wage bill is the highest it can be

What does paying student athletes mean?

- Tuition, room and board, books (full or partial) - "Full cost of attendance" - Adds supplies, transportation, other costs of attending - "Full cost of attendance" plus a "small" stipend - Permitting student-athletes to earn royalties on their name and image, with payment immediately or in escrow. Would apply to current, not just former student-athletes (O'Bannon case) - Players receive a share of revenue generated by their sport, disbursed after graduation or leaving the school (Nocera proposal). - Players receive a percentage of the full "marginal revenue product" that they generate; in professional sports players receive about 50% of revenue.

Monopsony and Labor Markets

- Where there is only one buyer for a good or an input, such as labor - unlike competitive markets where cost of workers is the same for everyone, the cost to monopsonist depends on how many workers are hired - monopsonist sets both quantity (employment) and price (wage) - marginal labor cost: cost of hiring one more worker - cost of hiring one more worker outweighs the cost of wages so you can increase wages for all - MLC is above the supply curve - On graph: a. NO monopsony would just be where D (MRP) is equal to S b. Monopsony would have to be lower bc with NO monopsony there is competitive balance c. Monopsonistic exploration (W < VMP): is the point where workers are paid less than the value of what they produce (so if they produce $500 but paid $300 then you are left with $200 bc MP is $500 and wage is $300) - employment level and wage lower than competitive market

EVIL VIEW

- Widespread cheating and money to players - no enforcement mechanism GREAT DEPRESSION & PROHIBITION - 18th Amendment 1920-1932 - speakeasy: establishment selling illegal alcohol

How do Industrial Unions affect pay?

- Workers act on pay directly - Push up with "collective bargaining" - Negotiations between a labor union and an employer that sets the terms of employment for union members

Impact of rival leagues

- increased demand for players and shifted the demand curve to the right which meant wages were higher and more players were hired - monopsonisitc power decreased

Recruitment Regulations

- recruits limited in the number of visits on and off campus - recruits limited to certain months of the year - AD restricted on how much money they can offer recruits and how they spend it - can travel but parents cannot for free - no payment to recruits

Labor Supply

- relationship between wage and amount of labor - As wage increases so does quantity of labor supplied

Labor Costs

- the largest component of an athletic department's budget - Coaches salaries dominate, particularly in basketball and football

History: Tightening of Eligibility Standards

1) Complete a minimum number of corecoursesin high school -Originally 11 now 16 -NCAA clearinghouse now evaluates individual courses 2) Maintain aminimum grade point average in core courses -Initially a 2.0 -In 2015, increased to 2.3 -In 2015, if 2.0, freshman scholarship, but cannot compete 3) Earn a qualifying SAT (or ACT) score - Initially 700 SAT or 15 ACT - Sliding scale if2.0 core GPA need 1010 SAT if 3.55 core GPA need 400 SAT - Increased sliding scale in 2015 2.5 core GPA need 1000 SAT

Three important areas of regulation that NCAA dicates

1. academic standards (eligibility) 2. recruitment 3. compensation of athletes

High School Athlete to Pro Athlete

1000 high school players (football and basketball) ---> 50 college players ---> 1 professional player --->

History of Eligibility

1965 : 1.6 rule adopted - A complex formula projected GPA - To play needed projected 1.6 GPA (C-) 1973: Replaced 1.6 with 2.0 rule - Ostensibly created higher standards - Actually needed C+ average in high school - Could take any courses - Worst abuses came under this rule

Conference distribution revenue to the big ten

54 mill to 12 longest standing schools

college sports programs by financial viability

6% of Div .1 -generating revenue coves all athletics expensesmiddle group-13% of div. 1-generated revenue covers football and basketball but not other sports bottom group-81% of Div. 1 (all FCS) greeted revenue covers no sports

Among FBS schools, which is correct? A. Generated revenue > allocated revenue B. Allocated revenue > generated revenue C. Allocated revenue = 0

A

Team A trades a star player to Team B for several prospects. Is there a capital gains tax for either team? A -Team A owes tax if the value of the star player is greater than the prospects. B -Team B owes tax because it reduced the total salaries paid. C -neither team has a tax liability due to the trade.

A

What is the correct order of pro leagues by average salary (highest to lowest)? A - NBA, MLB, NFL, NHL B - NBA, NHL, MLB, NFL C - NHL, MLB, NBA, NFL D - NHL, NBA, MLB, NFL

A

Sports unions are: A. - more important today than 50 years ago. B. - equally important today compared to 50 years ago. C - less important today than 50 years ago.

A - Grew after 1970 with the astonishing growth of revenue in all pro sports

At MSU, what is the cost of the Huntington Club seats in Spartan Stadium? A -- $2,000-4,000 + ticket B -- $3,000-6,500 + ticket C -- $5,000-10,000 + ticket D -- >$10,000 + ticket

B

The most recent reforms of academic standards by the NCAA. What does the NCAA focus on today? a. focus more on admission standards than on progress towards graduation b. focus more on progress towards graduation than on admissions standards c. permanently reduces the overall number of scholarships that schools may offer d. essentially eliminated all admission standards

B

The probability of a Division 1-A football or basketball player having a professional career is: a. less than 1 percent b. between 1 and 5 percent c. between 5 and 10 percent d. between 10 and 20 percent e. above 20 percent

B

Which College has Highest Paid BB Coach? A - Duke B - Kentucky C - Kansas D - Michigan State E - UCLA

B

Which US pro sports league has the highest averagesalary? A -MLB B -NBA C -NFL D -NHL

B

Mr. Johnson's marginal productis 2, the marginal revenue from selling an additional unit of that product is $300, and his wage is $200. The amount of his monopsonistic exploitation is: a. $600 B. $400 c. $200 d. $100

B - 2(300) - 200 = 400 so MP X MR - wage = monopsonistic exploitation

New Law

Business entertainment expenses for clients/customers no longer deductible Business meal expenses for clients/customers still deductible (in most cases) so ...tickets for taking clients to sporting events no longer deductible for businesses; increases cost 80% charitable deduction for college sports seating eliminated Huntington Club Example: - Individual buys 2 SC seats @$5,000 each plus the cost of season tickets - Pays $10,000 to MSU for the club seats - No tax deduction as a charitable contribution - Net cost of SC seats = $10,000 - Net cost (price) increases! Stadium Suite Example: - Business leases a suite @$60,000 plus the cost of season tickets for every person - Pays $60,000 to MSU for the suite - No tax deduction as a charitable contribution - Net cost of suite = $60,000 - Net cost (price) increases! Fewer taxpayers will itemize (larger standard deduction) SALT deduction limited to $10,000 because of the SALT deduction limit of $10,000, will increase net tax liability for many pro athletes, who pay state income taxes to many states on high incomes

Old Law

Business entertainment expenses used to be generally deductible, subject to rules: - Must be "ordinary and necessary" - Must be "directly related" to business activity - 50% limit But business purchases of luxury boxes & suites were NOT deductible as business entertainment expenses - Ticket costs deductible If a business rents a skybox or private luxury suite for more than one event at the same sports arena, the business cannot deduct more than the price of a non-luxury box seat ticket. - For example, a business pays $4,000 to rent a 10-seat luxury suite for 5 baseball games. The cost of a regular non-luxury box seat at each event is $30 a seat. The business can deduct, subject to the 50% limitation, $750 ((10 seats x $30) x 5 games x 50%) not the $4,000 paid. - Only the face value of the ticket is deductible even if purchased at a higher price from a scalper or a ticket broker. - Payments for luxury boxes, suites, premium seats & seat licenses to colleges were considered charitable contributions to the university - 80% could be taken as a tax deduction by special law - The price of the ticket to the event could not be deducted Huntington Club Example: - Individual buys 2 SC seats @$5,000 each plus the cost of season tickets - Pays $10,000 to MSU for the club seats - Could deduct 80% ($8,000) as a charitable contribution to MSU for income tax - Reduces income tax by $2,800 if tax rate = 35% - Net cost of SC seats = $7,200 Stadium Suite Example - Business leases a suite @$60,000 plus the cost of season tickets for every person - Pays $60,000 to MSU for the suite - Could deduct 80% ($48,000) as a charitable contribution to MSU for business income tax - Reduces business tax by $16,800 if tax rate = 35% - Net cost of suite = $43,200 If itemize deductions, could deduct (subtract) from income state and local government income and property taxes paid

In setting rules for academic standards for student-athletes, the NCAA focuses on: A. insuring admission standards are the same for athletes as others. B. insuring that student-athletes will get a college degree. C. insuring that student-athletes are on a path to graduation. D. insuring that student-athletes maintain academic integrity (do not cheat).

C

The highest federal personal income tax rate bracket currently (2019) is: A. 15% B. 25% C. 37% D. 50% E. 72%

C

The increase in sports ticket prices is primarily due to: a. increases in players salaries b. decrease in the demand for attending games c. increase in the demand for games (tickets and broadcasting) d. increased competition from other sports and entertainment events

C

Which of the following is true? a. Top athletic superstars earn much less than the top entertainment superstars b. MLB players have the highest average salary among the four major professional sports leagues c. NFL & NHL players have the lowest average salary among the 4 major professional sports leagues d. professional sport salaries have increased about the same rate as the increase in national economy since the 1970s

C

Which of the following is true? a. Top athletic superstars earn much less than the top entertainment superstars. b. MLB players have the highest average salary among the four major professional sports leagues. c. NFL players have the lowest average salary among the 4 major professional sports leagues. d. Professional sport salaries have increased about the same rate as the increase in national economy since the 1970s.

C

You live in Michigan but work in NY sometimes. To which state do you owe income tax? A -MI B -NY C -Both MI & NY D -Neither state

C

Unions in the US economy are: A. - more important today than 50 years ago. B. - equally important today compared to 50 years ago. C - less important today than 50 years ago.

C - they reached they're peak in 1950 a. over 1/3 of labor force was unionized back then b. created the National Labor Relations Act 1935 (US Congress) which ave rights of labor to organize and form unions and right to bargain collectively and implement strikes

athletes compensation

COMPENSATION FOR ATHLETES (GRANTS IN AID) IS LESS THAN HALF OF COACHES AND ATHLETIC STAFF COMPENSATION

Football early days

Character less important than winning First football game and the first scandal: rutgers Vs princeton where 4 rutgers players were flunking math Rules changed and decreased fairness and increased violence - only ejected if punched opponent three times

Charitable contributions

Charitable contributions to non-profit entities are deductible for both individuals and businesses - Ex.: $1000 donation to MSU for scholarships Reduces tax by ($1000 xMTR) If MTR = 25%, cost of donation = $750 MSU receives $1,000; donor pays $750 Deduction only for amounts for which donor does not receive value in return - $100 fundraising dinner; dinner costs $50; $50 charitable deduction allowed

NCAA input control

Created a voluminous system of rules relating to players aimed at controlling the cost of inputs in collegiate sports

Of 1000 high school football or basketball players, how many will play in college? A - 1000 B - 500 C - 100 D - 50 E - 10

D

What did the Reverse Clause do? a. resulted in players receiving salaries equal to their MRP b. resulted in players receiving salaries greater than their MRP c. permitted players to play with any team that they wished d. was not overthrown directly as a result of the Curt Flood case

D

The NCAA was originally formed to: a. remove "professionals" from collegiate sports b. limit the number of athletic scholarships c. set academic standards for athletes d. set rules of play for college football to curb violencee. maximize athletic revenue of colleges

D - jock schools - Roosevelt said clean up act or ill ban football - 33 deaths in 1906-banned mass plays like the flying wedge

Which US pro sports league has the highest minimumsalary? A -MLB B -NBA C -NFL D -NHL

D - The order from highest to lowest is : NHL, NBA, MLB, NFL

True or False: athletes earn as much as celebrities?

Depends, some celebrities make more but sometimes athletes make more

Salary Caps

Direct restrictions on amount a team is allowed to pay its players Major leagues tried to implement these as countermeasure to free agency NBA, NHL, and NFL able to impose them, But NOTMLB

The Value of an Education

Do athletes get an education? - On average athletes graduate at the same rate as non-athletes - Average masks wide differences

At MSU, what is the cost of the club seats in Munn Arena? A -- $100 + ticket B -- $500 + ticket C -- $1,000 + ticket D -- $1,500 + ticket E -- $2,000 + ticket

E

Of 50 college football or basketball players, how many will play in the pros? A - 50 B - 25 C - 10 D - 5 E - 1

E

That highest tax rate bracket applies to taxable income over: A. $50,000 B. $100,000 C. $150,000 D. $200,000 E. $600,000

E

which college has the highest paid fb coach A - Michigan B - Alabama C - Ohio State D - Penn State E - Clemson

E

Components of NCAA Academic Standards

Eligibility ---> progress toward graduation ---> graduation

Input control: player rules

Established rules to remove professionals from collegiate sports - players cannot be paid Eligible athletes must be full-time students Three years eligibility only (no freshman)

True or False: collegiate athletics is net contributor to university treasuries

FALSE

True or False: increases in players salaries is an increase in ticket prices?

False - Economic analysis shows us that the relationship is just the reverse of common expectations. - Players salaries are the result of Demand (includes ticket prices and number of tickets demanded)and other revenue sources (such as media)

FGR

Federal Graduation Rate Have their own way to calculate GSR compared to the NCAA who uses GSR CANNOT compare GSR and FGR because totally different Takes transfers as they did not graduate from that school NCAA takes in to account for transfers

Federal Marginal Tax Rates

Federal PIT - 10% (< $19.5k) to 37%(>$610k) Capital Gains - 5%to20% (others) Federal Corporate Rates New = 21% Old = 15% (< $50k) to 35% (> $18m)

Scully's findings

First, estimated contribution of batters (total bases at bat) and pitchers (strikeout-walk ratio) to team wins a. Solid batter adds 11 net wins b. Strong pitcher adds 20 net wins - Second, estimated how much an increase in winning percentage increased team's revenues a. each additional win raised revenue by $357,281 - PLAYERS PAID LESS THAN WHAT THEY PRODUCED

Growth Rate

Greater than the US economy

Battle of Two groups in the NCAA

Group 1: - extreme reformers and wanted no bowl games, no scholarships, no spring practices, and university to enforce rules Group 2: - moderate reformers and wanted bowl games to continue, wanted spring practices, wanted scholarships and the NCAA committee to enforce rules WINNING GROUP

MLB and work stoppages

Had a lot before 1995 but since 1995 has been relatively peaceful

APR Penalties

IF consecutive for 3 years of penalties VERY SERIOUS consequences

Wages in perfect competition

IF equilibrium wages were paid then the line on the graph is where the demand curve and the sales curve intersect or when MRP=S (sales)

Final offer arbitration

If a player and team cannot agree on a contract, each side submit its final offer to an independent panel that accepts one final offer or the other

California fair pay to play act

Illegal for California universities to revoke an athlete's scholarship or eligibility for taking money - Under the new law, schools will not pay athletes, but athletes can hire agents to seek out business deals for them - Endorsements, video games, summer camps Thebill will not go into effect until Jan. 1, 2023 NCAA response: permit students in athletics to receive money off name, image and likeness

British Ideal

Importance of Character: - Honor, honesty, fair-play, cordial hospitality - Emphasis not on winning, but how you played the game - Amateurism reflects British class snobbery - Elitist - Aristocracy initially refused to compete with "lower classes" - Any manual laborer was not considered an amateur

Contributions

Increase in donations to athletic departmentis the only unambiguous impact of athletic success on contributions to a college

Eligibility

Initial focus was on setting minimum admission standards for athletes No uniform rules prior to 1965 - Schools accused of accepting ill-prepared students

Are College Athletics Profitable?

Institutionally reported accounting numbers have revealed that most collegiate athletic departments and most individual programs, except for football and men's basketball, lose money but some believe that these numbers aren't true and that they overstate costs and understate revenue

Tax Exempt Bonds

Interest income on state-local government bonds exempt from federal income tax - General obligation bonds - Revenue (non-guaranteed) bonds - Private-activity bonds Interest cost to state & localities for borrowing lower because of the tax exemption Revenue cost to federal taxpayers (subsidy) - Inefficient

Approaches to NCAA limitations

Internal: commission on college basketball External: court cases Response to commission: - more official visits and they are paid for - players can be represent by an agent for the draft - can return back to school after the draft if NBA approves - pay tuition for players who left school - coaches to attend more high schools - athletics must report any athletic related income from any source outside the school - stronger penalties if they don't follow rules Court cases: Ed O'Bannon - EA sports settlement (Removes restrictions on the money college athletes can receive for use of their names, images and likenesses(NIL). The judge determined those restrictions violated antitrust law. Also argued for NCAA to cap payment to football and basketball players to $5000 for a year/every year they compete but was turned down) - cost of attendance (schools may now pay cost of attendance if they wish to do so) Alston 1 - settlement with past athletes for back coast of attendance (NCAA rules that would permit a more competitive, market-oriented approach to athletic scholarships) Alston 2: on going case

GOOD VIEW

Knute Rockne - ND football coach - key influence on American culture and how collegiate athletics was viewed - win one for the gipper - four horsemen movie

Monopsonist pays less or more for a wage?

LESS

Most college athletic departments are a profit or loss?

LOSS and don't generate money for the university

The MRP explanation for wage levels

Labor payments (Wages) are determined by MRP Ex. for athletes: MP (player contribution to extra wins) X MR (marginal revenue from an extra win) so...Tigers player increases team wins to 10 and each win is 1 million dollars: MP = 10 ad MR = 1 ----> 10X1 = 10 million dollars

In what order did the reverse clause disappear?

MLB then NBA then NFL and then NHL

In a competitive talent market players would expect to be paid close to _____

MRP

Why Differential Salary by League?

MRP explanation (MP x MR) - NBA>MLB>NHL=NFL - Basketball higher MP (more impact per player) - Fans willing to pay more (MR higher, NFL) - Number of players

Growth in college sports

MSU ticket price $2.50 when stadium was built in 1942 BC VS MSU: ticket was 25 cents MSU played Lansing high in first game

Marginal Revenue Product

Marginal Product of Labor (MP) X Marginal Revenue (MR)

Probability of going from NCAA to Pro leagues

Men's basketball: 1.2% Women's basketball: .9% Football: 1.7% Baseball: 11.6% Ice Hockey: 1.3%

APR Standards and PenaltiesRevised 2011

Minimum APR 930 (4 year average) - (projected graduation rate of 50%) - (increased from 900 before 2011) - team must be getting at least 93% of possible points in 4 years to be considered eligible and avoid penalties - penalties fall on TEAM not player Three levels of penalty : - I. Reduced hours of practice from 20 to 16 hours/week and one day - II. NO POST SEASON ACTIVITIES - III. Coaching suspensions, financial aid reductions and restricted NCAA membership

What is a bilateral monopoly?

Monopoly union with a monopolist industry so there is market power on both sides

Graduation Rates Vary by Sport and Quality

Most recent report on GSR Graduation Success Rates) from NCAA: - (Students arriving on campus 2016) - (does not penalize students who transfer) Average all sports FBS 88% - Increased Money sports generally do worse: - Football 79% - Men's Basketball 83% Women's sports > men's Racial differences (usually more black schools)

How does the NCAA monitor each school?

NCAA cannot monitor every school, each school/institution has their own rules and way of monitoring them Example: UNC had faked athletes having actual classes when they were not real but NCAA couldn't do anything about it because each school/institution hash tier own rules and regulations

Death Penalty

NCAA established (1953) a Committee on infractions and a range of penalties less severe than termination of membership - "Death penalty" applied to Kentucky - Not closing the program, but prohibited it from playing other NCAA schools (boycott)

What was the TV age of the century?

ND #1 VS MSU #2 FIRST color game on TV in 1952

What is the order of total revenue by sport?

NFL > college sports > MLB > NBA > NHL

If a business buys tickets to take clients to a Detroit Red Wings hockey game, what amount is tax deductible as a business entertainment expense?

NONE

If someone spends $5000 to buy a seat at a college event, how much is tax deductible as a charitable contribution?

NONE

Asset Trades

No capital gain for a "like-kind exchange" - Business land or equipment; assume equal value & no tax liability New tax law only applies to exchanges of "real property," i.e. land, buildings No longer applies to "personal property" unless cash is involved then cash is treated as a taxable gain - Equipment - Athletes

APR Penalties, 2019-2020

Occurs if below 930: - Ineligible postseason - Ex: 8teams, 6 schools 1. Alabama A&M: baseball, men's track and field. 2. Arkansas-Pine Bluff: men's golf. 3. Charleston Southern: men's golf. 4. Detroit Mercy: men's basketball. 5. Grambling: men's track and field. 6. Savannah State: baseball, football

APR Results, MSU, 2017-18

Penalty at 930 - M BB -1000 (ave.= 967) - FB -948(ave.= 968, FBS) - Hockey -997(ave.= 986) - W BB -959(ave.= 982) - W VB -1000(ave.= 987)

Academic standards

Preserve academic integrity - Don't recruit unqualified students Creates a barrier to entry - Established athletic powers preventing other schools from being competitive

Labor Demand

Question to Ask: should a firm hire one more unit of labor? - Yes, if benefits out weight the cost - The benefits are equal to additional output which is marginal product of labor (MP) - Value of additional output= MP X P - cost of one more worker = wage (competitive labor market) - when considering to hire, compare value of MP to wage

What helps explain the patter of athlete's salaries over time and by league?

Roles of unions

Academic Progress Rates (APR)

School scored for student progress - 1 point if athlete stays enrolled - 1 point for staying academically eligible - Perfect score = 1000 - loos a point for any athlete leaving Computes % of total possible points - Consider MSU's basketball team - 52 possible points (13 players * 2 points * 2 semesters) - If one player is ineligible in spring - lose 1 point - APR= 1000*(51/52)= 981 98.1% of possible points

Conference Distributions

Sec then Big ten (37 million but expected to increase) then big twelve then pac twelve then acc

Sports Facilities

Sell tax-exempt bonds to build sports facility; owned by government; leased to team - Rental rate? - Dedicated taxes or fees Partner with the team; sell tax-exempt bonds to pay part of the cost of the facility owned by the team Sell tax-exempt bonds to finance infrastructure related to the sports facility - Highways & streets, exits, parking, utilities, ...

MSU donation seating

Suites $35,000-$100,000 Spartan Club $3,000-$6,500/seat Stadium Club $1,750/seat Scholarship Seating $50-$600/seat

How do individual taxes work?

Tax = (Taxable Income) x (Marginal Tax Rate) OR income - exemptions - deductions Assume Taxable Income = $40,000 and MTR = 15% Tax = $40,000 x .15 Tax = $6,000 Assume Income = $50,000, Deductions & Exemptions = 0 and MTR = 15% Tax = $7,500 [$50,000 x .15] Assume Income = $50,000, Deductions & Exemptions = $10,000 and MTR = 15% Tax = $6,000 [($50,000 - $10,000) x .15] Save $1,500 [$10,000 x .15] Ex. of exemptions (basic amounts not taxed) - Personal - Children - Special circumstances - Some types of income - Social security - Interest on state-local bonds Ex. of deductions (to subtract) - Mortgage interest - State-local taxes - Charitable contributions - Medical expenses, casualty loses, personal business expenses (only if over a limit)

NCAA

The National Collegiate Athletic Association (NCAA) is a voluntary organization through which the nation's colleges and universities govern their athletics programs 1066 active member schools (2014) 1906 After it set on-the-field rules, then the NCAA turned attention to off-the-field issues

NCAA attempts to fix evil of sports

The SANITY CODE (1946) - NCAA: sought to ban financial "aid" to athletes -athletes/nonathletes treated alike - Enforcement apparatus to deal with cheaters BUT abolished the sanity code bc "seven sinners" paid (scholarships) their players and they failed to get 2/3 of the vote needed to expel

Post season football bowl revenue

The only group (130 schools) within the NCAA without a comprehensive tournament to determine a champion Postseason consisted of individual Bowl Games BCS: bowl championship series FCS: football championship schools

Current Eligibility Standards

To be eligible to compete in NCAA sports during your first year at a Division I school...(full qualifier) - Complete16 core courses - Complete 10 core courses...before your seventh semester - ≥ a 2.3 GPA in your core courses - From 37 ACT/3.55 GPA to 75 ACT/2.3 GPA Partial qualifier/academic redshirt; practice, scholarship, not play - Complete16 core courses - ≥ a 2.0 GPA in your core courses From 37 ACT/3.55 GPA to 75 ACT/2.3 GPA

How to measure profitability

Total revenue- total costs/expenditures

True or False: athletes can make more than the president?

True

True or False: every decade from the 1970's to the 2000's, salaries more than doubled in all four leagues?

True - Few industries have ever witnessed such an astonishing growth of salaries

True or False: the NCAA is a monopsony?

True: it is only one buyer of college athletics The reverse clause was also a monopsony

Demand for Labor

Two components: - the contribution of the extra worker to output (marginal product of labor) - the extra revenue from selling that output (marginal revenue)

What kind of unions are sports unions?

Two forms: - Craft unions: descended from medieval guilds and organized along skill lines, i.e. plumbers or electricians - Industrial Unions: originated in 19th century, organized by industry not skill lines, industrial revolution led to rise of large firms, unions sought to offset power of large employers •i.e. UAW (united auto workers)

Player Compensation

USED TO BE: Full" athletic scholarship "consists of tuition and fees, room and board, and course related books NOW: Full Cost of attendance - "tuition and fees, room and board, books and supplies, transportation and other expenses related to attendance at the institution" POWER 5: offered full cost of attendance, multi year scholarships and long term health care Could form a labor union like NW but the board declined to rule and this never came about Could also pay families to go to BIG games

Monopoly unions VS Monopsony owners

Until 1970s, owners dominate players bc unions weak or non-existent but then the Reserve clause binds players in all leagues Sports unions begin to rise in power in 1970s and replaced monopsony with bilateral monopoly and pay increased dramatically in all leagues

Top Player Recruits

Value to school if they play football: 600,000 to 1 million basketball: 1.9 million if they received the same amount as professionals they'd be making 46% of revenue for football and basketball 50%

In a graph, the union would prefer to choose a salary of what?

Want salary to be equal to highest output

Contract zone

Where monopsonist and monopolist agree to settle (on line its where the two overlap)

Each of the professional sports has experienced a work stoppage since 1980

Worse than in most other industries - From 1987-1996, strikes/lockouts 50 times more likely to occur in sports than in other industries

Athletes salaries are increasing faster than overall economy?

Yes

How many athletic debts at MAC schools have essentially no allocated revenue? a. 0 b. 10 c. 7 d. 20

a

Capital Gain

a taxable transaction if the value of players traded is different

Expense growth

athletic expenses growing faster than athletic revenue academic expense less than athletic expense

According to the textbook, Division 1 NCAA institutions, when counting only GENERATED REVENUE: a. on average generate positive net revenues ( make profits) b. on average generate negative net revenues (make losses) c. never generate positive net revenues d. always generate positive net revenues

b

The major source of revenue for FBS college athletic departments is: a. allocated revenue b. ticket sales c. broadcasting postseason d. general donations e. concessions

c

how many schools in the big 10 school have no allocated revenue (<1%)? a. 3 b. 5 c. 7 d. 20

c

Marginal Product

change in output/change in labor ex: 32000 - 27000 =5000 (change in out put) 400-300 = 100 (change in labor) 5000/100 = 50/1

who negotiates with media providers for most events?

conferences but ND, NCAA championships, bowls, and playoffs are the exceptions

mens athletics programs ________ their costs but women's ________

cover; don't

According to the institutionally supplied accounting data, NCAA institutions (excluding allocated revenue): a. on average generate positive net revenues b. generate positive net revenues for both men's and women's basketball c. generate positive net revenues for most women's sports D. that are in the Big 10 do not all generate positive net revenues e. below Division 1-A generate positive net revenues

d

Cartel

firms (schools) that cooperate (collude) in order to exercise monopoly power by fixing prices and reducing output prices higher and output lower than before illegal in US bc of Sherman act but baseball exempt via supreme court ruling monopoly power (output control): - NCAA TV plan: a. negotiated broadcasting rights for all colleges for football b. National coverage c. No more than 12 Saturday games in total over season d. No team could appear more than once a year bc of effect on attendance The financial gains from restricting output quickly became apparent bc the money gained was increasing and fat cat schools become upset with the allocation mechanism bc they wanted more money SO UG and OU filed lawsuit against NCAA for violating anti-trust law bc they were playing a role in distribution of money - As a result NCAA was violating the anti-trust law and therefore granted individual colleges the rights to their football telecasts a. # of TV games increased and output was up but price paid by media provider down and the attendance still did not decrease

Point-Shaving Scandal

investigating schools in NY and playing at Madison Square Gardens, kentucky implicated --players shaved points, UK coach Adolph Rupp involved and illegal payments to players

The term student athlete was developed to:

keep athletes from filing for workman's compensation not employees nut student athletes

Graduation rates rates for revenue sports

lower than for non revenue sports

Broadcast revenues

major difference between conferences but within the conferences the schools all earn the same except big 12

Union is a monopsonist or monopolist?

monopoLIST - Faces a downward sloping demand for labor(MRP) - As more workers are hired, the potential compensation (wage) paid each worker will decline, not only for the new workers but previously hired workers as well - Thus, the Marginal Revenue (increase in the size the wage bill from hiring the next worker) is below the demand line (wage)

Which school earns the most in college?

overall: texas big ten: OSU

Tax Reform Act of 1986

restricted the federal income tax exemption of interest for municipal bonds to public purpose bonds, which are bonds issued to finance projects that benefit citizens in general rather than particular private interests

expenditures and costs for college athletics

salaries player support facilities equipment travel marketing legal fundraising

Revenue

team or league income: Ticket sales Premium seating/seat licenses Broadcasting and media rights Concessions Licensing, advertising, naming rights Donations Fees University support two categories: -generated revenues: generated by the athletics department directly (ticket sales, NCAA distributions, alumni contributions, food, broadcast, advertising, camps, investment income) - allocated revenues: transfers from the university to the athletics (student activity fees, direct/indirect support)

The Marginal RevenueProduct of Labor is

the marginal product of labor times the marginal revenue

Collegiate broadcast rights are negotiated by the NCAA for

the ncaa basketball tournament

Lockout

when management of the firm does not permit the labor input to operate

Strike:

when workers act together to remove their labor from the production process