Price fixing Tuesday

Last week, Matthew Yglesias pointed out that – contrary to the standard coverage of sports drafts, in which commentators assign winners and losers – every team is a winner:

The draft is a ruthless mechanism for the financial exploitation of young people’s labor, and everything else is merely incidental.

In financial terms, in other words, all teams are “winners” in the draft because they get to employ the services of a cheap player. This windfall accrues to NBA teams because the nature of the draft is that they do not need to bid for a player’s services on a competitive market. Andrew Wiggins, Joel Embiid, Dante Exum, and the other members of the draft class of 2014 will play for the team that drafted them and will be paid according to a fixed rookie salary scale.

The financial surplus exists because, not coincidentally, the owners of NBA teams have made sure to arrange the scale so as to systematically underpay players.

As they always do when defending policies whose primary purpose is to enrich the owners themselves, leagues defend the draft by nodding to “competitive balance.”

Yglesias is unmoved:

The key thing about the draft cartel is that it provides every team with an underpaid player or two. The fact that the very worst teams get some extra gravy is a sideshow compared to the fact that there’s some gravy for each owner.

Yglesias also notes that, outside of sports, there is no other industry in which this kind of price-fixing of labor would be acceptable.

Speaking of, the price-fixing of labor, the O’Bannon lawsuit is now finally, definitively moving toward trial. The NCAA, as my friend and colleague Richard Southall says, always wants to litigate these issues from the NCAA manual, rather than the law of the land in the United States. They’ve had a remarkable decades-long run of success doing the former, but it appears that that time is at an end.

Kevin Trahan has a good dissection of the NCAA’s arguments – which would not pass muster in ECON 101.

The NCAA claims it could not afford to pay the benefits the players are asking for. Their defenders frequently note that they lose money as it is. What they prefer not to say is *why* they are losing money.

Trahan notes the response of the economist Andy Schwarz to this line of argument:

Schwarz compared the NCAA to a rich investment banker on Wall Street who makes over a million dollars per year. That’s a lot of money. But what if the same investment banker buys a lavish apartment on the Upper East Side and a vacation home in the Hamptons, and then has some kids and needs to change his lifestyle? Of course, he won’t want to do that and could claim he doesn’t have money to raise his kids. But he does if he reallocates his money.

On the issue of price-fixing specifically, the NCAA has repeatedly argued that if it is not allowed to fix the price of labor at the cost of a scholarship, college athletics as we know it will cease to exist. That’s the binary choice they present to the public – either we get to do what we’ve always done – in contravention of existing legal and social norms – or the world will come to an end. Trahan notes that while no sports leagues would want full free markets, they’ve consented to a hybrid model via collective bargaining with players’ association. That process allows owners partial exemption from anti-trust laws (including via the mechanism of amateur drafts).

The NCAA is now facing a world in which the law of the United States may more consistently apply, irrespective of what the NCAA puts in its manual.

Trahan also dismisses the NCAA’s competitive balance arguments. Has anyone noticed who sits atop the college football recruiting rankings year after year? Trahan notes that the likely effect of even a limited market for prospective college athletes would be that the less competitive of the Power-5 conference teams would be able to compete a little better for some of the talent that is currently going almost exclusively to the top programs.

A final note: Mike McCann wrote last week that one of the NFL’s defenses in the improper-care  lawsuit brought last week by retired players is that the relationship between players and teams, including their doctors, is governed by collective bargaining and that courts have historically been quite deferential to those arrangements. An interesting twist on that arguments is that there were two periods – in the late 1970s and from 1989 to 1993 – when for various reasons the legal status of the CBA are open to question. In these periods, according to McCann, the NFL may be *more* legally vulnerable than it is when there is a operative CBA. In other words, once it relinquishes its claim to unilateral control of all aspects of the player-institution relationship, the NCAA might find some form of collective bargaining beneficial. Since it’s gotten its way for so long, though, don’t expect its leaders to have that sort of epiphany any time soon.




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