Question:
I am a huge Duke Blue Devils fan and the NCAA basketball season has just recently started back up again. Currently, I am taking a microeconomics class and we just started covering oligopolies and cartels along with game theory. It got me thinking about whether or not the NCAA is considered a cartel or if it would be a monopoly. I looked into it and I have seen it referred to as being a cartel but also having monopoly power. Is monopoly power the same as a monopoly? If so, can the NCAA be a monopoly and a cartel?Answer:
I teach an Economics of Sports class here at Iowa State University. In my class, we discuss the economic structure of the NCAA and professional sports leagues in the U.S. You are correct that the NCAA is a cartel and so is a professional sports league. One thing different about the NCAA vs a pro sports league is that members of the NCAA are involved in multiple sports and members typically represent non-profit organizations, whereas a pro sports league focuses on one sport and team owners are profit oriented. A cartel is a combination of independent enterprises who work together to coordinate activities and to jointly agree on rules for competing against each other. OPEC is an example of a ‘business’ cartel. There are buying and selling activities in markets. The ability to influence or have some control over the terms of trade in selling is referred to as ‘monopoly power’ and in buying it is referred to as ‘monopsony power’. The NCAA generates approximately $1 billion in revenue annually. Most of that revenue comes from their ‘monopoly’ power to sell broadcast rights to the NCAA post-season basketball tournament. Currently the NCAA is in the middle of a 15-yr (2010-2024) tv deal having sold those broadcast rights to CBS and Turner tv networks for $771 mil/yr. Interestingly, perhaps, these parties just extended that deal to 2025-2032 for $1.1 bil/yr. Most of the remaining small portion (10% or so) of NCAA’s revenue comes from ticket sales to championship events they sanction, which is basically all collegiate sports championships. So, the NCAA can be regarded as a monopolist in selling these items (i.e. broadcast rights to the NCAA basketball tournament and championship ticket sales). On the ‘buying’ side, members of the NCAA (mainly colleges and universities) act as a ‘collusive monopsony’ where they set policies for members to follow mostly on matters related to the operation of collegiate sports (e.g. recruiting rules, scholarship rules, eligibility rules, number of team and number of coach rules, etc.). This ‘monopsony power’ has likely reduced the bargaining power of collegiate student athletes.
