The Monopolistic Death Grip of the NCAA

"March [could] be just as mad, and far more beneficial to students and fans," said Jeffrey L. Kessler in the New York Times. Kessler imagines a world in which the NCAA's monopolistic death grip on the postseason college basketball tournament has been broken. In his world, ticket prices would be drastically cheaper and organizations like the NIT could compete fairly against the NCAA without the imposition of anticompetition laws.

Unfortunately, Kessler's world is not a reality, and the NCAA tournament is, in fact, a thriving monopoly. Much to the dismay of the NIT, entry into the market is impossible. Somehow, the NCAA managed to establish anticompetition laws that solidify its status as a monopoly. Most notably, any team that chooses to compete in the NCAA tournament may not participate in any other postseason tournament under threat of severe NCAA penalties. Essentially, this means that the NIT is prevented from competing for the 64 best teams in the country. In turn, they have to settle for the lesser college teams. This ultimately amounts to smaller profits for the organization.

Within the demand curve, the NCAA has total price setting power. As a result, they under produce and overcharge, creating lots of dead weight loss. Of the 72,000 seats available in Ford Field this year, only 24,000 are available for purchase by the general public. A ticket to attend the final three games of the NCAA tournament would cost you about $400, assuming you won the ability to purchase one of the few in the first place through the lottery.

Here's the most ridiculous part. In the past, you had to write a letter requesting a paper application for tickets. Now, the lottery takes place online, so many more people apply for tickets. My dad used to get tickets for us every year, but, because of the digital switch, he has failed to do so for the past two years. Here's how it works: you are allowed 10 entries per application at a cost of about $400 per entry for a shot at decent seats. With each entry there is an $8 fee. My dad enters 10 entries for himself and for my mom. In total, he's paying $8,000 for tickets (money he gets back if he doesn't win) and $160 in fees. Here's the catch. All of this money has to be paid by May and you don't find out if you get tickets till August. In the meantime, the NCAA has put my dad's $8,160 along with the money from everyone else who just APPLIED for tickets into their bank account, where they accrue enormous amounts of interest over the four month period on other peoples' money. If you don't want to get stuck in the quagmire of the lottery, you can try to buy tickets on the secondary markets. However, prices in these markets are grossly inflated by hundreds of dollars.

In advertising alone, the NCAA tournament earned $643 million off of last year's tournament. Profits are expected to grow this year. Also, the NCAA has an 11-year $6 billion dollar contract with CBS that gives the company the right to broadcast the tournament. In short, the long-run profits of the NCAA tournament are outrageously high.

I'll leave you with an analogy from Kessler's New York Times article...

"To appreciate the unfair and anticompetitive nature of the N.C.A.A.'s rules, consider an example from the board game Monopoly. Imagine that a new rule in that board game required that all of the best properties---Boardwalk, Park Place, the railroads and the rest--- be assigned to only one player (the N.C.A.A.), while the remaining contestants could try to acquire only Baltic Avenue, Mediterranean and the other streets with much lower values. Could these other players effectively compete?"

(http://www.nytimes.com/2004/03/28/sports/ncaabasketball/28KESS.html?ex=1395810000&en=ad0e71cc95fad4d9&ei=5007&partner=USERLAND)