Will the NCAA Tournament become the next asset bubble? The case against 96

Posted on March 14, 2010

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In the previous post I suggested that a 65-team tournament could be justified not because it was more likely than a more exclusive tournament to crown a worthy champion, but because it helped the NCAA meet a number of its reasonable objectives — which include providing a great experience for the student-athletes, growing the sport, and maximizing revenues.

But there is now serious talk of a 96-team NCAA D1 Men’s Basketball Tournament. That sounds like madness in the British sense of the term. Is there any reason to blow March Madness up like that?

It’s looking like an irresistible move for many “stakeholders.” It seems that virtually all coaches, and presumably athletic directors, are pushing for it. And why wouldn’t they? It increases by a third their odds of punching their tickets. One suspects that if you polled all NCAA players in the pre-season they too would be in favor, and for the same reason. And you have to assume that the fans and boosters of the 31 additional teams that make it in each year will not be complaining.

Of course the primary motivation for a mega-Tournament seems to be money. Or as the NCAA put it in their mission statement, “fiscal responsibility.” Other possible benefits are dreamed up by supporters of the proposals, but as Nebraska Coach Doc Sadler puts in the New York Times today.

“It doesn’t matter what you think or I think. It’s going to come down to dollars and cents. They can talk about all the other things, but if it makes sense financially, it’s going to happen. If it doesn’t, it’s not going to, no matter.”

Well, does it make sense financially? Or more to the point, does it make sense financially to whoever is capable of bringing about such a change, namely, the NCAA and some TV network? I won’t presume to tell these folks how to maximize their long-term revenues. Just as I wouldn’t have presumed to tell bankers, mortgage brokers, real estate agents, and homebuilders how to maximize their long-term revenues a few years ago.

The invisible hand works in mysterious ways, and as Adam Smith himself was quick to point out, sometimes it doesn’t work at all. There is no guarantee that when different agents or parties pursue their individual interests that they will produce a net benefit overall. Or even that each party will benefit as much as it thought it would. Economists can point to a number of specific pitfalls they call “market failures,” some of which involve “collective action problems” — where all parties pursue a rational strategy but end up worse off.

The most obvious danger in expanding to a 96-team Tournament is inflation. Entry into the Tournament is a valued good, and let us presume that demand for that good will remain constant even after the supply has been increased by one-third. It follows then that the value of that good will be correspondingly reduced.

The price that student-athletes will be willing to pay (that is, the amount of effort they will put in during the pre-season, the regular season, and conference championships) will drop. Fans will be less keen about watching the early round games, so the price that broadcasters will pay for those games will drop; as will the price they pay for games in the extended pre-season, previously known as the regular season. Pot-bellied former players will have to work harder to dazzle youngsters with their tales of the year they played in the Tournament. And so on.

The early rounds of the Tournament could start looking a lot like, say, the Papajohns.com Bowl (in which Connecticut beat South Carolina last year).

As non-economists have long warned: be careful what you wish for because you may just get it.

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