JOURNAL OF ECONOMICS AND FINANCE EDUCATION • Volume 11 • Number 1 • Summer 2012 15 Pony Distress: Using ESPN’s 30FOR30 Films to Teach Cartel Theory Alice M. Crisp1 and Franklin G. Mixon, Jr2 Abstract This study provides a roadmap for economics instructors to use a graphical model along with various clips from ESPN’s critically-acclaimed 30FOR30 films series in order to complement classroom discussion of cartel theory, particularly the story of the National Collegiate Athletics Association as a cartel. The two films used here are Thaddeus D. Matula’s Pony Excess (2010) and Jonathan Hock’s The Best that Never Was (2010). Each chronicles the rampant rules-breaking, or cartel cheating, in college football during the 1970s and 1980s, culminating in the “Death Penalty” at SMU and the collapse of the Southwest Conference cartel. “The Southwest Conference was maybe the best conference in the country at that time [in the early 1980s].” Lou Holtz (Matula, 2010) “Some of the people who were SMU’s most prominent, proud supporters – they were extremely creative at finding ways around the [NCAA] rules, or convincing themselves that the [NCAA] rules didn’t apply to them.” Brad Sham (Matula, 2010) “When SMU went on the ‘death penalty,’ that was also the ‘death knell’ for the Southwest Conference.” Brent Musberger (Matula, 2010) Introduction and Background Dating back more than 30 years, economists have described the National Collegiate Athletics Association (NCAA) as a cartel (Koch, 1978). In fact, the literature describing college sports using a traditional cartel approach has burgeoned over that period, and includes work by many luminaries in the field (Becker, 1987; Fleisher, Goff, Shughart, and Tollison, 1988; Fleisher, Goff, and Tollison, 1992; Barro, 2002; Kahn, 2007). Other important contributions in this sub-field of industrial organization include Eckard (1998), Sutter and Winkler (2003), Depken and Wilson (2006) and Humphreys and Ruseski (2009). 1 Department of Economics, Florida State University, 113 Collegiate Loop, Tallahassee, FL 32306. 2 D. Abbott Turner College of Business, Columbus State University, 4225 University Avenue, Columbus GA 31907, Tel (706)507- 8052, e-mail: [email protected]. JOURNAL OF ECONOMICS AND FINANCE EDUCATION • Volume 11 • Number 1 • Summer 2012 16 These contributions generally describe how aspects of the NCAA charter, such as scholarship limits, restrictions on compensation, and regulations governing the recruitment of athletes, are used by member institutions to limit competition, thus raising the returns to institutions from participating in collegiate sports. The use of the NCAA cartel story livens up the discussion of cartel theory in various economics courses, from principles to upper-level field courses in industrial organization and sports economics.3 Admittedly, however, students are often expecting to hear a cartel story that ends with dissolution, given that traditional microeconomic theory (and texts) highlights the many difficulties faced by cartels in maintaining successful organization over time. Yet, the NCAA, more than 100 years old, does not offer such a cartel story, at least not at a macro level. However, by describing how the once-dominant Southwest Conference formed as a unit of the NCAA, flourished for a time, and then fell apart as a consequence of “cheating,” which is the traditional threat facing a cartel from its individual members, Mixon (1996) offers a cartel model that integrates the NCAA cartel idea and cartel failure (or instability) using components of the NCAA cartel that we describe how to bring into a classroom discussion. This study provides a roadmap for microeconomics instructors to employ the concepts in Mixon (1996) within the overall story of the NCAA as a cartel while also using various clips from ESPN’s critically acclaimed 30FOR30 films series to complement classroom discussion. The use of movies, television, music, literature, and other aspects of (popular) culture has taken on a greater emphasis in recent years regarding the teaching of economics principles. Mateer (2004 and 2009), Sexton (2006), Mateer and Li (2008), Mixon (2010), and Mateer and Stephenson (2011) provide pedagogical approaches that integrate films and movies into the economics classroom. Use of movies and television clips, as described by Mixon (2001), Sexton (2006), Ghent, Grant, and Lesica (2010), Luccasson and Thomas (2010), and Mateer, Ghent, and Stone (2011), has arguably been the most extensive technique in adopting alternatives to “chalk and talk” in economics courses.4 The Rise and Fall of the Southwest Conference: A Graphical Model As Mixon (1996: 38) points out, within the boundaries of the NCAA groups of institutions have formed smaller cartels or “conferences” that act in the economic (and other) interests of their member institutions. A current example is the Southeastern Conference, which consists of 12 members across Arkansas, Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, South Carolina and Tennessee. Within this southeastern region of the U.S. are its 12 members: University of Alabama, University of Arkansas, Auburn University, University of Florida, University of Georgia, University of Kentucky, Louisiana State University, University of Mississippi, Mississippi State University, University of South Carolina, University of Tennessee and Vanderbilt University.5 An historic example is the Southwest Conference (SWC), which was formed in 1914-15 and consisted of nine schools in Arkansas and Texas: Arkansas, Baylor, Houston, Rice, Southern Methodist (SMU), Texas, Texas A&M, Texas Christian (TCU), and Texas Tech. In addition to the rules set by the NCAA regarding player compensation, scholarship limits, and other elements of competition, conferences like the SWC traditionally abide by other regulatory and economic arrangements that govern areas such as television receipts, ticket allocations, and bowl payouts. By formulating a sharing formula for television and bowl revenues, etc., the schools within the conference agree upon limits to competition in the same way that all NCAA participants agree to such limits by signing off on scholarship limits and regulations preventing compensation of student-athletes. 3 In that way this story joins others, such as the role played by the Inter-fraternity and Panhellenic Councils in governing, in a cartel- like manner, Greek life on college campuses, or how participants on the popular television series, Survivor, band together in cartel-like “alliances” in order to improve the likelihood of advancing through the game (Caudill and Hicks, 2005; Mixon, 2001). 4 Examples of other forms of media and aspects of popular culture for use in pedagogy are also found in the literature. In terms of music, Lawson, Hall and Mateer (2008) and Hall and Lawson (2008) represent seminal pieces instructing economics instructors on how to incorporate music into the economics classroom. The use of literature, as exemplified by Watts (2003), is one of the oldest forms of imparting economics principles to business and economics students. Finally, Lawson (2006), Kjar (2009), and Mateer (2011) offer examples of how to use comic strips, video games, and YouTube videos to, along with the other tools mentioned above, enhance the instruction of economics. 5 Texas A&M University is scheduled to join the SEC in July of 2012. JOURNAL OF ECONOMICS AND FINANCE EDUCATION • Volume 11 • Number 1 • Summer 2012 17 In order to illustrate the gains from the formation of an inter-institutional social contract (or economic compact) such as that regarding the Southwest Conference (NCAA), Figure 1 provides an application of the graphical model of the constitutional process that is found in Holcombe (1994) and extended in Sobel (1994) and Mixon (1996). The utility possibilities approach in Figure 1 represents an alternative to the traditional, demand-based cartel model that economics students will likely find relatively easy to grasp. There, point I represents the utility levels obtained by two institutions who participate in intercollegiate football. One of these, Texas, represents a “large” organization, while the other, Baylor, represents a “small” organization. Utilities at I represent those acquired when these two institutions retain “independent” status (i.e., they have no conference affiliation) within the NCAA (Mixon, 1996). As depicted in Figure 1, Texas’ utility as an independent exceeds that of an independent Baylor, a notion students will likely understand given that Texas’ size recently allowed it to negotiate a $300 million deal with ESPN to host the Longhorn Network., which is dedicated solely to Texas athletics (ESPN, 2011). Baylor, on the other hand, could not command such attention without affiliating with larger schools, such as Texas or Oklahoma. Utility possibilities frontier 1, or UPF1, indicates that by forming a conference or cartel with other large/small institutions, both Baylor and Texas can be made better off. Points between H and G on on UPF1 are all Pareto-superior to I (Mixon, 1996). A point such as B, which lies on the 45° line labeled E, represents a utility distribution wherein schools in the conference each receive 1/n of the total gains (where n equals the number of conference or cartel members). The SWC began with this type of equal division when it adopted a charter specifying that (1) gate receipts from games between SWC members would be evenly shared, (2) all but the first $300,000 in bowl revenues earned by a conference