648. The Merger You Never Knew You Wanted

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Hey there, Stephen Dubner.

A quick announcement before today's episode on Saturday, October 18th, I will be doing an event as part of the Chicago Humanities Festival to celebrate 20 years of Freakonomics.

If you are also in Chicago, I hope you'll come.

For tickets, go to freakonomics.com/slash live shows and check out some of the other festival programming.

Thank you, muchly.

And now on to today's show.

Okay, I have an idea.

that I'd like to run past you today, and I'm pretty sure you're going to hate it, but that's okay.

I still think it's worth getting into.

It is an idea for a sort of business merger.

I'm not suggesting that the U.S.

merge with Mexico.

We already proposed that episode 185 called Should the U.S.

Merge with Mexico.

We even interviewed former Mexican President Vicente Fox, who was not quite in favor of that idea.

I am also not suggesting that Koch merge with Pepsi or that the Republicans merge with the Democrats, although we've talked about that before also in an episode called America's Hidden Duopoly.

I am also not talking about a merger between the world's Christians and Muslims and Jews, although I agree that would be a pretty interesting conversation.

The merger I am proposing does have a religious feeling to it, at least for some people.

What I'm proposing is that the National Football League merges with NCAA football.

That's the college game.

And while we're at it, maybe the National Basketball Association merges with NCAA basketball.

I know this sounds absurd, but I also think it's worth being an absurdist every once in a while.

I mean, pragmatism doesn't seem to be such a winning strategy these days.

And the reality is that big-time sports in the U.S., despite all their financial successes, have some serious problems.

Our coach was getting a contract extension.

All of the rest of the coaches got a Cadillac.

We got a DVD player and a bag of sweatshirts.

You may have heard how college sports are imploding.

That amateurism pillar crumbled like one of the old Greek temples that couldn't withstand the earthquake.

The professional leagues, meanwhile, are always dreaming of expansion, but they've got some competition issues of their own.

You might intentionally lose games at the end of the season just so you can have better players next year.

So what if the NFL, rather than operating like the monopoly that it is, were to open itself up to some competition?

What if, instead of having one closed professional league sitting at the top of a gigantic amateur pyramid, what if the best teams from that pyramid's lower tiers could get promoted into the top tier and the worst teams in the top tier could be demoted or relegated?

That's how it works in most soccer leagues around the world.

And let's not forget soccer is the most popular sport in human history.

So, what do you think of this idea?

I'm guessing you already hate it, especially if you are the billionaire owner of an NFL team and you don't want your prized asset to lose value, or if you are a college sports fan who wants to keep pretending you can hold on to the vanishing past.

Like I said, this is plainly an absurd idea, but today on Freakonomics Radio, we will ask, just how absurd?

On a scale of one to 10,

one being a fantastic idea, 10 being nuts, it's probably an eight.

Look at that.

We are already 20% of the way to fantastic.

Part one of a two-part series starts now.

This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner.

Okay, if we're going to talk about a new scheme that mashes up the NFL and the big-time college football programs, let's start by understanding how big-time college football works in the first place.

Let's start with this man.

I'm Dominique Foxworth, and I am a sports analyst, I guess, would be the best way to describe me now.

Do you want to describe the long list of other things you've done in sports?

I got into sports the normal way by being really good at them.

And I played in college, and then I I played professionally for a few different teams in the NFL.

While I was in the NFL, I was president of the players union for a couple of years through CBA negotiations, which then pushed me to go to business school.

The CBA that Foxworth just mentioned is a collective bargaining agreement, a 456-page contract between the NFL's players and the team owners who employ them.

After business school, I went on to be the chief operating officer for the basketball union, the NBA Players Association.

From there, that's when I transitioned over to do sports media.

I've been on all different sides of sports.

So as you went from being a good young athlete to succeeding in college and then the NFL, and then got involved with the labor side of things, how did that journey change the way you looked at the business of football?

What a lot of people don't realize, and it took me some time to realize, is the real camaraderie, the TV version of sports, it fades away slowly as you get closer and closer to professional ranks, particularly for the players that aren't as good.

In high school, it's over for a lot of guys.

Then you get to college and the best players in college still feel protected and you still feel in this cocoon of like, the team really loves me, the coaches really care about me.

The players who are in the middle and towards the bottom start to realize, no, that's not true when they get their scholarships taken or their injuries are not covered by workers' comp.

Then you get to the pro ranks.

And again, if you're a first round draft pick, you often feel like, oh, this team loves me.

If you're a a quarterback and you're playing well oh they really care about me until something comes up an injury or a poor performance something happens where you realize that people are making decisions from a business standpoint more than you ever realized and then when you go into media it's really clear to you because you're looking at all the teams and all the players i don't know if you remember how you and i first connected it was through the Players Association, right?

Yeah.

You wanted to talk to me because you were looking for some expertise that I couldn't provide, but I knew people who could provide it.

You were looking for economists who could help you work on a documentary about how exploitive college sports was.

Yes, I do remember that.

What was driving you then?

You were already retired from pro football or about to be.

What made you feel like it was worth going back to look at college sports?

You would see the polling and people would not necessarily agree with what seemed to me to be an obvious fact.

What do you mean?

What's the the obvious fact?

Well, the obvious fact was that it was a revenue-generating endeavor.

And given my union background and now my better understanding of business, it felt like it was an obvious thing that needed to be addressed in a way that people could understand and appreciate it.

Was it your union involvement that opened your eyes to the reality of that?

It was my freshman year in college is what opened my eyes to it.

I chose Maryland in part because they weren't very good the year before, and I was like, I want to play as a freshman.

We went 10 and one and lost in the bowl game, but had a great season.

Our coach was getting a contract extension.

All of the rest of the coaches got a Cadillac deal and were driving free Cadillacs.

We got a DVD player and a bag of sweatshirts for the Orange Bowl.

And I was like, this ain't right.

Can you think of other parts of our economy where there's that much unpaid labor going into a system where some people are being paid, like the coaches and the administrators, but the labor itself is not paid.

I can't.

The best example I could think of is like child actors because the ability is unique.

These guys are coming in in the same way that a 12-year-old who can act is super valuable.

You can like build family matters around Steve Urkel.

Steve Urkel deserves to be paid.

It just so happens that the same thing is happening, but they're like, nah, he's got to be an amateur Urkel for a couple of years first before he can then go make his money when it's impossible to find that level of talent just on a street corner somewhere.

So what's it feel like to be a player on a college team who's working as hard as you were and succeeding as much as you were and getting paid in a bag of sweatshirts and a DVD player?

And you're coach now, these guys are routinely getting $8, $10, $12 million.

What does that feel like to be a player on the team who's earning that money for that guy, but until very recently, you're getting zero.

I feel like there's a right answer and then there's an honest answer.

And obviously, I'll give you the honest answer.

I loved my college experience.

I had a great time.

Part of that was like in the locker room complaining about stuff like this and

recognizing what we believe to be the injustice of it all.

That was part of it.

For me, it was fine.

I stayed healthy.

I played well.

I got drafted and it worked out.

It's a lot different for the players who had their scholarships taken when we played well that gave us access to higher quality recruits and so we have to get those scholarships from somewhere there were guys who had their scholarships taken and they got a bag of sweatshirts some good memories and sent off to hofstra to go play for them those guys i imagine the experience wasn't nearly as good as mine a couple of my really close friends got injured and the coaches didn't treat them with the same level of respect that they treated me with.

Not to say that they treated me like I was a full human being, because that would be crazy.

Foxworth played at the University of Maryland in the early 2000s.

College football has grown substantially more valuable since then.

Division I sports today generates nearly $20 billion in annual revenues, and around 75% of that comes from football.

Men's basketball contributes another 15%.

We just heard what Dominique Foxworth thinks about this system.

How does an economist see it?

For that, we went to Victor Matheson, a sports economist at the College of the Holy Cross in Massachusetts.

I'd like you to talk for just a minute about how the NCAA has historically, let's say, exploited.

I realize that's a fairly loaded word, but.

Oh, it's not loaded enough.

That tells me what direction your answer will go in.

So how has the NCAA in the past exploited what we'll call student athletes?

Let's start with this term student athlete.

That is a made-up turn by the NCAA because they don't want to use the term worker.

Student athletes make them sound like someone who is there to get an education.

Instead, these are people who work for the college and often make money for those colleges and they should be treated like any other worker in the world.

But most workers are paid.

Most workers are paid.

So we should not think of all these people being required to do a one to four year unpaid internship just so you can have a chance to make the NBA.

A half a percent chance to make the NBA, maybe, right?

Exactly right.

So athletes in the NCA had a long history of getting paid, at least getting paid under the table.

And by the 1950s, the NCA individual teams, they didn't want to keep up with this rat race.

And so they installed what's called the sanity code that said that players could not be paid.

It's only sane from the standpoint of the employers.

It's insane from the standpoint of the employees.

It's also insane if you think about who is getting paid in college sports.

When I look at coaching salaries in NCAA football and basketball, the top ones are making as much as the top coaches in the NFL and NBA, are they not?

That's exactly right.

A top NFL coach is going to be making somewhere around $10 million.

A typical team is generating maybe $500 million of revenue.

That means that coach is earning about 2% of the revenues of the team.

On the other hand, in college, a top coach is going to be making also $10 million,

but that team is going to be generating about $100 million, not $500 million.

So they're taking in about 10% of the total revenues being generated by the program.

They're making about five times as much as NFL coaches, as a percent of the revenues being generated by the program.

And they're making infinity percent more than their athletes.

Correct.

Part of the sanity code that came in in the 1950s was relaxed a little bit over time that at least allowed players to get paid a scholarship and room and board at the college.

And to be fair, for the overwhelming majority of athletes that play at colleges and universities in most sports and at most schools, that is completely fair.

Offering these players some amount of scholarship money is a more than fair compensation for the amount of revenue they generate for their teams.

The average athlete, they generate no net positive revenues for their team.

In fact, quite significantly negative.

Sports are expensive to run.

Right.

Think of a men's golfer at Amherst College.

Think of a women's rower here at Holy Cross.

Think of a women's soccer player, even at a big place like Ohio State.

They are not generating revenues anywhere close to the amount it costs to run those programs.

We generate essentially zero dollars in revenue from tickets and media, and yet we have as many athletes here at Holy Cross as they do at Ohio State.

Is that because the big revenue college sports are, quote, supposed to filter money down to the other sports programs?

There is, in fact, a significant amount of money being redistributed from the big money maker at Ohio State, which is football.

That is being redirected towards the non-revenue sports.

But to suggest that Ohio State can't possibly have a women's soccer program if they don't subsidize it with football money, but somehow Holy Cross has a women's soccer program yet generates no money from football, seems to suggest that that's just simply not true.

Where is the money going then?

First of all, money goes to high-paid coaches, right?

In a world where you can't pay your actual players, but you still want to win national championships, what you do is you buy the most prestigious college coach that you can.

You buy extremely extravagant locker room and training facilities.

Probably better than the pro leagues in some cases.

Not just maybe better, absolutely better, because you ask a pro player, hey, what do you want?

Do you you want a $25,000 locker or would you rather have $25,000?

And even LeBron James will say, hey, I'll take the cash.

In a world where you can say, hey, do you want a $25,000 locker and nothing?

Or do you want a $0 locker and nothing?

The way I get that athlete to come to my university instead of the other one is I say, hey, look how great this locker is.

And by the way, your coach will be the very, very famous blank.

But the economics of college sports have begun to change.

The era of free labor is ending.

It has been a long time coming.

For a lot of years, this issue was only discussed on the margins or in the shadows.

An athlete who chose to speak out was inviting trouble.

In 2014, the University of Connecticut basketball player Shabazz Napier, an elite player on a team that won two national championships, he caught some attention for telling reporters that he didn't always get enough to eat.

I don't think student athletes should get hundreds of thousands of dollars but they are hungry nights that I go to bed and I'm starving.

So something can change, something should change.

The big change started in 2021.

The NCAA, facing pressure from the U.S.

Department of Justice, began allowing players to be paid for what's called their NIL rights.

That stands for name, image, and likeness, and it covers endorsements and advertising.

And this past summer, a court-mediated settlement went into place that is going to radically change the economics of college sports by allowing athletes to be paid directly.

Here again is Dominique Foxworth.

I feel like the game board has just been flipped at this point.

People use the wild, wild west as an analogy.

And I think that's a good one because it does feel like a new frontier.

There are no laws.

We're setting them up as we go.

And some people are benefiting from this chaos.

And a lot of people are not.

Why did it take so long for things to start to change in NCAA sports?

I think it's pretty easy.

The people in power were benefiting from it.

The people who were being harmed by it were traditionally not powerful people.

And the people who were being taken advantage of, they weren't even in school long enough to put together some sort of resistance.

They also recognized that causing a fuss might make it more difficult for you to get to the next level.

You just go in and you do your time and then you go try to benefit from it on the back end.

Tell me what you know about the people behind the lawsuits that started to tear down the system.

There's Jeff Kessler.

So I know Jeff Kessler really well because he's a legendary union lawyer that we've used in both NFL and NBA negotiations.

When he grabs a hold of a case like that, it's certainly going to get the attention of people who have power.

Okay, so you know who we want to hear from next.

My name is Jeffrey Kessler, and I am a partner at the law firm of Winston and Strawn.

I don't take on too many cases like this.

If I take one on, it's because I really believe we're right, I really believe we're likely to win, and that it's worth the investment, not just of my time, but of my firm's time and commitment to try to achieve what we think is the just result.

Coming up after the break, how college sports suddenly became a lot more professional.

I'm Stephen Dubner.

This is Free Economics Radio.

We'll be right back.

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jeffrey kessler is a new york city lawyer who specializes in antitrust lawsuits and also not coincidentally in sports lawsuits he grew up in brooklyn As a kid growing up, one of my idols was Muhammad Ali and Kurt Flood and athletes who stood up to the system for social justice.

Never did I dream that somehow my career was going to actually further some of those same interests.

How do you get paid well as a sports lawyer?

I'm a partner in a very large law firm.

We charge hourly rates like many lawyers do.

In a few cases,

like the class action on behalf of the college players,

you get paid by the other side with the approval of the court after the case is either settled or if the case is one that you win.

When you think about the relationship between the NCAA and athletes going back to before you started these cases,

how would you describe that relationship between the NCAA,

the schools themselves, the athletic conferences, and the athletes?

Does it bring to mind any parallel setups?

There aren't a lot of parallels.

The reason is the NCAA had a cartel that fixed the wages of the athletes who worked for them at zero.

These athletes were completely being exploited and it had to stop.

That's why nine justices of the Supreme Court, they don't agree on a lot of things.

One of the things all nine of them agreed on was that this system was wrong.

A devil's advocate could say, well, wait a minute, these young people are getting a free college education in many cases and some benefits.

And if they're really serious about becoming a professional athlete, then this is providing them training, access to the professional ranks, essentially auditioning for the professional ranks, and a proven ladder to that next step.

Why is that not enough?

Why is that exploitive?

Let's start with the fact that

even at the highest power schools in football and basketball, 90% of the athletes on those teams will never spend one day in the NFL, the NBA, or the WNBA.

So their only opportunity to realize the economic value of what they're doing is when they're doing it for their schools.

The money goes to the athletic director or goes to the strength of conditioning coaches or goes to somebody else who is not generating this money.

This is an exploitive, unfair, anti-competitive system, which we have changed for the better.

When you say that they can realize their economic value at the highest level that they're going to be able to,

it sounds like a version of being a professional.

What is the logic for that continuing to be attached to a university?

The courts believe, and I think even the NCAA believes, is that what distinguishes college sports from professional sports is that they are students.

There's nothing that says you can't be a student and a professional at something else at the same time.

In fact, other than in college sports, that's always been the case.

We have students who are actors or writers or who are journalists while they're students.

There was no reason to create this myth of amateurism except as a means of getting all this free labor to exploit.

There came a time when it had to stop.

We concluded at our firm that we were going to get involved in this fight more than 10 years ago.

We knew it would be a long-term litigation struggle that would probably involve multiple cases to get where we wanted to go.

And here we finally are.

And how does it work with these multiple cases?

How do they get either rolled together or how do they proceed sequentially one from the next?

They proceeded at first sequentially.

The first case, which was before I became involved, was a case called O'Bannon.

That was Ed O'Bannon, UCLA, is that right?

That's right.

That case was primarily challenging the restrictions on the players' images in video games.

It was kind of a narrow case that involves group licensing of players.

And while that case was pending, we filed two cases.

I filed one called Jenkins versus the NCAA.

And another two law firms, one of which was Hagens-Berman, which is my co-counsel, Steve Berman.

He filed an independent case called Alston.

Eventually, the Alston and Jenkins cases were consolidated together.

And eventually, the Alston case went to trial.

In 2021, it got to the Supreme Court, where I argued it and we won 9-0.

That struck down the NCAA restrictions on education-related compensation.

So things like giving free computers, doing study abroad, paying for internships, paying for tutoring, graduate scholarships, academic achievement awards, those are all now allowed after Alston.

The Alston victory was also the case that allowed college athletes to be paid for their name, image, and likeness rights.

Here again is the economist Victor Matheson.

It's important for people to understand there's basically two kinds of NIL: there's what I call real NIL, and then what we're going to call collective NIL.

Real NIL is literally paying people market price for their name, image, and likeness.

This is Paige Beckers from UConn, women's basketball player, best player in the league last year.

That's her signing a million-dollar deal with Nike to star in commercials.

This was prohibited as recently as five years ago in the NCAA.

This is now permitted.

This is a player showing up at a card dealership to sign autographs.

This is a person like Livie Dunn monetizing her Instagram and TikTok accounts.

This is real money that people are earning market money from being a famous person.

Collective money is basically people associated with a college, but not the college themselves, saying, you know, I would really like it if my college had a good quarterback this year.

I don't have a car dealership and I don't need any advertising, but I'll pretend to want an autograph for $100,000 from this quarterback if he comes to this place.

And we're not even going to ask him for the autograph in the end either.

This is a backdoor way to simply professionalize the athletes, even if they're not doing real NIL.

They are just getting paid by people outside the university to come play for that university.

This is really just a professionalization of the college sports booster system that's been around forever, right?

We're seeing it like in the recent NCAA basketball tournament with a group of Duke alum who put together a lot of money to essentially buy better players.

But even a school like St.

John's in New York, which has been good in the past, but hadn't been very good lately, but all of a sudden with one big donor, they brought in a lot of talent.

It's essentially privately funded professionalism.

Do you like that notion or no?

I don't like the notion for a bunch of reasons.

First of all, it's not necessarily sustainable.

We can understand

when the owner of the Celtics or the Patriots decides to spend $10 million buying a new player because they hope that this player is going to win me additional games.

And when I I win additional games, I'm going to make more money.

These donors don't have that.

Why would I continue to put $10 million a year into the Duke program if I'm not actually getting a monetary return from that?

Problem number two is we have had problems with these deals not being subject to decent contracts.

I'm pretty sure that when I sign a contract with Ohio State or the College of the Holy Cross, that these are real institutions with a human resources department.

And, you know, if they say they're going to pay me, they're going to pay me.

Holy Cross, for example, had a student move to UNLV based on a $100,000 NIL contract that he was promised that never showed up.

Oh, boy.

The last thing is you want the people making the financial decisions to be the same people who are making the decisions about whether they're going to hire you or not.

This would be like me as a college professor coming in for a job interview and I do the whole interview process and they say, we're going to hire you next year, but we can't pay you.

But don't don't worry some wealthy alum is gonna come up to you and give you a bunch of money we think and just sign a deal with them and you'll get paid I mean that's like the worst job ever

this patchwork compensation system that Victor Matheson is describing this was just a half step on the way to a much bigger overhaul I think what we will see shortly is we're going to take the middlemen out of this and we're going to actually have the employers paying their employees like happens in in every other business.

And that is because of a more recent legal victory called the House Settlement, brought by an Arizona State University swimmer named Grant House.

This one didn't go all the way to the Supreme Court like Alston did.

It was settled in a district court in Northern California.

It requires NCAA programs to distribute a few billion dollars to recent and current athletes in the form of lost NIL revenue.

But much more important, going forward, it allows for athletes to be paid directly.

This case was also handled by Jeffrey Kessler.

House went after the whole compensation system in the NCAA, and now we have a settlement which is going to create a new system going forward.

That new system starts this year, in which the schools will be able to make direct payments to the athletes under a revenue sharing system, where the first year those payments are going to be about $20.5 million a year per school.

Then, beyond that, we're going to continue the third-party deals for names, images, and likenesses.

And all of the existing scholarships will continue in medical care and other benefits that have gradually been put in.

In total, the athletes in Division I are going to get about 50% of the revenues that are generated now.

Are you surprised that you had this string of massive victories or did you see it coming?

I'm not surprised, but I didn't take it for granted.

I thought we were right from the beginning.

I thought now was the time that judges and juries would understand how exploitive this system was, where you have the strength and conditioning coach at Alabama earning a million dollars a year when the athletes were getting nothing out of the revenues that they were generating.

The head coach at Alabama made more than $11 million.

Even the strength and conditioning coach was making more than the president of Alabama University.

This system was wrong.

It was unfair.

We thought it was unlawful.

Another big change is the liberalization of what's called the transfer portal.

So if I'm a college football or basketball player, I could play for...

four different college teams in four seasons.

And we've started to see that in the 2025 men's basketball championship, March Madness.

We saw all four of the number one seeded teams make it to the final four.

So not much Cinderella action.

And all four of those teams included athletes who had played in a different college program the year before, maybe the year before that.

So, if we think of college sports as being appealing in part because the athletes are attached to a particular university that I might root for, how do you keep that appeal if the athletes are now essentially free agents and can move to a new program every year?

Well, there's no inconsistency with that at all.

When I first started out as a lawyer, there was basically no free agency in any any of professional sports.

And the arguments the owners used to make is, well, fans won't like the sports if their athletes have the right to go from team to team.

And what do we learn in professional sports?

Quite the opposite.

Fans love free agency.

They love to root for their teams to acquire better players.

What the transfer portal does is it actually lets athletes whose coach is not starting them find the place to start.

Remember, they only have a limited amount of eligibility to play college sports.

So, why should they sit there as a backup if somebody else is going to let them have a chance as a starter?

Or they go to a college for a particular coach who they love, and the coaches are free agents, so the coach leaves.

Why should they then be stuck at a school with a coach who they don't have that relationship to?

All other workers in the world get to quit, move on, decide decide where they're going to be.

There is no reason why you should take those rights away from athletes.

I don't think this is going to hurt rooting interest, and it will let not only the athletes find the right spot, it'll let teams get better.

One of the reasons why you had more teams contending for the college football playoffs, it was much different than the prior years, because of the portal.

It's why someone like Nick Sabin was against all these changes because he liked it when Alabama was so far ahead of everybody else each year.

And this type of competition, it prevents the best schools from stockpiling talent who they're not really playing, but keeps it away from the other schools.

If the colleges are needing to pay their athletes, I assume that there's going to be less money for lesser sports, the women's golf team and the men's wrestling and the squash and so on, what's going to happen there?

I don't think that's going to happen for a variety of reasons.

First of all, where I expect the reallocation is going to be is going to be from those athletic directors, those weight coaches, the other people who have been getting the money.

It's not like they were giving that extra money to the women's golf team.

It was going to others who were exploiting the system, or it went to build gold-plated locker rooms.

The reality is, these other sports don't cost very much.

Not only do they not cost much, they serve the interest of the schools.

If you look at Division III, Division III has no one to subsidize any of their sports, yet they have the rowing team, they have the squash team, they have all these teams that don't earn any money.

Their football team doesn't earn anybody, right?

Why do they have them?

They have it the same reason they have the acting department or the school newspaper or the music department, none of which earns any money.

They have it because these are valuable things for the campus that attracts the type of students they want who pay tuition.

And then we throw into that Title IX.

And Title IX requires the schools to offer proportionally equal opportunity of sports to proportion of female and male athletes in the schools.

So they can't just cut all their women's sports because Title IX won't allow it.

Now, does that mean you won't see an occasional cut of a sport at a school and a school won't blame the house settlement?

Yeah, they will.

It just won't be true.

I went back to the economist Victor Matheson to see how he expects the house settlement to play out.

I don't know what to expect this week or this month.

I know what to expect this decade.

This decade, players will be paid directly by the teams or leagues themselves, by the conferences.

And eventually, the only way that you can get any sort of real parity and agreements between teams is to allow the players to unionize at the same time.

So, we're going to have unionized players being paid by teams or leagues, which makes all of a sudden top-level football, top-level basketball in the NCAA pretty similar to the NFL and pretty similar to the NBA.

Is there a chance that the NCAA just kind of craters in on itself and needs to be replaced by some kind of different system?

No, because there's a bunch of things that the NCA does well.

We need an organization that sets the playing rules.

As much as we don't like things like the IOC and FIFA, we need them.

If you're grouping the NCAA

with the IOC and FIFA.

Oh, it's not great, but sports are fundamentally different than everything else in that you need to work with your competitors to be able to produce the product.

The Red Sox goal is to beat the Yankees, but it's not to drive them out of business.

The second thing the NCA does that is actually great is they have championships.

What's great about March Madness is it really is

the best college basketball.

When we see that UConn wins the national title on the women's side, we say, yeah, that was a fair process by which we determined the best because the NCA has a monopoly on that postseason championship.

Generally, economists don't like monopolies, but things like championships are what are known as a natural monopoly.

Is it possible that the NFL and the NBA have been free-riding unjustly on the NCAA for their football and basketball talent development?

The NFL pays the colleges zero,

and the colleges become the de facto farm leagues for the professional leagues in a way that's unlike what goes on in most other sports leagues in the world that I'm aware of.

And we're seeing the NCAA

now having all this reorganization and chaos, not only conference realignment, but with the NIL and the house settlement, all kinds of financial upheaval.

Is there a way in which the NFL and NBA in particular should be beholden to invest in, pay, support, organize college sports because they are developing their labor for them?

You could make an argument for that.

Of course, colleges and universities develop all the labor for Microsoft and Google and United Healthcare and all those folks as well.

Right, but we tell ourselves that's great because they are creating hundreds of thousands and millions of jobs, whereas the NFL and NBA, their model is scarcities, only a few hundred athletes, only 30 some teams, and therefore it is a cartel as opposed to an open system.

Yeah, and notice, it's funny, the way that the collective bargaining agreement between the union and the NFL works is that you have to stay in college for several years.

This benefits everyone except for the current college athletes.

It helps the existing athletes in the NFL by preventing competition for the roster spot from some young kid.

It helps the NFL by having those players stay in college for two to three years to make sure that they get trained there so the NFL has to do less training and so that it's less risky making those picks.

And of course, it's good for the NCAA because they get these top-level players.

So everyone's benefiting from this, obviously, except for that group of athletes who is good enough to play in the NFL right now, but doesn't get to because they haven't stayed in college for the requisite number of years.

The National Football League is a consortium of 32 team owners who hire a commissioner to keep the peace.

The current commissioner is Roger Goodell.

The league doesn't divulge Goodell's salary, but reliable reporting shows that in one recent two-year period, he received compensation of around $125 million.

Depending on your perspective, that might sound like an outrageous number.

Or given how dominant the league is in the American sports and cultural landscape, it might sound like a bargain.

When it comes to monetizing sports, the U.S.

is king.

We have 47 of the world's 50 most valuable franchises, and that makes the NFL the king of kings.

Of the top 100 television broadcasts in 2024, 93 were NFL games.

Last year's Super Bowl was the most watched show in TV history with more than 125 million viewers in the U.S.

alone.

To state the obvious, Americans love the NFL.

Most Americans anyway, but not all of them.

My name is DeMorris Smith.

DeMorris Smith just published a book called Turf Wars, The Fight for the Soul of America's Game, and the fight he is talking about was his own fight.

Yes, I was a federal prosecutor for almost 10 years, spent most of the time in homicide and violent crime and terrorism.

After that, became a partner at Latham and Watkins, then a partner at Patton Boggs, and then in 2009, I was elected to be the executive director of the National Football League Players Association, a job that I kept until 2023.

The NFL PA is totally separate from the NFL.

It is the union that represents the players.

It's one of the smallest unions in the country, but also one of the most visible.

And how does Smith, the former union boss, characterize the NFL itself?

Here's how he puts it in his book.

He writes that NFL team owners, quote, use football, one of the most addictive, powerful, and profitable drugs in American culture, to influence elections and bully competitors as they ruthlessly pursue an ever higher percentage of wealth.

When Smith got the union job in 2009, he wasn't all that familiar with how the NFL worked.

I asked him what he saw when he first started to dig in.

I was shocked at the level to which a multi-billion dollar industry was completely beyond the purview of any regulator.

I take the job right after the 2008 meltdown.

It's hard to contemplate a multi-billion dollar industry that is so dependent on public roads, the help of first responders, the granting of either tax-exempt status or land grants or bonds.

It's hard to contemplate an industry that is

so ingrained in government subsidies that has zero government oversight.

I've never seen anything like it.

There is no governor.

There's no boundary.

There's no 10 K's.

There's no 10 Qs.

No public board of directors.

No SEC oversight.

No court oversight.

No countervailing force, as you describe it.

Nothing.

So you literally have to become the prosecutor.

In a defense scenario, you always have a judge or a Department of Justice or someone.

who is acting as the authority to hold someone accountable.

In the NFL paradigm, the only entity to hold the NFL accountable is this relatively small union of 1,800 people.

You write that the NFL owners, quote, decide how the rest of us live, work, and interact.

What do you mean by that?

If you want to understand their level of influence, take a look at the photo of those who were standing behind Donald Trump during the inauguration.

Those people influence our healthcare.

They influence our media.

They influence how we digest news.

I find that ability to impact America to be disproportionately held by the billionaire class.

When I look at what the NFL is as an organization and how it operates, it strikes me that it's built on a foundation of antitrust loopholes.

Tell me where I'm right and where I'm wrong.

The National Football League exist only because they achieved a congressional exemption from the antitrust laws.

When they merged between the AFL and the NFL in the 60s, they needed a congressional exemption.

The other thing they have, thanks to the Sports Broadcasting Act, is the ability to then negotiate unilateral television contracts.

That allows the 32 teams to band together to go to a network and say, we're going to give this network the exclusive ability to show our games for this much money.

Well, that gives them a tremendous amount of leverage in the marketplace because Kansas City doesn't have to negotiate its own or DC doesn't have to negotiate its own.

The result is that every network ends up doing deals with the National Football League that in the end, they lose money.

Even though football games are 45 of the top 50 programs every year on TV.

Yeah, 85, 90 of the top 100.

How's that possible?

When it comes to straight commercial sponsorship, it in no way makes up for how much the networks are paying for the NFL.

They make up for that loss in the commercials for their ancillary programming.

The best example is CBS several decades ago had the number one show in the country, 60 Minutes.

Fox came along, the most new network.

with, let's just charitably say, not a lot of great programming.

Fox wildly overpaid for the NFL.

CBS thought that they were going to be okay because they still had the number one show in America.

Within two years, that was in trouble.

They bought back the rights for the NFL.

You and I can't go to Congress and get an antitrust exemption for you to diabolically buy all the shows in America.

Here again is the economist Victor Matheson.

Leagues always have problems with antitrust because a league is a bunch of individual businesses that come together to collude to make as much money as possible.

I love that you say leagues have trouble with antitrust.

It seems to me that they've solved that trouble quite capably.

In some ways they have.

So they've solved it in basically three ways.

Major League Baseball solved it by getting an insane ruling over a century ago from a judge who just liked baseball so much that they said, you know what?

If it's baseball, it can't possibly be antitrust.

That's what's known as baseball's antitrust exemption.

All of the other leagues have been granted limited exemptions to antitrust when it comes to negotiating media rights deals.

The NFL, for example, sells every single one of its games through these big media rights deals that the league itself sets.

That was actually declared illegal back in the late 1950s and early 1960s.

And Congress passed a law saying, okay, we will give you this exemption to antitrust, but you also have to come to some agreements with some of your competitors to not compete with others directly.

The NFL was given Sunday, the NCAA was given Saturday, and high school football was given Friday night.

So outside those days, Thursday through Monday, anyone can play, but the NFL is typically not allowed to play on Saturday, and the NCAA can't play on Sunday.

The third way to get around antitrust issues is by making sure a bunch of your negotiations with respect to antitrust are with a union.

The way the NFL and all the other leagues get around collusion with respect to things like salary caps and salaries and roster limits is by having an equally powerful group on the other side, a union, that is allowed to negotiate fairly with the cartel on the other side.

But it turns out that the cartel is the best negotiator of all.

You can see this whenever a team owner wants to build a new stadium and goes hunting for state and local subsidies.

If they just stop building new publicly financed stadiums, I could stop yelling at people.

What's the latest yelling that you've had to do on that front?

Oh, let's see.

What are we doing?

We're looking to build a new commander stadium right in D.C.

We're looking to build a new one in Cleveland to reward the fine management of the Cleveland Browns with a bunch of taxpayer money.

In the U.S., give me a number as best as you can of NFL stadiums that have been built in the last 30 years.

What share of the money that goes into stadium and infrastructure construction is public money versus private?

The modern stadium boom in the United States actually started in the early 90s for over the next roughly decade and a half.

Over half of all major league teams in all the big sports in the United States replaced their stadiums.

We also had some expansion franchises come in that needed new facilities as well.

During that time period, roughly two-thirds of all stadium costs were paid for by taxpayers, with the remaining third being paid for by the teams themselves.

This funding model changed in 2008.

People started to find it pretty distasteful to hand over hundreds of millions of dollars to billionaire owners and millionaire players when we're laying off police officers and teachers and firefighters during the Great Recession.

So between 2008 and roughly 2020, only about a third of the money came from taxpayers.

This is now in flux again.

We're seeing two things happen.

First of all, stadiums have gotten increasingly more expensive.

This is always an arms race.

Every owner has been in every other owner's stadium.

And every time they see something they like, they're like, ooh, I want one of those.

So even though the public on average recently has still only been paying about a third of the cost, these are still huge dollar amounts.

The other thing is those stadiums that were built in the early 1990s were usually built with 30-year leases.

Because they have 30-year leases, the taxpayers have a lot of bargaining power with the teams until that lease expires.

But as soon as that lease expires, all of a sudden the teams get all the bargaining power.

Hey, build us a new stadium, or we're moving out of town.

This threat of relocation has become a standard move for NFL teams looking to get public financing for a new stadium.

Sometimes the threat gets carried out.

In 2017, the San Diego Chargers moved to Los Angeles.

In 2020, the Oakland Raiders relocated to Las Vegas.

The Buffalo Bills, meanwhile, decided to stay in Buffalo after New York Governor Kathy Hochl offered them $850 million in public funding, the biggest ever taxpayer contribution for a new stadium.

At least the Bills are a good team.

Consider the Cleveland Browns.

They have had a winning record in only four of the past 26 seasons, but they just received a $600 million subsidy for their new stadium.

Once you are in the NFL cartel, you can win big even by losing.

In fact, the way that American sports leagues like the NFL and NBA are set up, the worse a team plays in a given season, the better their chances of getting the top college players the next season.

In the United States, you can tank in order to try to get the best players in the next draft.

You might intentionally lose games at the end of the season just so you can have a better choice of players next year.

That's exactly what you don't want in sports is teams intentionally trying to lose.

Fans hate it when players are not trying to win.

It's why we are somewhat forgiving of Pete Rose, who said, well, sure, I bet on baseball, but I never bet on my team to lose.

We're a lot less forgiving for the 1919 Black Sox, who bet on their team to lose and managed to lose that World Series.

A world where no matter how badly you do, you stay in that top system and you get to keep being an NFL owner.

Those are some bad incentives.

You can actually make more money in some cases not trying to win than if you actually try to feel the competitive team.

There is one very simple way way to get rid of this intentional losing.

Every year, you take the two or three worst teams in your league and get rid of them.

You bust them down into a lower tier league and you take the best teams from the lower tier and promote them into the top league.

Can I interest you in that solution?

We'll talk about it after the break.

I'm Stephen Dubner and this is Free Konomics Radio.

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In the National Football League and the National Basketball Association, and even in Major League Baseball and the National Hockey League, tanking is a real thing and a real problem.

Losing on purpose in order to move up in the draft order, it's kind of trampling on the spirit of what sport is supposed to be in the first place.

It's supposed to be a competition, fair rules, full effort, a handshake at the end, regardless of outcome.

That's the premise.

And I would argue that's the attraction.

Some people go so far as to argue that football is a good modern proxy for old-fashioned war.

But even if you don't buy that argument, it is still a really fun game to watch.

And the appetite for football seems almost limitless.

In the early 1960s, NFL teams played just 12 regular season games.

Now they're up to 17 and the owners are pushing for 18.

The league is always looking for ways to grow its brand.

This year's schedule includes games in Sao Paulo, Dublin, London, Berlin, and Madrid.

The expansion to Europe has paid serious dividends.

That is Oliver Luck.

They've opened up a new TV window, and that's the 9 a.m.

Sunday morning East Coast.

Get out of bed, have a Duncan's, enjoy your game, and you can stay tuned for the following windows.

And who is Oliver Luck?

I am a sports executive who really works for himself in a sense, doing a lot of consulting with a number of organizations.

I have to say, I can't think of anybody who has had more senior jobs in more sectors of the sports industry than you.

Do you want to tick off a few for me?

I guess it started when I went to work for the NFL back in 1990.

I ran NFL Europe, which was the NFL's AAA league, if you will.

I spent a good bit of time with MLS.

I ran the Houston Dynamo.

And then I had always had an interest in college athletics.

And like many others, I saw the increasing professionalization of college athletics.

Not that I had any special insight, but I saw that and thought, this may be a space where I can make an impact.

So I spent time as the athletic director at my alma mater, West Virginia University.

I spent time at the NCAA.

All of that doesn't even cover everything Luck has done in sports.

He was CEO of the Harris County Houston Sports Authority, which was a governmental entity tasked by the governor of Texas and the legislature to finance and rebuild the, back then, aging infrastructure in Houston.

And before all that, he played football, the quarterback position.

He had a great college career at West Virginia and then a relatively quiet five-year career in the NFL with the old Houston Oilers.

After football, he got his law degree and eventually moved his family to Germany where he worked for NFL Europe, a startup league that lasted around 15 years.

The Lux had four kids, including Andrew, who became an even better quarterback than his father was, first at Stanford and then with the Indianapolis Colts in the NFL.

Andrew today is the general manager of the Stanford University football program, a job that until recently barely existed outside of pro football.

But these are the kinds of changes that are starting to happen as college football continues to become more like the pro game.

I asked Oliver Luck about the main differences between pro and college football today.

I would say that there are two pillars in my estimation that going back to my era 40 years ago, made a different.

One pillar was academics.

These young men and women are students.

They actually go to class.

And if you flunk all your classes, you're probably going to be ineligible to play.

And the other pillar was amateurism.

They don't get paid.

That amateurism pillar crumbled like one of the old Greek temples that couldn't withstand the earthquake.

I think it would be foolish for the leadership in college athletics to do away with the academic pillar, because I think that is the only connective tissue left with fans, alumni, folks that support those programs, that write checks.

They like the fact that the football team is competitive, but they also like the fact that that kid who's playing football, whom they've admired for five years, is going to walk away with a degree and at least can start his or her life without sports.

I think keeping an academic component is absolutely critical, not just for alumni reasons, for financial reasons, but it's the right thing to do for young men and women.

We still need well-educated people.

I also asked Luck about the system of relegation and promotion that European soccer leagues use and how that might

maybe

work in the NFL.

If you're a European soccer fan, you don't typically have to worry about the top clubs, right?

They're not going to get relegated.

They're not going to get relegated.

But from the midpoint of a league on down,

and you're fighting to stay out of a relegation battle, and let's say you get into a relegation battle and there's a one game loses all, so to speak, it is the most exciting thing known to mankind.

It'd be like the Colorado Rockies who are having a miserable year.

It would be like they might get relegated to, you know, Little League.

The fans show up to cheer on their team because they don't want to see them relegated.

There's an excitement.

There's a level of passion that's unheard of.

We haven't experienced it in this country, so a lot of folks don't really understand it, but it's a fascinating experience in the human condition, if you will.

And keep in mind, these clubs have been around for 150 years.

They mean a little bit more than, let's say, the Jacksonville Jaguars.

Right.

But, you know, look, the New York Jets have been around a while.

The Cleveland Browns have been around even longer.

Those are two routinely terrible teams.

You can imagine that on week 18 of the NFL season, if those two were playing and the loser goes down a level, it could be pretty exciting.

Yeah.

I grew up in Cleveland.

I'm very familiar with the Browns' travails.

At the end of the season, if you're out of the playoffs, you're just going through the motions.

And I admit that being a former Houston Oiler, we had a couple of seasons where we just went through the motions.

Okay, and talk for a minute about the flip side of relegation, the possibility of promotion into the top league for teams that are in the lower levels.

Well, you know, if you're in Portsmouth, England, and you've been to third division, second division, and you're close to moving up into the Premier League, the excitement of that community is through the roof because you've got all of a sudden Chelsea come into your home ground for a game.

You've got some of the best players in the world coming there.

What role does collective ownership hold in the future of American sports?

Right now, we've got the Green Bay Packers, but outside of that, none that I know of.

It's more common in soccer clubs around the world, Barcelona maybe being the prime example.

But are there different ownership schemes blossoming in the near term, considering how much is changing with the finances of sport?

That's where the colleges could be the leader.

As these universities, in some cases, begin to take all of their revenue streams from athletics, park them in a different company.

There's no reason you couldn't begin to sell shares, et cetera.

You can have different voting rights, and a university could certainly retain, as it should, control.

You'd have to do a lot of research.

You'd want to make sure that the most important thing is the university retains control.

But there is a model from the Packers that could be used across the college landscape.

And maybe it's for separate teams as well.

Hey, I don't really care about football, but I love Notre Dame fencing.

I'm going to buy 100 shares of Notre Dame fencing and support them.

When you look at the business of sport generally around the world, what do you see more of?

The U.S.

sports business model being exported and adopted or more of the U.S.

sports industry learning from and integrating from overseas leagues the u.s is the model in terms of monetizing and creating the best possible entertainment experience for the fans having lived over in europe for years everybody would look at the super bowl around the world and say that's the pinnacle they get it they do an unbelievable job the concept of sort of monetizing these spectacles it goes beyond just a game i think going back to the 60s 70s 80s, after we were able to unionize baseball first and then the others, management and the union figured out that collaboration is great for both sides.

It just took off because the incentives were aligned.

Make us more money, Mr.

Owner, and I'll play longer for you, but you got to pay me more.

And everything just spun up in a very well-aligned system.

So I do think we're still really at the top of the heap.

All right.

So here is this idea I had, Oliver.

And I want you to tell me, as candidly as you're willing how stupid it may be.

The NFL and NBA are both really expansion driven, as any big successful businesses are.

And the owners of those individual teams typically got to where they are by being really good at running and growing businesses.

So it makes sense that if they own a team and they're part of a league, they want to do the same.

The relationship with European fans of American football and in Latin and South America and Asia and beyond, there is appetite there, but global expansion for something like an American sport, I could imagine, would be really hard to do.

They probably don't want to add many more teams, if any.

They probably don't want to spread their calendar out much more.

So what if, especially since NCAA football is undergoing this massive change at the moment because of these lawsuits, what if we were to dream up a scheme whereby NCAA football teams would form a level or two levels or three levels, which they pretty much have now, but they essentially merge with the NFL.

And those levels, those leagues become essentially the AAA, AA, and A of the NFL.

You could imagine mirroring the same thing with the NBA and NCAA basketball.

The way that you would move from one level to the next would be by promotion and relegation.

And you could imagine a massive commingling of audience, revenues, media, et cetera, whereby college football and basketball, which are already close to professional, become officially professional.

We have to sort out a lot of details about how those franchises operate and revenue share and so on.

But it would be a bigger, better league of professional football and basketball.

What do you think of that idea?

On a scale of one to 10,

one being a fantastic idea, 10 being nuts, it's probably an eight.

If you are a glass half-full person, and I may be a glass 20% full person,

then Oliver Luck has given us more than enough encouragement to press on with this idea.

So coming up next week in part two,

we try to figure out what this new scheme would look like.

If you weren't born in America, you weren't raised in America, this seems like motherhood and apple pie.

It seems natural, sensible, obvious thing to do.

There will be complications.

It would be wildly disruptive to move from a current closed system to an open system.

That's never going to happen without some sort of benevolent overlord like me.

That's next time on the show.

Until then, take care of yourself.

And if you can, someone else too.

Freakonomics Radio is produced by Stitcher and Renbud Radio.

You can find our entire archive on any podcast app, also at freakonomics.com, where we publish transcripts and show notes.

This episode was produced by Teo Jacobs and edited by Ellen Frankman.

It was mixed by Eleanor Osborne with help from Jeremy Johnston.

Thanks to James McGinty for helping inspire this episode, and thanks to everyone who helped us think through this idea, especially George Atala, Simon Cooper, Peter Pilling, Jim Rooney, Robert Smith, and Jeffrey Whitney.

The Freconomics Radio Network staff also includes Alina Coleman, Augusta Chapman, Dalvin Abuaji, Elsa Hernandez, Gabriel Roth, Greg Ripon, Jasmine Klinger, Morgan Levy, Sarah Lilly, and Zach Lopinski.

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Fortune by the Hitchhikers, and our composer is Louise Guerra.

There are quite a few players that are not benefiting from this situation because they don't have those same because they're ugly, you're saying.

Well, not those players.

If you're in football, like being ugly helps.

It was something I had to fight against because I'm too damn handsome.

It makes it difficult.

The Freakonomics Radio Network: the hidden side of everything.

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