Wednesday, June 8, 2011

How capitalism produced the BCS

image This is not intended to weigh in on either side of the BCS vs Playoff debate. Nor is it a knock on the capitalist economic model, which is the greatest system of allocating scarce resources and meeting demand in the history of mankind. All I’d like you to do is understand that the BCS is the result of a predictable approach to filling a void left in the marketplace by a bureaucratic failure.

First, a little history.  After the end of World War II, the major conferences began committing their championship team to a particular bowl. The first such alliance came In 1947, when the Big Ten and Pac-10 (then the Pacific Coast conference) agreed to an exclusive arrangement to commit their champions to the Rose Bowl every year. This agreement remains in place today unless one of the two is selected to play in the BCS Championship Game.  Other conferences followed suit, with the Sugar, Orange, Cotton and eventually Fiesta each inking deals with major conferences. Naturally, the system increased probabilities that the two top-ranked teams in the country would not play each other in a bowl game.

At the time, this likelihood didn’t matter, as the major wire services (Associated Press, United Press International, et al) awarded their national championship designation at the end of the regular season, a practice that remained unchanged until the late 1960’s. Since then, the two top-ranked teams from the final regular-season AP Poll had only played each other in a bowl game six times since the AP began releasing its final poll after the bowl games in 1968.

Following the 1991 season, the University of Miami and the University of Washington were the consensus #1 and #2 teams in the country. Miami went to the Orange Bowl. Washington went to the Rose. Both kicked ass and shared the national championship. Miami won the AP designation while Washington took top honors in the Coaches Poll.

By this time, major college football was BIG business. Television contracts between conferences and broadcast networks had started their relentless march upwards as fans demanded more opportunities to watch their favorites play. The number of post-season bowls also grew parabolically, as did corporate sponsorships of both major and minor bowls. Conferences made deals with bowls to send not only their regular season champs to bowls, but their #2, #3, #4 and so forth. Conferences, schools and the networks raked in the cash and the major college presidents were happy.

The fans however, were not satisfied. In every other major sport, the national championship is decided on the field or court. Except Division I football. This is where the bureaucratic screwup occurred—with all the money being poured out through the bowl system, the college administrators wanted no part of a playoff system that even scratched the surface of reducing bowl revenues.

In capitalist economic theory, this is what’s known as a market failure. The fans want the championship decided on the field, and express a willingness to pay for the opportunity to get that satisfaction by demonstrating that they will buy tickets or tune in to watch. But the system in place didn’t provide that opportunity. It had failed to allocate resources to meet an existing demand.

Capitalism is a naturalistic economic system. And capitalism, like nature, abhors a vacuum. Entrepreneurs that can identify an unmet demand and develop a product that satisfies at least some of it will be rewarded handsomely for taking the risk to produce it. But capitalism is also intensely competitive and entrepreneurs also want to ensure that there are significant barriers to keep competitors from invading their new market and eroding their profit margins. It’s business in America, baby. You build stuff, you sell it to willing consumers and you protect your brand. No one but Apple makes an IPhone, right?

Ok, back to the history lesson.

Following the 1991 split title, a group of conference commissioners and Notre Dame created the Bowl Coalition in the hopes of reshuffling the conference-bowl alliances to improve the chance that #1 played #2 for the national title. The Rose Bowl did not participate. Following the 1992 season, Miami, then ranked #1, agreed to forego the Orange Bowl and met then #2 Alabama in the 1993 Sugar Bowl. Alabama beat Miami for the first consensus National Championship of the BC/BCS Era.

The system later morphed into the Bowl Alliance and only included the Sugar, Orange and Fiesta, and excluded all conferences not affiliated with the bowls in the alliance. There’s your brand protection scheme—keep competing conferences out of the market and your major conferences and schools rake in the cash. 

The modern day BCS—which now includes the Rose Bowl and six major conferences—ACC, Big 10, Pac 10, Big 12, SEC and Big East—plus Notre Dame, came into being in 1998. The addition of a fifth game—BCS Championship Game—came in the 2006 season. Additional tweaks to the system have allowed non-BCS conferences a path to play in a BCS bowl, but significant barriers to access still exist and that is by design. The system isn’t perfect by any stretch. It’s either hated or tolerated and entire books have been written highlighting the system’s flaws and calling for its death.

Recent news of the Department of Justice taking interest have some suggesting that the BCS’ future may be in peril. We won’t get into the debate over whether that would be a good thing or a bad thing. But it’s worth pointing out that just because an arrangement restricts access to competitors doesn’t make it illegal, and no court can order college football to institute a playoff system. It also bears noting that, failing the college presidents opting to create an NCAA-run football playoff system, the death of the BCS would result in a new vacuum in the marketplace. We would likely return to the pre-1991 system of strict conference-bowl relationships, at least for a while.

That is, until some entrepreneurs figure out a way to eventually get #1 against #2 in a post-season bowl worth tens of millions to media networks, conferences and colleges. Perhaps that takes place outside the purview of the NCAA, where the major conferences break off from the league and form their own college football system that incorporates an end-of-season playoff. Perhaps it’s as simple as revamped Bowl Coalition that includes the Rose Bowl and its two conference affiliates but ends any chance of a non-AQ school reaching one of the marquee bowls.

But one way or another, getting rid of the BCS will create an opportunity for someone, and you can rest assured that in our capitalist system, that opportunity will be exploited.

Will it be an improvement over what we’ve got now, or could it be even worse?

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ecdawg said...

I knew getting that degree in economics would come in handy someday.

The entrepreneur that will put the playoff together can easily be identified. ESPN will make sure that "eventually" is in seconds and can be counted on one hand.

There is already pent-up demand for a FBS playoff and it will happen at the point when the dollars available from demanders (TV and, by extension, the viewing public)) are great enough to induce suppliers to overcome inertia and sign up. That day is in the near future.

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