BCS: Antitrust storm clouds gather

EDITOR'S NOTE: Andy Schwarz drafted the economic arguments in a letter recently sent to the U.S. Department of Justice requesting an antitrust investigation into college football's Bowl Championship Series, which the DOJ cited in recent inquiries to the NCAA questioning the lack of a playoff system.

I am a sports fan and an antitrust economist. So like all sports fans, I know the BCS is a lousy system. But the Department of Justice doesn't really care about whether the BCS is a weak product, as long as it is the result of competition rather than collusion. While fans know the BCS is about football games and telecasts and the people who watch them, the DOJ is just thinking about products and consumers. For any industry, the DOJ is concerned whether collusion (in this case among teams, conferences and bowls) is preventing a market from functioning competitively, such that the colluders can exclude new competitors (here, a postseason playoff) from entering the market, entrenching less desirable products and raising prices to the detriment of consumers and the nation's economy.

So if you want to understand the antitrust issues surrounding the BCS, you have to turn off your sports fan and turn on your economist. For example, while a sports fan knows the BCS National Championship Game is not what we want, the Championship Game itself is probably not an antitrust violation. Instead, 20 colleagues and I argued to the DOJ that what likely is an antitrust violation are the collusive steps the BCS has taken to insulate its weak championship game from competition from a better alternative.

The antitrust laws favor cooperation among competitors only if it results in new products that would otherwise not exist. Thus, it's legal for the NFL's 32 teams to agree on a schedule of who plays when and where because that cooperation is needed to create an NFL season, even though it is illegal for 32 steel mills to agree on when and where they produce steel. In a vacuum, the BCS has pro-competitive elements. The BCS creates a postseason game (which it calls a championship) valued by consumers. You may hate the BCS, but having two good teams actually play for the championship is an improvement over the old days of an elected champion. If that were all the BCS did, it would be the (economically) pro-competitive act of legitimate joint venture. End of story.

However, the antitrust laws frown upon collective actions among competitors that are not needed to create new products or that make it harder for new competitors to enter the market. This is where the BCS raises several red flags.

The BCS has taken four independently produced, successful products (the Rose, Sugar, Orange and Fiesta Bowls) and cartelized them, turning them into a joint product where there is no economic competition among those Bowls. This has many bad effects, but the biggest problem is that the BCS has locked up the eight teams most likely to form a rival playoff system. If someone wants to develop a rival national championship playoff, the eight next-best teams are the obvious candidates. BCS control of the Rose, Sugar, Orange and Fiesta Bowls ensures that there aren't enough good teams available to start a rival playoff system, because with a few exceptions (like Alabama or Michigan State last year), the potential playoff teams are locked into the BCS's other bowl games.

To make matters worse, the BCS conferences, through their control over the FBS, all agree that if any four teams choose to join a playoff system, the other 116 teams in FBS will refuse to play against them indefinitely. This is a collective boycott, and it's rarely legal. But it is BCS/NCAA policy, enforced with specific bylaws that limit FBS teams to one postseason game and that prohibit the other schools from playing against schools that violate this rule, even in sports other than football. The threat of ostracism by all of college football makes it impossible for a rival playoff, however profitable and pro-consumer, to emerge.

So what's anticompetitive about the BCS is not that it puts an inferior product into the market. It's rather that the participants collude to shield that inferior product from competition.

What I haven't said is that it's not fair that Utah, Boise State or TCU haven't been invited to the BCS Championship Game, or that it's harder for those teams to get into the other BCS bowls. Antitrust law just doesn't have a place for "fair." Instead, we focus on whether conduct is pro- or anti-competitive. When would-be competitors collude to erect high barriers to competitive entry, consumers and the country as a whole suffer. A competitive market would treat the TCUs of the world more fairly, but a fairer deal for TCU is in some sense a side effect of economic competition. The DOJ is not going to step in to enforce fairness. But it might step in here because the BCS has taken all of the steps to insulate its one-game championship from competition.

What could the DOJ do to fix things? After some legal wrangling, the BCS, the NCAA and DOJ could agree on a settlement called a Consent Decree, which would do two things.

First, it would tell the NCAA not to ban a team for playing in multiple postseason games. There is no antitrust justification for a ban on postseason games in FBS when FCS and Division II and III all have multiple-game playoffs, as do other NCAA sports.

Second, it would sever the ties between the BCS Championship Game and other bowl games. There are simpler, more competitive ways to ensure that the Rose Bowl and others would release the two top teams to the BCS. By doing this, the DOJ would make quality teams available to a playoff and prevent the BCS from locking up all potential rival champions. This would allow an entrepreneur such as Mark Cuban, a network such as ESPN, or the NCAA itself to develop a playoff in competition with the BCS.

The DOJ doesn't need to, and probably won't, kill the BCS Championship Game itself. And it doesn't need to, and probably won't, mandate that the NCAA must run the championship. If the Justice Department does its job of being America's protector of free markets and capitalism, it will strip away the barriers to (economic) competition and let the market provide us with better quality football competition.

Andy Schwarz is an antitrust economist and partner at OSKR, an economic consulting firm specializing in expert witness testimony. He is also a die-hard Stanford Cardinal fan and tweets irreverently as @andyhre.