This paper is organized as follows: a review of the existing studies written on conference realignment is presented followed by my perspective on the current issue on conference realignment.
REVIEW OF LITERATURE
The conference realignment or conference churning (coined by Fort and Quirk in 1999) was viewed as a simply a natural development in college athletics as schools re-organize according to drawing power. The realignment is viewed as a function of disparities power cross teams in which the team with the larger drawing power (the dominant team) may look to leave the conference and join a conference with teams of similar drawing power (Depken 2). Conferences have generally been made up of institutions that are similar in size, academic pursuits, and have similar athletic aspirations. Over the years, conferences have developed athletic programs of varying quality, e.g., certain conferences are made up of powerhouses while other conferences have weaker programs (Groza 3).
The purpose of organizing and participating in a university or collegiate athletic conference varies. One of the purposes is regular athletic competition in which conferences are viewed to create rules and regulations that not only help maintain a level playing field for member institutions but also to create competitive opportunities (Straurowsky and Abney 150). Moreover, conferences are also expected to work in ensuring optimal levels of competitive balance (Rhoads 5).
Nevertheless, the attainment competitive balance through sustained competitive balance among equitable teams is not the only purpose of conferences (Depken 4). Accordingly, college conferences adds to member institutions’ revenue through the distribution of rights fees from licensing, corporate sponsorship, media agreements, and other forms of revenue generated from the league (7). There are instances also wherein competitive imbalance in existing conferences results to churning as enhanced competitive balance is linked to desirable financial outcomes (Fort and Quirk). Financial obligations are making the business side of collegiate athletics of growing importance. Increase revenue is done by increasing the profile of money making sports, namely football and men’s basketball. The pursuit of financial security was undoubtedly a major impetus, which led to the dramatic realignment among the conferences. Furthermore, a conference is incentivized to enhance their reputation because strong conferences are able to negotiate better bowl deals and better television contracts (5). All of the programs that voluntarily changed conference affiliation moved into a seemingly better conference. In general, the systematic realignment resulted in teams playing in better conferences. Better conferences offer new programs the opportunity to play better in-conference opponents. Teams that move into better conferences will, on average, play more opponents with better on-field success and a richer tradition (6).
Despite these the results of these studies, Perline, Stoldt and Vermillion observed that little scholarly attention has been devoted to evaluate the financial outcomes of conference realignment. Among the existing works is that of Groza who found FBS teams that changed conferences enjoyed an increase in attendance, even for controlling for increased quality in competition. The study estimated the impact of a change in conference affiliation has on football game day attendance revealed that teams that changed conferences enjoyed an increase in attendance even after controlling for the increase in quality of competition. A possible explanation for the increase in attendance is that individual conferences themselves have a certain drawing power. Sport consumers may be attracted at the prospect of their team playing in a well-known traditional conference. Better conferences also accentuate the importance of each game. Stronger conferences have larger national television contracts and have more automatic bids with larger post-season bowl games (Groza 11).
Moreover, the existence of sports league can be party explained by the fact that the association wanted to protect the profitability of their member franchises (just like in the case of National Collegiate Athletic Association that operates as a cartel that protects the profit potential of its members). Rodney Fort and James Quirk suggest that conference churning is caused by disparities in drawing power, and that schools have incentive to realign conferences over time such that schools with similar drawing power are grouped together. Thus, conference churning is expected to result in more profitable conferences, both for lower and higher drawing schools.
In a study on the empirical estimate of the optimal size of football conferences using data on conference football revenues and expenditures, it was revealed that the conference size that maximizes football profits is approximately twelve-team conferences. The trend towards team is found to be statistically consistent with football profit maximization at the conference level. Accommodating schools changing conferences is consistent with the NCAA being a cartel that protects and enhances the profitability of its members (Depken 15).
DISCUSSION
With the ideas on conference realignment presented above, it became very clear to me that the episodes of conference realignment happening in the university/collegiate sports are highly influenced by the pursuit of self-interest of the people and institutions involved. And if originally the purpose is simply to create and sustain competitive sports atmosphere among different participating academic institutions, the evolution of realignment revealed that the purpose becomes maximization of revenue and profit from participation. As Sauer mentioned as to what is driving conference realignment is in the strategy that if the configuration is changed, that gives the institution the chance to renegotiate in a period where the media values are increasing; and hence, renegotiation will be done over and over. Simply put, it is the media that is partly driving the conference realignment. This should be perceived as an opportunity, otherwise any participating university or college that does not take such opportunity to expand revenue will eventually die. It can simply be viewed as the rational choice for schools to make.
I agree with English (1) when he said that college conference realignment is a classic economic decision concerning profit maximization and moral hazard. Universities or colleges can be viewed as firms operating in a competitive market of sports; the institutions participation in conference is guided by the profit maximization motive. Another economic idea that governs conference realignment is the principle of moral hazard. Moral hazard can be simply understood as a problem (normally in insurance) that occurs when an individual has no incentive to take care of. English (2) emphasized that the problem of moral hazard is becoming the current in college athletics. Because of the instability in big conferences, certain universities have lost the incentive to stick together. To remedy the problem of moral hazard that creates the concern among universities of conferences’ tendency to implode and schools eventually be left out, conferences attempt to offer greater incentives to remain in conferences and impose exit fees.
Another economic idea to explain realignment is that notion of economies of scale in the competitive sports market as explained by Sauer and to which I also agree:
The most important driver of change in recent decades is an increase in the scale and scope of the sports marketplace. Significant decreases in the cost of travel and increases in media opportunities have transformed what was a local and regional market into one that is national in scope. Today’s higher revenues derive from nationally relevant teams playing each other on national television. That’s today’s market.
Generally, there are still more areas that has to be explored as to the economics of conference realignment. For instance, there is minimal literature available that supports the financial (profit/revenue) benefits of realignment; also on the moral hazard issue on realignment.
Another area that could be explored is on the factors that influence the maximization behavior of each of the institutions participating in the conference. Also, it could also be possible to explore the welfare effect of conference realignment.
Works Cited
Two-Minute Drill with Clemson Economics Professor Raymond Sauer. http://www.postandcourier.com/article/20120527/PC20/120529233/1032/two-minute-drill-with-clemson-economics-professor-raymond-sauer
Fort, Rodney and James Quirk (1999). “The College Football Industry,” in Sports Economics:Current Research, eds. John Fizel, Elizabeth Gustafson, and Larry Hadley. Westport, CT: Praeger.
Groza, Mark D. “NCAA Conference Realignment and Football Game Day Attendance” Managerial and Decision Economics 31: 517-529 (2010). Wileyonlinelibrary.com http://www.isenberg.umass.edu/sportmgt/uploads/textWidget/5689.00004/documents/Groza_2010_MDE.pdf
Perline, M.M., G. Clayton Stoldt, M. C. Vermillion. “The Effects of Conference Realignment on National Success and Competitive Balance: The Case of Conference USA Men’s Basketball. The Sport Journal. ISSN: 1543-9518. http://thesportjournal.org/article/competitive-balance-and-conference-realignment-case-big-12-football
http://pages.towson.edu/trhoads/Rhoads%20SEA%20NCAA%20Conference%20Alignment.pdf
English, Mike (2011). The Economics of College Athletics Conference Realignment. Missouri Council of Economic Education. Accessed from http://cas.umkc.edu/mcee/Economics%20of%20College%20Athletics%20Conference%20Realignment.pdf
Depken, Craig A. (2011) Realignment and Profitability in Division IA College Football. Belk College of Business. Accessed on November 5, 2012 from http://belkcollegeofbusiness.uncc.edu/cdepken/P/confsize.pdf
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Rhoads, T.A. (2004). Competitive balance and conference realignment in the NCAA. Paper presented at the 74th Annual Meeting of Southern Economic Association, New Orleans, LA. http://pages.towson.edu/trhoads/Rhoads%20SEA%20NCAA%20Conference%20Alignment.pdf
Staurowsky, E.J., & Abney, R. (2011). Intercollegiate athletics. In P.M. Pedersen, J.B. Parks, J. Quarterman, & L. Thibault (Eds.) Contemporary sport management (4th ed., pp. 142-163). Champaign, IL: Human Kinetics.
http://www.huffingtonpost.com/2012/09/13/acc-big-east-conference-realignment-history_n_1879359.html
