Technical Foul: When Anticorruption Enforcement In Sports Goes Too Far

From the U.S. federal government prosecuting FIFA officials in New York City to Transparency International both announcing an organizational initiative on sports anticorruption and publishing a 398-page report on the topic, it seems clear that governments and NGOs alike have deemed sports corruption a high priority. One can debate whether sports corruption is sufficiently important to merit this level of attention, though there’s a case to be made (as Lauren Ross argued on this blog a few years back) that sports’ broad appeal, media coverage, and status as a symbol for fair competition together give anticorruption efforts in sports an importance that exceeds the direct social harm caused by, say, match fixing relative to other forms of corruption (like medicine theft). That said, just because there may be special value to sports-related anticorruption initiatives in general doesn’t mean that all legally viable sports-related anticorruption enforcement opportunities should be pursued. Indeed, over-emphasizing sports can lead to a dubious allocation of government resources, a problem illustrated by a recent US case (United States v. Gatto) in which several defendants were convicted for their roles in a college-basketball bribery scheme.

To understand the Gatto case, it’s important first to understand the underground economy for student-athletes. In the U.S., the non-profit National Collegiate Athletic Association (NCAA) governs the $13-billion college sports industry, with most of the NCAA’s revenue coming from men’s college basketball. (If men’s college basketball programs could be bought and sold like professional sports franchises, the most valuable would be worth $342.6 million.) Critically, however, because of the NCAA’s amateurism rules, the student-athletes whose talent drives this industry can neither receive compensation from their universities (beyond cost-of-attendance athletic scholarships), nor earn money through endorsements, autographs, jersey sales, or any other monetization of their name or likeness. The value generated by the unpaid players is captured by others in this system, such as head coaches (who are the highest-paid public employees in 39 out of 50 states), NCAA executives, and university athletic directors. Given this system, it’s altogether unsurprising that top high-school basketball prospects often receive compensation for attending a given university via an underground economy. The corruption scheme at issue in Gatto was a particularly egregious example of this underground economy in action: Employees at an athletic-shoe company (Adidas), which sponsors a number of men’s college basketball programs, conspired with assistant coaches at those programs, and with an aspiring talent agent, to bribe elite high-school basketball prospects to attend the Adidas-affiliated universities. This deal looked to be win-win-win-win. The athletes benefited because they received compensation that better reflected their market value. Adidas benefited both from having elite college-basketball players wearing their brand on national television and from the increased probability that some of these players would sign an endorsement deal with Adidas if they turned professional. The universities profited from the economic windfall associated with enrolling an elite basketball prospect. And the aspiring talent agent boosted his odds of being formally retained when the player turned professional.

Nonetheless, this scheme was technically illegal, and so the jury was analytically correct in convicting the defendants at trial. But just because the defendants broke the law doesn’t mean that the prosecutors should have brought the case. Indeed, this case is one where, for three policy-related reasons, it would’ve been better if the U.S. Department of Justice hadn’t gotten involved:

  • First, this prosecution was not a cost-effective use of anticorruption resources. As Jetson wrote on this blog a few months ago, anticorruption efforts should not be pursued “once the costs of achieving further reductions in corruption are greater than the costs of the corruption that would be eliminated by those additional efforts.” Here, by all indications, the cost of this years-long investigation and prosecution far exceeded the societal cost of the corruption. Indeed, court records indicate that this investigation relied on at least eight wiretap orders, which, based on average wiretap expenses, probably cost nearly $600,000. Of course, $600,000 is a mere fraction of total costs, which included the use of two undercover agents, the deployment of a dozen armed FBI agents during arrests, and hundreds of hours of investigative and prosecutorial work. All to convict three defendants, who conspired to make five bribes collectively worth just $400,000. And what were the losses to society from this corruption—which, after all, might be larger or smaller than the size of the bribes themselves? It’s hard to imagine that the social value of an elite high-school basketball prospect attending an Adidas-sponsored school rather than a Nike-sponsored school is all that great. Admittedly, this calculation doesn’t take into account the broader incentive effects that may result from the U.S. federal government showing that it will vigorously enforce the NCAA’s amateurism rules. But taking that incentive effect into account actually makes the enforcement effort in the Gatto case look worse, not better, which leads directly into the next criticism of this prosecution.
  • Second, the kind of corruption at issue in Gatto, though technically illegal, represents a “second-best outcome” that is societally preferable to strict compliance with NCAA rules. While corruption usually has detrimental economic effects, scholars have persuasively argued that under conditions of misguided over-regulation, certain forms of corruption can be an “efficient grease” that can improve social welfare (see, for example, here and here). The NCAA’s amateurism rules—which are not governmentally mandated, but self-imposed—exemplify this sort of inefficient over-regulation, effectively transferring wealth from the players who generate it to less-deserving actors, while also distorting the market for college athletes and their services.
  • Third, and building on the previous point, the successful prosecution in Gatto reduces the NCAA’s incentive to adopt what would be the “first-best” anticorruption solution: allowing players to be compensated at market rates for their on-field role in this $13-billion industry, and/or to profit from off-field endeavors (à la the modern-day Olympics in which participants are not compensated by the International Olympic Committee, but are free to monetize their name and likeness). Indeed, legitimizing what has long been an underground economy for college-basketball recruits would result in other societal benefits, such as an influx of tax revenue from student-athletes’ newfound income. Unfortunately, federal prosecutors’ successful conviction of the defendants in Gatto will significantly increase the NCAA rules’ deterrent effect, thus easing pressure on the NCAA and its stakeholders to overhaul the current structure which has been so lucrative for those in positions of power—pressure that has been building due to (among other things) a number of high-profile scandals involving evasion of the amateurism rules by high-profile college programs (see, for example, here and here).

Unfortunately, Gatto is only the first of three cases scheduled for trial based upon this college-basketball bribery ring. As an anticorruption advocate who is optimistic about the unique value proposition of thoughtfully pursued sports-related anticorruption enforcement, I hope that the two remaining trials do not do any damage to the credibility of anticorruption efforts broadly—especially as the public seems to increasingly agree with the notion that college athletes should indeed be paid.

3 thoughts on “Technical Foul: When Anticorruption Enforcement In Sports Goes Too Far

  1. Ross, interesting take. I agree with your frustrations with amateurism, but disagree with many of the conclusions that your reach in this post.

    First, I disagree that the corruption scheme was such a “win-win-win-win” for student athletes as you articulated. In most cases, the bribes involve people in positions of power such as AAU coaches or shoe executives that take advantage of talented teenagers, often no older than 16 or 17 years old. While the bribes may put a few thousand dollars in the teens pockets, the money is nothing more than a short-term benefit which is greatly outweighed by the long-term harm that occurs from these payments, including manipulating a teenager into making his college decision based on the improper solicitations from coaches and shoe execs.

    Second, when conducting the cost of corruption analysis, I believe you fail to adequately address the deterrence implications. Of course the costs of the Gatto investigation and prosecution were greater than the total costs of bribes in that case. However, I think it is a safe to assume that the number of bribes occurring behind the scenes has decreased dramatically because of these prosecutions. College coaches may not be afraid of UCLA anymore, but they are certainly afraid of prison.

    Finally, it seems that most of your frustrations stem from a disagreement, as I perceive it, with the NCAA’s amateurism model. However, I see no better way to encourage the NCAA to change that system and allow athletes to profit off of their name, image and likeness than prosecutions such as this one. I believe (perhaps naively) that the NCAA will look at this case, coupled with their inability to govern bribes such as these, and recognize that it is time to change the system as we know it.

    • Jimmy, thanks for your comment.

      Regarding your first point, I think it’s important to note that the bribes were often facilitated by the players’ parents–so the power dynamic wasn’t necessarily as asymmetrical as you suggest. Indeed, players–and their parents–were often in the drivers seat in these negotiations, pitting different colleges against each other to secure the most favorable deal possible. Of course, I’m not arguing that parents leveraging their children’s basketball prowess to obtain black-market payments is an unambigously positive thing. However, given that the sums of money being obtained were signifcant (up to $100,000), I’m not sure you can say that it’s true that this was outweighed by the long-term costs of attending a different school (especially in cases like Dennis Smith, Jr–who knew he’d be attending school for only one year anyway before entering the NBA draft).

      I agree with–and indeed, in the article, concede to–your second point that the successful prosecution deters this kind of behavior. However, I disagree with your premise that this kind of deterrance is good, insofar as that it serves to reinforce the status-quo amateurism system. Charles Pierce, for Sports Illustrated, has written a couple of pieces on this topic that are worth a read:

      Your third point is interesting–and one I hadn’t really thought about. However, it may turn out to be irrelevant, depending on how Alston v. NCAA is decided in CA (a decision for which could be issued any day). Though that case has the potential to change the system as we know it today, I think it would almost certainly be appealed to the 9th Circuit (and then SCOTUS) regardless of the initial outcome.

  2. Pingback: Falta Técnica: Quando a Aplicação Anticorrupção no Esporte Vai Muito Longe - Mundo da TV

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