Busted Brackets

Speaker 2

Phil Magnus. Indeed, I'm not typically a religious follower of March Madness. I'm more of a fair weather friend. ⁓ times in the past, when a team that I care about jumps in and makes it to the tournament, yes, I'll follow that to the end. But the last time that happened was George Mason University's final four run when I was in grad.

Speaker 1

Yeah, I was gonna ask what team do you care about? How they do? Was it a whole team of economists?

Speaker 2

No, you know, remember GMU is a large state university and ⁓ we made a run all the way to the Final Four. It was really kind of seen as an upset. It was a team that had just barely made the tournament and then it just started winning. And then we started noticing that they were winning. And next thing you know, ⁓ the whole campus is erupted around it as, ⁓ you know, the thing to do, the thing to cheer on.

Speaker 1

that year. Yeah, there's something about winners that get people excited to watch them win. If your team sucks, it's a lot harder to bring new fans over to you for sure. So with the March Madness, obviously, you have a lot of people doing the brackets, taking bets. When it comes to brackets, can you talk a little bit about mutually exclusive decisions?

Speaker 2

Yeah, it's a mutually exclusive decision. It's kind of an economic concept. you choose to do one thing and it basically takes away your opportunity to do something else, that's a mutually exclusive decision. If I choose to consume food in my refrigerator right now, it means that I cannot save that same food for later use further down the line. And if you think about it in the terms of brackets, every time you are picking a team on your bracket, you are basically precluding certain options in the future, in the next round, in the round after that, in the round after that. Because I can't say, hey, ⁓ I want University of North Carolina in the first round and then It loses, say they lose that game. They do not advance to the second round. I can't then pick the different team to swap them out on my bracket in that second round because my decision's already been made and the ⁓ course determination of how the tournament plays out basically takes it off the table. So what you see is a succession of rounds. You everyone sets their brackets in that very first round and half of those teams are going to lose. Half the teams in that first round are going to lose. and maybe you were more prescient and you had a better ⁓ initial round of selections ⁓ than your friend and more of your teams move on to the next round so you still have a higher probability of getting someone all the way to the Final Four and then getting someone to the Championship Game. But if you're not very good at picking teams, you're not very good at weighing your brackets, well, ⁓ each successive round... eliminates and dwindles down the number of teams that you still have in the running. You know, your goal, if you're trying to gamble on this or you're trying to to seed, in some sort of a betting arrangement with your friends in your office and your colleagues, when you're picking your brackets, you're trying to play a statistical game of maximizing the number of teams that make it to that final four. that make it down to the last two in the championship game, and then ultimately that win. So there's a lot of guesswork in here. There's a lot of probability at play. But the probability works in such a way that once that team is out, once it's done, you can no longer resuscitate it further down the line. And if you pick wrong, ⁓ if you voted against the University of North Carolina in your initial bracket, but they win, you can't reinsert them into your bracket later on because you've already made that decision to exclude them.

Speaker 1

You know, I've never participated in a March Madness bracket, but I do have leftovers in my fridge. And now I'm wondering if anybody out there, any listeners, Happy Hour Econ wants to put some money up and make some brackets for the leftovers I have. I could use your help because there's a lot of interesting sense happening right there. I read this thing about ⁓ Warren Buffett offering one billion, I think with a B, to any employee who could pick the quote perfect bracket and of course he hasn't had to pay that yet so ⁓

Speaker 2

I mean, this is comparable to winning the lottery multiple times in a row because you're playing a statistical probability game. You have to be right every single time in every single team that goes into this and through multiple different rounds. Just the guesswork of that alone basically disrupts the ability for anyone to win it through anything other than either being really, really skillful and then quite a bit of chance. Because there's always upset games. ⁓ Some team will come out and they'll have a bad night, even though they were the clear favorite to win. Well, that breaks your bracket.

Speaker 1

Well now I wonder how many employees does Warren Buffett have and how many permutations are there for the brackets? Are we starting with 32? Is that what...

Speaker 2

Yeah, well, 32 games in the first round, it's a 64. So you have to pick, yeah, 32 times you have to be correct in that first round and then that halves and you have to be correct in the next round and then that halves and you have to be correct in the next round all the way down to the championship game. And, you know, it was just at one and nine point two quintillion.

Speaker 1

my goodness. ⁓ man, you know. OK, so I guess I will not be sending my resume to Wal-Mart because there's absolutely no chance I will win the perfect bracket and I probably won't get hired either because I don't have the skills to work at Wal-Mart. I'm getting word from our producer. It turns out Warren Buffett does not own Wal-Mart. But I think he should. And Warren, if you're listening right now, I think you should make an offer. to buy Walmart. That's some free financial advice from your friend, comedian Lou Perez. But we're talking about March Madness and there's obviously a lot of money at stake here. You how much does the NCAA bring in every March? I wonder, it's gotta be quite a figure.

Speaker 2

It's certainly an economic moneymaker, especially, you know, I think there are really two major events in college sports that are moneymakers, and that is the NCAA tournament and basketball, and then you have the football championship. Those are things that get national attention that is probably comparable to major league sports in baseball and hockey and basketball and football. So it's quite a bit of revenue sustaining that element of the NCAA. ⁓ Meanwhile, all these more obscure sports are kind of in the backwater of it, though, so they're money losers, except for in some very rare circumstances that would draw something out into the open and get it national attention. But it's really those two sports, it's college football and the men's basketball tournament.

Speaker 1

Yes, I think it's something like, if I'm reading this correctly, over a billion in revenue from March Madness alone. That's so, so wild. And I was wondering, okay, how much of that goes to the athletes themselves? Because there's a lot of people getting paid, people in TV, the coaches are getting paid.

Speaker 2

The coaches are often ⁓ some of the highest paid employees at universities. especially if they're major schools that are regular participants in the tournament or regular participants in championship and bowl games. These are often multimillion dollar employees. Yet at the same time, there's an old tradition in the NCAA, this is an old organization that goes back to like ⁓ the turn of the last century in college sports when they were first emerging, that athletes themselves for the, you know, kind of the honor and the spirit and the purity of the game. are not supposed to be paid. They're supposed to be student athletes. They're supposed to be in college first and foremost to learn knowledge and get a degree in college sports or any amateur ⁓ appendage to that. Now they can be paid in return in scholarships that waive their tuition. So that is an element of it, but it's often, you know, a scholarship if you're talking, what, 30 or $60,000 a year, depending on where you're going, you know, that's pennies on the dollar compared to what a star basketball or football player in the NCAA could make if they were to go professional.

Speaker 1

And think about that deal. If you are playing a sport, a contact sport, like football, where it's okay. You're going to be risking a lot of concussions and the chances of you actually going pro where you would be paid, you know, a good amount of money. Is, is pretty low. I, one of my younger brothers, played football in college years ago. And, ⁓ it was during a time where, you know, if you got hit a little hard, you got right back in there and it's, you know, that was a different mentality. of play, but it seems like things have changed a little bit.

Speaker 2

So they, this is basically in response to a lot of criticism, just to what you mentioned at the NCAA. These are often very risky sports and you're in your athletic prime in those college years and yet you're not getting paid for it. It's kind of like, wait a minute, well, who are you putting in all this work for, for this, maybe a slim chance of going pro and continuing that on for another 10 or 15 years. You know, that's a very narrow window to jump through. So in response to some of that criticism, NCAA adopted a role It's referred to the Names Image Lightness Ruler, NIL. this is basically an opportunity. What they say is that basically, College athletes, you can't get paid directly for the sport. You can't share in like this multi-billion dollar ad revenue that's coming in from the tournament or the bowl game. But what you can do is you can become an influencer. You can become, ⁓ you you own the rights to ⁓ your appearance, ⁓ your name, your personal brand, ⁓ characteristics around you. As long as you aren't using the actual game itself as your money-making mechanism, there are certain circumstances. where you can contract out and become a monetizer of your name or reputation or your celebrity, essentially. So instead of getting paid directly for what you're doing in the sport, you get paid for your reputational value outside of the sport, which is, ironically, it's dependent upon how you perform on the court or the football field, but it's not directly getting paid for what you were doing in the court or the football field.

Speaker 1

I looked up this thing, it's regarding revenue sharing. of course I Googled it. So no matter what comes up, must be the truth. The House v. NCAA Settlement allows participating institutions across the country to directly pay student athletes. Each year schools can distribute up to 22 % of the average revenue among schools in the ACC, Big 10, Big 12, Pac 12, and SEC for media rights, ticket sales, and sponsorships known as the revenue sharing cap. for the 2025-26 academic year is $20.5 million per school with a few potential exceptions. The cap will then increase 4 % the following two years and will be reevaluated every three years over the duration of the 10-year sediment period. So guess, yeah, we're talking about the NIL and then this new development. And now it's sort of like a lot of people are asking, ⁓ is college worth it? Well, it seems like if you're a photogenic, athletic... potential student, it might be pretty lucrative to do it.

Speaker 2

absolutely opportunities now, but even five or 10 years ago that you couldn't take advantage of. And this was always the claim about fairness. know, the athletes are putting in the work on the field or on the court. They're also the ones putting themselves at risk. But because of these old purity of the sports rules that also very conveniently worked in the favor of the institutions, the colleges themselves, college gets to keep the revenue and, you know, build giant stadiums and ⁓ market the brand of their logo, their team's logo and mascot. ⁓ there are all sorts of media rights that are tied up into that. So it's like the college is getting rich off of the backs of the student athletes that were previously ⁓ restricted from monetizing in almost any way. In other words, if you violated these rules, you could be banned from college sports. And then that means you have no real route to professional sports in certain areas. So it was basically saying, you know, young people, you have to put in your time and not get paid for it ⁓ at its market value because we have a rule in place that says it's impure to do so. Capitalism's icky was basically the claim there.

Speaker 1

Yeah, it's a tale as old as time. Anytime someone's making a profit, there must be something bad about it, right? I do wonder with the list of different schools and that sort of thing, the NIL is one thing. mean, you could be a student at a very small school and you could capture the hearts of America. But if you're a small school that's not making as much money as one of the Big Ten schools, it's like... how do you compete as far as bringing, you know, new student athletes in? If they say, well, I can make money over, you know, over at Tennessee, why am I going to go to this, you know, kind of otherwise no name school? Yeah.

Speaker 2

Sometimes they refer them as the mid-majors or the small schools, the ones that enter in those initial 64 teams in the tournament but are not expected to make it to the final ⁓ four or not expected to make it to the championship, let alone. ⁓ That's why you hear these schools historically. It's always the Cinderella story. ⁓ Oftentimes, one of the advantages that those types of teams could get is because it used to be that the most you could offer an athlete was basically a tuition waiver or a free ride. if they come play basketball or run track or play whatever the sport happens to be. Here's your scholarship. That's what we can offer you in return. Well, there was something of a leveling here, a leveling playing field here versus the big, large state university that has all the media rights versus the mid-major that isn't always going to guarantee its way into the championship game, but sometimes it could become that Cinderella story. allowed is those mid-major teams to kind of take advantage of their scholarship money to draw in athletes on the margin that otherwise might have been overshadowed at ⁓ a large school. Or maybe they have other considerations when they're deciding where to go and picking their college. ⁓ They go to a college because it has maybe better academics or better geography than they like, even though it's not always going to be the one that's guaranteed to win. or make it to the championship game. So you've got all these types of considerations. When you enter in to an area where there is some sort of payment mechanism, I think we're going into an uncertainty phase in the sports market right now. We don't know how this is going to play out, but at least temporarily, it seems to give an advantage to the big market, well-known teams that ⁓ have a major media following.

Speaker 1

Gone are the days when the only way for a student to make money playing the game was to do a little point shaving. Work a little bit with the local mafia or something like that. We lost a lot, But now we have, there are athletes like DJ Burns, who, a basketball player, he has over 216,000 Instagram followers. He has sponsorships from CVS. I mean, it really goes to show you just how many markets. social media has opened up for everybody. I the idea that all this kid has to do is kind of go on his phone and say, hey, here I am at CVS. And then boom, he's making bank.

Speaker 2

clicks and then suddenly he's an influencer. ⁓ So there is some creative destruction going on in the social media scene. know, conventionally in sports history, the way to creatively destroy is you created a competitor league. And there are multiple instances of this in the 20th century. Also some of the, we have in major league sports, of the divisions are relics or holdovers from when competitor leagues were created. And they were often done around the basis of trying to attract star athletes. So the one that I always point to is national hockey. The NHL in the 1960s was notorious for having contractual rules that were unfavorable to the athletes. And one of these, basically bound the athlete to the team that owned their contract. It had veto rights on whether that athlete could become a free agent and go somewhere else for better pay. They also had rules in place that restricted the age at which you could enter into the NHL. So famously in the early 1970s some competitors set up a different league called the World Hockey Association that didn't have those rules. And the idea was, well, you know, maybe we don't have all the stars in the NHL, but we can get the young kids by lowering the age ⁓ at which they can enter in and we can offer them better contracts so they can... go free agent and move between teams. And that brief period of competition, so the WHA folds in the late 1970s and a few of the teams are merged into the NHL, but during that brief period of competition, it forced a change in the way the NHL did its contracts. And one of the most famous figures to emerge from that, young hockey player by the name of Wayne Gretzky, comes up through the WHA. and moves over into the NHL and becomes, until very recently, the all-time goal scorer, Alexander Ovechkin, just recently passed him in the last year. But all because he took advantage of this creative destruction that was taking place that forced a market condition that improved the league.

Speaker 1

I know one of the issues, at least when it comes to the NBA, was a lot of young players forgoing college and jumping right into the league. So I guess now, with these changes, opens up college and says, you can be making money playing for this school before you eventually make it go to the NBA.

Speaker 2

It's kind of one of the oddities of the US sports systems or history as they evolved. In some sense, college was kind of like the original minor league for certain professional sports, especially the NFL and the NBA in particular. His college was seen as like the, it's where the young players go to. And you know, there's a long history of all-star players in the NBA, star football players coming in. out of college sports as well that end up going to be like the Super Bowl winners or national championship winning teams. So yeah, in that sense, it's a weird path trajectory. It has some historical evolution that emerged from the way that sports were disseminated in the early 20th century. through college and then the professionalization that follows, but it also imposes some institutional barriers and constraints because it's not like, ⁓ you just go try out for the minor league team, get paid immediately, and you work your way up to the majors. You actually have to go through this rigid rule system of the NCAA, and that's why that rule system has really come under fire.

Speaker 1

Yeah. And then you hear stories about talking about hockey, college hockey in particular, where you have like a 25 year old Canadian freshmen, you know, who's been, you know, has like a family and kids basically back home and then comes in place, uh, as an undergrad, know, I wonder what impact this will have on women's basketball because it seems like women's basketball players in college now have an opportunity to potentially make more money than they would in the WNBA.

Speaker 2

I mean, it's interesting. think this is one of the uncertainties, where again, we start to see the creative destruction play out. ⁓ introducing some element of competition at that level or some element to become an influencer, make money, you know, I think it's a wide open question. It's something I'd want to watch for. Now, for a variety of reasons, the women's basketball tournament is a smaller media market than the men's basketball tournament. That's just ⁓ kind of a reflection of where consumers are. But at the same time, it's... you know, influencers allow you to make your own personal brand. The NIL rules allow you to make your own personal brand, which is kind of a way to break out of some of the constraints of that market.

Speaker 1

I'll tell you what, Phil and I, I'm gonna speak for Phil and he's gonna say, don't you ever speak for me again. ⁓ We are very open for any NIL deals out there. If you have something that, if you want these two athletes of the mind to be the face of whatever you have, please reach out to us. We have Happy Hour Econ jerseys for sale. I will sign them, I will sign Phil's name.

Speaker 2

I'll just say, know, send me barbeque. Send both of us barbeque. I'd be happy to ⁓ advertise that for you.

Speaker 1

You bring up so many, know, so many of these things are, are so new, and it is going to be really interesting to see how what impact it has on on sport on, on advertising on all of this stuff, because, you know, sometimes you're going to get yourself into a position where you have athletes who might not be the best in the world, but they're so well liked that they end up getting a lot more a lot more light on them than than better athletes. And it's like, well, what impact does that have on the game? You've I've seen that in women's tennis and those sorts of things. So yeah, I wonder what impact that's going to have kind of celebrity versus athleticism.

Speaker 2

Yeah, it was the external barge, what are you doing off the field or off of the court? And sometimes that can also work in areas of notoriety. There are numerous stories from the history of sports of people that were as infamous off of the field and court as they were on the court because sports attracts some real characters. And ⁓ it's whether the guy that keeps getting in fights at the bar, ⁓ could create kind of an image problem on something that's supposed to see it as like the majesty of the sport. The guy's just kind of a jerk off of the court or off of the football field or off the baseball field and has a record or notoriety behind him. And yet sometimes that notoriety does sell in the media space.

Speaker 1

Yeah, and with the way technology is now, I mean, you have people who are, you know, streamers who are basically streaming their lives 24 seven. It's going to be interesting to see what this kind of technology, this kind of all present technology where figures are able to broadcast themselves out to the world has on, I mean, young kids who are playing.

Speaker 2

or not so robotless.

Speaker 1

Yeah, like, you know, if you're broadcasting, you know, yourself on, you know, stream and you're also a star athlete and all of that, you know, what is life going to be like 20 years from now looking, you know, looking back.

Speaker 2

Yeah. Exactly. When I was growing up, I had my favorite baseball players and my favorite hockey players and my favorite football players. You think of them as role models. There's no one I would rather grow up to be is just like the best pitcher or the best quarterbacks. You knew them mainly from their performance on the field. A few years later, when I got a little wiser to the world, I'd saying well some of these people are not all the grade as upstanding citizens and their personal lives off of the field. And it makes you start to reconsider your role models. Well, now if that's all broadcast 24-7 online, it enters into a different media landscape. I think the world is awash in influencers right now. Some of them are very entrepreneurial and doing great and interesting things, whether it's like making YouTube videos that ⁓ have weird stunts on on them or jokes and gags that go viral and then suddenly that person is making a lot of money in ad revenue based on the number of clicks that they've created or TikTok or ⁓ X. There's all sorts of different platforms where this is now viable. But it also could be a business model that you get a lot of clicks by attaining notoriety on one of those platforms. So the influencer space is also filled with, think what we refer to as slop or dreck or garbage. ⁓ People creating ⁓ bad AI cat videos, not because it has artistic merit, but because they know that bored people will sit there and click on them all day. And these things go viral and kind of flood the online space with You know, not very useful or interesting information, but it takes up a lot of bandwidth. seeing these memes going around and there's a picture of like a bad cat video and it's like, this is why Ram is $900. It's an interesting online economy that's emerging onto itself, separate and apart from how a traditional athlete would be paid or made a celebrity because they hit home runs. Now it's they're a celebrity because they're an influencer in addition to hitting home

Speaker 1

Well, they say never meet your heroes, but I'll tell you what I get to meet my hero every week here on happy hour econ You guys can guess who I'm talking about Phil. Thanks so much for joining me. You guys will see you next week for an all-new episode of happy hour econ