Because It’s Worth It: Why Schools Violate NCAA Rules and the Impact of Getting Caught in Division I Basketball

Abstract

The value of star college basketball players to their schools is examined using information known during the recruiting process (i.e., ex ante marginal revenue product). Under various regression models, five-star basketball players (those in the top few percent of college basketball players) are worth more than one million dollars per year to their schools, on average. Given the much smaller size of athletic scholarships (which are capped by NCAA rules), it is thus not surprising that many star athletes have been alleged in federal court proceedings in the Southern District of New York to have been paid under-the-table to attend certain schools. However, even in the rare instance when those athletes and schools are caught by the NCAA and punished, the effect of the subsequent probation on their financial outcomes is statistically no different than comparable schools, thus providing no incentive to stop the underground payments. A discussion follows of the application of these findings to the recent FBI investigation (and resulting lawsuit involving James Gatto and others) of payments to star basketball players’ families.