Musings on Sports Economics

The National Culinary Academy Association (a parable)

Excited by the current popularity of Reality-TV cooking shows, I’ve decided to start a culinary academy, and then I am going to form a culinary academy league, for competitive cook offs.  We’ll sell tickets and get the Food Channel to televise a match of the week.

But, to be blunt, I don’t want to pay my culinary academy students to be on TV.  For one thing, if I pay them, they might be considered employees in addition to being culinary students.  Then I have to also pay them Social Security and Medicare.  They might want healthcare.  If they are employees (as well as students), I have to buy workers comp insurance for them and my rates might go up because kitchen workers burn themselves a lot.  I’m probably also going to have to comply with Title IX because some of my students are getting Federal financial aid, so if I pay the super stars and they are all male chefs, I’m going to have to pay a lot of female Sous Chefs too.

So I don’t pay them.  I tell them, “this is part of your educational requirements, no pay.”

I think I’m okay.  I’m doing this on my own, so it’s not a violation of the antitrust laws.  And I’m a college (at least sort of) so I think I can give them academic credit for their work instead of pay and call them students.  To get the best folks, I offer tuition discounts covering as much as 90% of the cost of attending my academy.

But… I am afraid some of the other culinary academies in my competitive cooking league might want to get an edge and go to restaurants and find the best young kitchen workers out there and pay them to attend their schools instead of mine.  And compared to my “I’ll pay 90% of your costs” plan, if Greystone offers a free ride plus $5,000 for each Food Network broadcast, I’m afraid I’m going to lose my shot at the best talent.

So I summon all of the other culinary academies in the country to a summit in Indianapolis (or maybe we start in Kansas City and move to Indianapolis later).  We get together and I explain that if Greystone in Napa Valley or the ICE in New York City ups the ante, they are going to incur all sorts of costs, and I’ll just have to retaliate.  The smaller academies make a fuss about how pretty soon will be in an arms race, with well-financed school trying to outspend each other to field better cooking teams and they will end up with lesser talent or lose money keeping up.  And since none of us want that, we agree that culinary cooking competitions in the National Culinary Academy Association should be amateur only, with no more than 90% of the cost of attendance covered.  After all, paying the culinary students would damage the educational bonds b/w teacher and student.  And by not paying students, the smaller-city schools can break even, now that they don’t have to keep up with the big school (potential) spending.

Seems like a winner, right?

Except someone in Congress notices and has a hearing.  And some private plaintiffs representing the competitors sue saying that the agreement is pure price fixing, aimed at nothing more than reducing the Culinary Cartel’s costs.  Congress and the Courts ask why they should let all of these independent businesses get together and fix the price paid for competitive cooking talent.

I hire lawyers and Lobbyists and we say:

1) We use the money for good causes.  We fund the financial aid of other less popular cooking students/programs.

2) If we paid our cooking students, they’d be just like the professionals who also have shows on Food Network.  Our product is Amateur Competitive Cooking.  I assert that no one will watch if the student-chefs are paid. 

3) If our students don’t like it, there are a few professional openings on Food Network each year they can try out for, or they can cook in Europe, or just work as a busboy for pay.

4) Plus if we paid them, they’d be employees and we’d have to pay their payroll taxes and workers comp insurance.  That’s expensive!  How can we ask culinary academies to take on that burden?

5) We’re barely making any money as it is.  After we take the profits from our cooking competitions and broadcasts and funnel that into expensive display kitchens and each school’s Cooking Hall of Fame, and after we pay our Chef- Coaches their market rate of a million-plus, and also support all of our other cooking endeavors, only a few culinary academies show a profit on their Cooking-Competition accounting statements.

6) Without this agreement on wages, the New York and California academies will always dominate the competition.  As it is now, they get the best chefs anyway because of their location and their prestige and their beautiful facilities and their tradition of winning, but if we let them pay, man, they’d really dominate.

Should Congress and the Courts buy it?  Are those excuses or reasons?  Will the public really stop watching?  Is there currently competitive balance in the National Culinary Academy Association?  Are the ways the schools spend the profits a valid defense against the claims of antitrust violations used to generate those profits?  if it boils down to pure cost savings (which is of course what started me down this path, I just wanted a sanity code to stop a spending arms race) is that a valid antitrust defense?

I think that no antitrust court would buy the defenses that my National Culinary Academy Association puts forth.  They’d see it as a wage cartel, and of course wage cartels save the employers money, but at the expense of the suppliers of labor and in violation of the antitrust laws. And I think Congress would step back and ask who elected me and my NCAA cronies to regulate the market… either it should be a free market or if the market needs regulating, then elected members of Congress should be passing real laws (never mind that I call my rules legislation… they are still just private rules).

I think all of those costs — the pay itself, the cost of making someone an employee (payroll taxes, benefits, etc.), the potential to have to shell out additional money to non-stars because of Title IX, the cost of possibly having to deal with agents, and of course the potential for competition to get talent that raises the price of that talent — those are the costs of putting on the exhibition of cooking prowess.  Just saying “I don’t like paying all that, so I am going to collude” shouldn’t get me out of it.  Those additional costs would tend to keep down salaries, because shelling out a dollar on a scholarship will bring with it other costs (x cents in payroll taxes, y cents of workers comp insurance, z cents of Title IX matching) but again, how can it be a valid antitrust defense to say that because there are costs associate with competition, we’d like permission not to compete.

What do you think?  Should we let my food version of the NCAA fix prices at 90% of tuition and expenses?  Do I have valid antitrust defenses for my collective agreements?

(long-time readers will recognize this is a report, but I hope you’ll excuse me for self-bumping it)

Posted by
Andy Schwarz

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