Wednesday, November 28, 2007

Soda Jerks: Cradle to Grave

The Nanny Police strike again. Last September seven senior citizens, average age 76, picketed their senior center for cutting off their doughnuts, pies and breads in Putnam County, New York. County officials believed that the goodies, donated free, were unhealthy for our senior citizens. If you live to 80 with poor eating habits, God Bless You. You should be rewarded with whatever let you live so long.

But not for the government nannies! Let’s do to gramps and granny what we have been doing to their grandchildren in recent years.

Growing concerns about childhood obesity has led to drastic deprivations in school diets. 30% of schools ban junk food from their school vending machines. Bake sales are shrinking. Even celebrating birthdays with cupcakes is verboten in many schools. Too much fat, too little joy and happiness!

A backlash is beginning. Cupcakes have seemingly replaced apple pie as the American icon. Indeed, the Texas Legislature has responded with the Safe Cupcake Amendment of 2005. Don’t Mess With Texas or cupcakes

It’s bad enough that sodas are being barred from school children on the grounds that sodas are making them obese. Instead, new healthy, and often uneatable, meals are prepared for the students. As it turns out, a lot of the traditional healthy food ends up in the cafeteria’s waste bins. Anything green is inedible to youngsters.

We are also in the process of removing trans fats from food products. The ban is gaining steam. New York City and Philadelphia have banned the use of trans fats in restaurants. The California Legislature is in the process of enacting bans against trans fats and deep fryers in school cafeterias. Food processors and falling over each other to remove trans fats from their products.

Many consumers aren’t exactly sure what trans fats are, but the phrase sounds bad. Trans fats are essentially the addition of hydrogen oil in the cooking process. They serve three purposes: improve flavor, improve texture, and increase shelf life. They also add highly unhealthy levels of bad cholesterol to the diet.

To some extent the rush to ban trans fats is faddish. Saturated fats are almost as unhealthy, and are present in 10-15% of our diet compared to 1-2% for the reviled trans fats. The next move will be to go after the saturated fats, followed by an intensified drive against red meats.

Once the War Against Soda is won, then we should progress to other killer foods, such as ice cream (Say goodbye to Haagen-Dazs and Ben and Jerry), lunch meats, hot dogs, sausage, bratwurst, pork rinds, and double cheese burgers. Bagels are ok; bagels with cream cheese may not be. Forget those Starbucks’ lattes.


All we may be left with are diet foods, salads (sans fattening dressings), fruits, vegetables and yogurt in the end. Did anyone say government mandated vegans? Even vegetables would have to be organic – no chemicals of any kind. A few fish would be allowed, but none with mercury, thereby excluding tuna, swordfish, and shark.

Diet foods are not the answer. For example, studies have shown that diet sodas do not reduce weight in most persons for two reasons. First, they apparently stimulate the body’s need for additional liquids. Roughly 55% of a woman’s body weight, and 60% of a man’s, is liquids.

Second, some consumers believe that if they drink a diet soda, then they can cheat on the rest of the meal. Indeed, diet foods often result in eating more of something, so the result is the same as eating lesser amounts of fatty foods.

The place to start with dietary adjustments should be in the home – not the schools or senior centers.

The biggest problem for many teenagers is the freshman year of college. We know that for college students the four basic food groups are beer, pizza, fast food, and microwave popcorn.

Today’s growing obesity problem has many causes, including diet and a sedentary life style.

The problem is actually to a large extent a lack of exercise, much of which is the fault of school boards and legislatures, and some the parents. When I was growing up in San Francisco, we were required to take PE through the 12th grade. Now in California it is only into the 10th grade.

We engaged in a highly unusual activity then of actually walking to school, often over a mile. Now most kids are seemingly bussed or get rides from parents. Pizza was a novelty, MacDonald was just starting up, and prepared foods, such as “lunchables” were virtually non-existent. Microwaves did not exist, thereby depriving us of the joys of eating fatty, artificially buttered with the toxin diacetyl, microwave popcorn. Comedians made fun of the new food group four decades ago, known as frozen dinners.

A recent Los Angeles County public health study showed that children in low income communities have obesity rates up to nine times higher than children in affluent areas with ample recreational space. Exercise matters!

Sugared sodas receive the blame for the growing obesity problem. It’s always easier to place the blame on someone else instead of looking in the mirror.

The mounting cascade of pressure resulted in the soda industry adopting voluntary guidelines in May 2006 that would eliminate the sales of sugared sodas to schools by the 2009-2010 school year. This agreement was apparently not good enough. An amendment to the pending, and otherwise bloated, farm bill would impose limits on the calories, fats, and sugar allowed in snack foods sold in schools. It imposes nutritional standards for beverages and sports drinks in vending machines, school stores and other school venues. Only bottled water, milk, juice, or other drinks containing 25 calories or less per 8 ounces would be allowed. Sports drink sales would be limited to athletic areas in high schools.

The Los Angeles City Council, concerned about growing obesity in South Los Angeles, is considering a moratorium on new fast food restaurants in South LA for one or two years. On its face, a rational basis exists for the proposal. Countywide obesity rates rose from 14% in 1997 to 21% in 2005 with 30% in South LA. 45% of the 900 restaurants in the area are either fast food or have limited seating capacity.

On the other hand, the proposal defies economic reality. Fast food provides both the taste and low pricing attractive to the residents. The idea of placing upper scale, sit down restaurants in these areas is not economically viable at the present time. In addition, many of fast food restaurants offer healthy alternatives on their menus. They are just not as popular as the traditional greasy burgers, salty fries, cheesy pizzas and tacos, footlong grinders, and high cholesterol shakes.

All these bans also defy evolutionary biology. Humans are omnivores. Our ancestors were meat, fish, berries, nuts, vegetables and grain eaters - whatever was available, with an emphasis on meat. Our ancestors ate more red meats than we do today.

Those who daily eat junk food and then gain 100 pounds, should not be suing fast food restaurants, but look into the mirror to spot the responsible party. I’m waiting for the lawsuits against Coke and Pepsi for making victims fat.
Marie Antoinette supposedly said “Let them eat cake.” We say “Let them eat cupcakes

Tuesday, November 6, 2007

Warren Buffett is Undertaxed

Warren Buffett is undertaxed. We know this because he told us so at a million dollar Hillary Clinton fund raiser on June 26, 2007. He stated he paid only 17.7% in taxes on income of $46 million, a lower tax rate than any of his staff.

He revealed his secretary, earning $60,000, paid a 30% tax rate, and the average tax rate for his staff was 32.9%.

Several observations are immediately apparent. First, his secretary is grossly underpaid. The secretary, or executive secretary, or administrative assistant, to a multi-billionaire is certainly worth much more than $60,000.

Second, he never tells us the source of his taxable income, but it apparently is not from wages and salaries. Therefore, his income is derived from capital gains, dividends, and interest on prior investments. Dividends and capital gains are taxed at a 15% rate to encourage capital investment - the key to economic growth in America.

He should also release his tax returns for the edification of the American public.

We can safely assume that much of the tax burden on his employees is from the highly regressive social security (FICA) and Medicare taxes (FICA-HI) since the marginal tax rates of his obviously undercompensated employees are only 10% or 15%. The proper corrective action would be to lower his staff’s taxes or pay them more, but he never advocates for lower taxes for the rest of us. Unfortunately, the future prospect is that these taxes will increase as the base level for social security taxes automatically rises yearly. His Democratic friends are always happy to raise these regressive taxes, as well as the equally regressive sales, tobacco and alcohol taxes. Such compassion for the underprivileged!

Warren Buffet also opposes any lowering of inheritance taxes. The rank hypocrisy of this multi-billionaire is monumental. His estate planning will result in minimal, if any, inheritance taxes from one who professes to be undertaxed. He has almost eliminated any prospect of his estate paying inheritance taxes by donating $30 billion to the William and Melinda Gates Foundation. He has also made it clear that his children should expect nothing from him when he dies. What a loving father!

He earlier complained that the property taxes on his Laguna Beach house were also too low because of California’s Proposition 13. Maybe he should move to California and enjoy our 10.3% marginal tax rate on millionaires, including dividends and capital gains. He should immigrate to California to offset the flow out of California expatriates upset by California’s already high taxes and poor business environment.

If Warren Buffet sincerely bellies he is undertaxed, a simple solution exists. Talk is cheap. He can always put his money where his mouth is by voluntarily writing out a larger check to the IRS, thereby paying more. The solution to his being undertaxed is not to raise the taxes on the rest of us.

Wednesday, October 24, 2007

BRAINS VERSUS BRAWN II: CRIMINAL ATHLETES

A somewhat related issue arises today. All too many of today’s “student athletes” seem to be “criminal athletes.”

One possibility is that they are behaving no differently than in the past, but their misdeeds, as with those of Hollywood celebrities, will no longer be ignored by reporters. A change in societal mores, coupled with the rise of talk radio, the internet, and blogs means few crimes of celebrities and sports figures will go unreported. The spotlight especially shines on wining programs.

A classic case from two decades ago involves Nebraska and its sensational running back, Lawrence Phillips. In an act now commonly referred to as ‘domestic abuse,” he dragged his girlfriend by her hair down a stairwell. He was suspended for a few games, but then started the Fiesta Bowl, rushing for 165 yards and scoring two rushing and one receiving touchdown. Both Ohio State’s Maurice Clarett and Phillips have enjoyed America’s prison system after their college careers ended.

Florida and Texas have witnessed an abnormally high number of football players arrested since they won their national championships in the past two years. For example, 6 Longhorn players were arrested between June and September 2007. Miami and Oklahoma acquired reputations in the 1980’s and 1990’s of running "out of control" programs. Notre Dame used to play the University of Miami annually. The 1988 game received the sobriquet “Catholics versus Convicts.” Notre Dame soon stopped scheduling Miami because of the behavior of Miami players. Colorado is recovering from player and recruiting scandals with its football team. A jury in September 2003 awarded $1 million in damages to a woman who accused three Notre Dame players and a former player of rape. Even highly respected programs, such as Penn State, have seen players arrested for alleged criminal behavior.

Whatever drives some of these players to success in a violent game may also move some of them to violent, anti social behavior in non-academic, non-athletic activities. Steroids also play a role in promoting player violence both on and off the field. Even today, all too many players start bulking up in high school.

Let us not forget my first alma mater, the University of San Francisco, which in 1982 suspended its then prominent basketball program for problems with tutors and a sexual assault by a player. The USF basketball program has not yet recovered.

Fans all too often also engage in boorish and loutish behavior. The retiring President of Ohio State recently stated in an interview that a culture of rioting existed at Ohio State when she became President in 2002: “When you win a game, you riot. When you lose a game, you riot. When spring comes, you riot. African-American Heritage Festival Weekend, you riot.”

Clearly, most Ohio State students do not participate in these riots. Nor is the problem limited to Ohio State. Michigan had problems a decade earlier when its basketball program was riding high. Kentucky’s students rioted after the upset over LSU two weeks ago. Maryland’s NCAA Basketball Championship was celebrated with similar destructiveness. University of Massachusetts students rioted after Red Sox victories in 2004 and after UMass beat Appalachian State a few years back for the National Football Championship. These are but a few examples of unruly common student behavior. Riots and demonstrations are not limited to sporting events. Anti-war, anti-military, anti-CIA, anti ROTC, anti draft protests, Civil Rights, diversity enrollment and the environment have drawn their fair share of demonstrations and riots at campuses over the decades.

A second explanation is that character is often not a factor in recruiting. Coaches whose careers depend on winning will recruit raw ability rather than character. In addition, many overlook transgressions in an effort to keep players happy. Professors have tenure. Coaches do not. Since many star athletes have been treated as royalty long before they entered college, their sense of entitlement is ever greater. Somewhere along the way, they lost their moral compass.

Let us look though at two great coaches from the past. Mike Warren was a star basketball guard at UCLA and has since achieved success in Hollywood. He left Indiana to play for Coach John Wooden. He said this about Coach Wooden in a recent LA Times article:

“I arrive and I am 18 years old, a grown man now, of course. And there are parties and something going on day and night in the UCLA campus. I’m there, enjoying it all.

Then I get a call to see Coach Wooden. I’m fine. Excited. Figure we would talk about basketball. Then I get into his office and he’s looking at me. Those beady eyes. He asks me if I know why I am here and I tell him yes, to play basketball. And he says no, I’m here to get an education and if I don’t shape up, I’m going to get neither basketball nor an education. He says my parents would certainly not appreciate the way I am conducting myself.

The next quarter I was on the Dean’s List.”

We also know today that, although he wanted no publicity at the time, Ohio State’s great, and sometimes surly and combative coach, Woody Hayes was deeply interested in his players receiving an education. So concerned was Woody that he personally tutored History and English to many of his players.

Where are these coaches today?

A third explanation is that sometimes players are victims of false accusations. The Duke Lacrosse players are a prime example of this phenomenon. The allegations initially had a degree of credibility because of past incidents with the players, but many in society, including Duke Faculty, were quick to jump on the bandwagon against the team and players.

Faculty, whose primary concern is the educational quality of the institution, are often upset by the independence of athletic programs, low admissions standards for the athletes, and their misdeeds. However, they also need to recognize the realities of academic life. If the students and alumni of many universities were polled as to which they would prefer for the school:

I) A faculty member winning a Nobel Prize;
II) A football player winning the Heisman; or
III) A national championship in basketball or football?

The Nobel Prize would probably come in a distant third. Even the Ivy League universities realize that their alumni want successful athletic programs. For example, Harvard must beat Yale on the fields of play and similarly Yale must beat Harvard.

T. Boone Pickens, a Oklahoma State alum, donated $165 million to his alma mater for athletic facilities. Phil Knight, a Oregon grad and founder of Nike, has been incredibly supportive of the Oregon athletic program, with over $100 million recently. Indeed, at one point Oregon students wanted to remove Nike clothes from the university because of overseas child labor issues. Phil simple threatened to remove his support from the University. He won; the students lost. His name is on several campus buildings, including the main library.

Schools, like Duke, Northwestern, Notre Dame, and Stanford with high admissions standards and supervision of their student athletes in big time sports programs should not incur the high number of incidents experienced by schools and coaches which recruit and then tolerate loose behavior by players. No school is immune, but some seem to have higher rates than others.

Sunday, October 21, 2007

BRAINS VERSUS BRAWN:USC VERSUS STANFORD AND THE SCHOLAR ATHLETE

A mediocre 1-4 Stanford football team, a 41 point underdog, on October 6, 2007 upset the Number 2 ranked University of Southern California Trojans – the latest in a season of upsets initiated with Appalachian State’s stunning 34-32 victory over Michigan.

My interest was piqued by a Los Angeles Times column on Tuesday, October 9, 2007 by the sportswriter Kurt Streeter. His focus was on the high intelligence of the Stanford players. Stanford is one of the few universities, which apparently does not cut an admissions break for athletes. Indeed, the athletic department cannot offer a student until after the athlete receives an acceptance from the admissions office.

The three measures of an institution’s commitment to its student athletes is to look at the admissions standards for athletes, the course work measured by majors, and the graduation rate for the athletes.

The USC quarterback threw four interceptions. The Stanford players intercepting the passes were two high school National Honor Society members, a high school valedictorian, and an academic all-state nominee in high school. All the members of the offensive line were on a high school honor roll. The reality is that very few high quality high school football players will be academically eligible to play for Stanford. 15 of the current players are engineering majors.

We often use the hackneyed phrase “student athletes,” but at Stanford they are “scholar athletes.”

USC has become a great academic institution in recent years with highly selective admissions standards. U.S. News & World Reports ranks it as the 27th best university in America compared to Stanford’s number 4 rating. USC has long since lost the nickname as “The University of Second Choice.” Yet USC does not adhere to its high admissions standards when it comes to football players. It recognizes that football is an integral part of USC’s heritage, just as basketball is to cross town rival UCLA.

We can do a comparison though of Stanford’s players to those of USC and Michigan, a prestigious public university with high admissions standards. A look at the media guides for the football teams at USC and Michigan highlights the high academic standards of Stanford.

USC’s media guide does not include the majors of the incoming freshmen players as well as an additional 23 of the returning students. Of the remaining students, 23 are majoring in Sociology, 6 in Pubic Policy, Management and Planning, 2 each in History and Business Administration, and one each in American Studies, Economics, International Relations, and Political Science.

Both Stanford and Michigan have two of the nation’s most prestigious business and engineering schools. As might be expected, many of Michigan’s football graduates have become doctors, lawyers, engineers, and prominent businessmen. Not necessarily though from the current team. Of the 77 player bios in this year’s media guide, 54 are in the School of Literature, Science and the Arts (LSA). 31 of these are majoring in General Studies and 14 are undeclared, which leaves nine LSA majors in American Studies, Economics, English, History, Psychology, and Sociology. Nineteen are in the School of Kinesiology, but 15 of these are undeclared. Only two team members are in the Ross School of Business and only one is engineering major. One player has no major listed.

Even with majors like these, some institutions resort to suspect efforts to maintain academic eligiblity. Thus, Minnesota (basketball), Auburn (grade changes in the Sociology Department), and Florida State (the extent of which is still unknown) have had academic scandals. The professors in charge of these academic support programs, and the tutors and TA’s administering them, realize that their major purpose is to keep players academically eligible. These schools are probably not the only ones engaging in inappropriate activities, but they were caught. Several football players at USC were recently discovered to be taking suspect off-campus courses.

A related statistic is the graduation rates of athletic programs. The NCAA reports these critical rates. They provide a guide to an institution’s attitude to “student scholars.” The overall rate for 2006 was 55% - hardly an impressive figure. Notre Dame achieved a 95% graduation rate and Stanford a comparable 94% compared to 71% for Michigan and 55% for USC. Of the last two NCAA football champions, Florida had a highly respectable 80%, double Texas’ 40%. Stanford’s players, of course, realize most of them will not be playing on Sundays so they concentrate on their academic studies.

Most schools profess to want athletes to graduate, but the reality is that at most major football and basketball programs a high graduation, but low win rate will result in the coach being fired. Even Stanford fired Harbaugh's predecessor for failures on the field.

Let us also note in fairness that cheating is not unique to athletic programs. Students learn to cheat in high school and many continue in college with cheating and plagiarism scandals in regular academic programs, including those of the military academies. Even in law schools, honor committees often have to deal with blatant cases of plagiarism. When it occurs though in prominent athletic programs, it becomes national news.

An even more unfortunate, and perhaps all too common, example comes from Ohio State. A great frosh phenom running back, Maurice Clarett, led Ohio State to a national championship while attending few classes. He had enrolled in a number of independent research courses, never returned to school, and subsequently matriculated in the Ohio Penal System.

Stanford’s coach, Jim Harbaugh, was an All-American quarterback at Michigan so Wolverine fans should be elated with the Stanford victory which has caused some to forget the Appalachian State loss. Harbaugh though in a newspaper interview last May said this about his alma mater:

“Michigan is a good school and I got a good education there, but the athletic department has ways to get borderline guys in and, when they’re in, they steer them to courses in sports communications. They’re adulated when they’re playing, but when they get out, the people who adulated them won’t hire them.”

Don’t expect Harbaugh to be the next coach at Michigan.

A third school of high reputation and a storied football past is Notre Dame, second only to Michigan in both the number of football victories and winning percentage. Notre Dame has fallen on hard times recently. A major reason is that, like Stanford, the admissions office has imposed high standards on the football recruits. Notre Dame’s great alumnus, Paul Hornung, publicly suggested that the school relax its admissions standards. For example, only 2 Proposition 48 students have ever played for Notre Dame.

We know that a few years ago a Michigan wide receiver (I could mention names, but I won’t) became an All-American. He dreamed of playing for The Fighting Irish, but they wouldn’t admit him. More recently Michigan State had an All American running back (again, no names mentioned). He grew up in the state of Michigan yearning to play for the Maize and Blue. Instead, he became a Spartan because Michigan wouldn’t admit him.

The lesson though is that brawn won't always win out on the athletic field.

Our next blog will look at the all too-often unfortunate extra-curricular activities of some players.

Tuesday, October 9, 2007

It's OK for Politicians to Lie in the Evergreen State

The Washington Supreme Court held last week that candidates for office can lie. Washington is one the states that provides remedies when candidates maliciously lie about their opponents in an election. The Court held that the statute violates the First Amendment.

Candidates lie! What a revelation!

The word “lie” is very short and powerful. It means to intentionally deceive, to utter a falsehood with the intent to deceive. To dissemble, to fib, to misrepresent, to misstae, to fabricate, to utter a falsehood and to perjure oneself simply do not convey the same strong message as “to lie.” Admittedly the word has been cheapened in political discourse in recent years. Seemingly every time we disagree with an opposing politician, or facts don’t develop the way we expected, someone lied. “Bush lied, Thousands died.” So much for the classic Nixon line: “Prior statement inoperative.”

Modern political vocabulary harkens back to George Orwell and Newspeak. Expenditures become investments and taxes are now revenue enhancements. Tax cuts are labeled subsidies by opponents. Double talk and hypocrisy are common currency.

Yet, candidates, politicians, political parties, and press agents lie in the traditional sense. They lie on their resumes, military background, participation in war protests, financial transactions, campaign contributions, education, athletic success, criminal past, addiction, drugs, alcoholism, ethnicity, fidelity, sex, religion, families, ethnicity and religion.

They lie to constituents, voters, the media, staff, campaign workers, fellow politicians, lovers, and their families. They may even lie to themselves. Representatives and Senators do one thing in Washington and say the opposite back home. Presidents stare the camera in the eye and lie to the viewers. Is it no wonder that the American public holds Congress in even less esteem than the President?

Some politicians master the art of talking out of both sides of their mouth. Indeed, some are so smooth that even though you know they’re lying, you award style points.

If caught, some politicians resort to “The Big Lie,’ pioneered by Goebbels and the Nazis. If the lie and the denial are outrageous enough, people just might believe them. The boldface lie may succeed.

Even non-lies may sound like lies. President’ Nixon’s “I am not a crook” was literally true. He was not a crook, but he was many other things.

Lying is non-partisan and non-sectarian and now non-actionable. Some lying is congenital, some opportunistic, and some out of desperation, but a lie is a lie.

Some lies may be minor, but others are devastating to the nation. LBJ accused Senator Barry Goldwater in the 1964 campaign of being a war monger interested in nuking Vietnam. (Goldwater was an unabashed hawk who did not understand the value of nuance in a Presidential election.) Only later did we learn that all along President Johnson was planning a substantial escalation in Vietnam, waiting only until after his reelection to implement the decision. Indeed, the Congressional vote to support South Vietnam, The Gulf of Tonkin resolution, was based on a false story about North Vietnamese attacks on American naval vessels in international waters.

Fake documents and redigitized photos lie.

I’ve seen lies in school board and city council elections all the way up through Presidential elections. A few judicial candidates may even lie.

On the other hand, sometimes candidates cannot lie. Twice in the 1988 Republican Primary in New Hampshire, Senator Dole tried to tape “The Pledge.” He just couldn’t do it. The Pledge is the New Hampshire promise not to raise taxes.

Instead, Vice President George H.W. Bush received the nomination, and in his acceptance speech at the Republican National Convention vowed “No new taxes.” That was a winning sound bite over Governor Michael Dukakis of Taxachusetts. Yet, once again we learnt three years later from an article in the Wall Street Journal that President Bush never intended to abide by it.

Sometimes lies catch up to politicians. President Bush’s reversal of “No New Taxes,” which was viewed by many conservatives as a covenant, led to H. Ross Perot receiving sufficient votes in the 1992 election to swing the election to Governor Bill Clinton.

Office holders lie in office.

Incumbents lie in running for reelection.

So why shouldn’t candidates lie in seeking office?

Monday, October 8, 2007

Wisconsin, Beer and Price Fixing

Wisconsin and beer - Miller, Schlitz, and Pabst. You can even get blitzed by Blatz. Madison and the University of Wisconsin work together as one of the nation’s great universities, college towns, and party schools. To be truthful, Wisconsin should not be ranked with such institutions as Arizona State, Chico State, Colorado, Colorado State, Florida, LSU, Maryland, Ole Miss, Penn State, Texas, UCSB, and ZooMass. Wisconsin is professional; all others are but mere amateurs in comparison. Beer is one of the four basic food groups and a rite of passage in Madison.

Justifiably concerned about rising alcohol driven crimes, binge drinking, and a poor image, both the University and Madison decided to act. Authorities threatened to take action against bars, but did not formally do so. However, about half the bars near the campus announced in September 2002 that they would voluntarily abandon drink specials, 2 for 1 beers and discounted liquor, on Friday and Saturday night after 8:00pm.

Assuming that these steps did not substantially reduce the amount of drinking, then the effect on the students is to raise the cost of drinking, and, not so coincidentally, the profits of the bar owners. A study sponsored by the University showed that serious alcohol-related crime continued to rise despite these actions.

The student response was to file a suit alleging price-fixing by the bars. I do not profess to predict how the Wisconsin Supreme Court will decide the antitrust issue under Wisconsin law. Both the trial court and the Wisconsin Court of Appeals upheld the agreement as a valid pursuit of social good. The Wisconsin Supreme Court heard oral arguments last week on the appeal.

Under federal antitrust law, price fixing is unlawful per se. Arguments of pursuing the public or social good will not justify price fixing. Unlawful price-fixing extends not only to an actual price, but also to the terms and conditions of sales. Thus, an agreement to limit sales or advertising discounts constitutes price-fixing. Similarly, the elimination of Happy Hours and discounted drinks is a form of price fixing.

Let us start with a premise. Business is not altruistic. Charity and good will are commendable, but business survives by making money. Even professional bodies, such as architects, engineers and lawyers, have attempted to mask price fixing by asserting a greater public good.

The NCAA has twice run afoul of the antitrust laws and price fixing, first in attempting to limit the TV appearances of college football teams ( originally referred to as the Notre Dame Rule), and secondly to limit the compensation of some assistant coaches. Both were justified as promoting competition, but neither was relevant to rules affecting play on the field.

The key is simple, once everything is said and done, are consumers paying more for the same product? Understandably, no single bar would want to unilaterally raise prices with literally scores of competing bars in a small area. Only an agreement between competitors explains them raising prices simultaneously.

The legal problem is that the bar owners did not act pursuant to a statute, ordinance, or regulatory edict. In other words, they cannot plead that state action compelled their actions. That is a wonderful defense under federal antitrust law.

If the government wishes to restrict drinking, then it can ban drinking, restrict it, limit the sales, or outlaw practices. For example, Massachusetts banned Happy Hours when I lived in the state. Certainly the Wisconsin Legislature is not going to ban the sale of alcohol. We tried that to miserable effect; it was called Prohibition. Nor would the State wish to forfeit the excise taxes from alcohol sales. Realistically, the Wisconsin legislators would find a very unfriendly reception in the Madison bars (the same bars convenient to the Wisconsin students) near the legislature if they enacted restrictions. The Madison City Council also failed to enact an ordinance that would restrict Happy Hours and the equivalent. Similarly, the state regulatory agency could impose restrictions, but didn’t.

The barkeepers were foolish enough to do it unilaterally, but collectively. The true beneficiaries are the lawyers.

On Wisconsin!

Wednesday, October 3, 2007

Spring Cleaning in Ann Arbor

Spring housecleaning should come early this year in Ann Arbor. Michigan has real problems in the Athletic Department. That the football team has shown inconsistency is upsetting enough, but is inevitable with any program. Losing to Appalachian State though is unacceptable for Michigan. When it rains, it pours, and it is pouring on Michigan’s Athletic Department.

The Athletic Department allowed an ineligible freshman to play; that is unconscionable and unacceptable at any level, much less at the statute of Michigan. After the Ed Martin scandals involving the basketball team, Michigan, of all schools, should be extra zealous in maintaining integrity in the athletic department. “The punctilio of honor the most severe” is the standard for Michigan.

Minor violations of eligibility rules do not exist. Either a player is eligible or not. We all know that the penalty for playing an ineligible player is forfeiture of all games the athlete played in, even if it was just one “minor” play. Many of us have seen great teams forfeit seasons because of “minor” eligibility violations.

The forfeiture rule is draconian. It penalizes the player, the innocent player, the team – all the teammates- the alumni, the fans, and the institution because of the incompetence of the Athletic Department which is hurting many innocent players. Eligibility goes to the essence of the game. Only eligible players can play. Period!

A double fault lies with the Athletic Director. First, any department should have a compliance officer whose job is to ensure that all the rules, no matter how arcane or obtuse, are followed. Even if the NCAA and Big Ten Compliance Manuals are as unintelligible as the IRS Code, no excuse exists for playing an ineligible player. Whatever the eligibility rules, freshman eligibility, transfer eligibility, academic eligibility, these rules are more than mere technicalities. They go to the essence of fair competition.

Second, as a matter of integrity and reputation, Michigan should, and oh how this is painful, announce that it is voluntarily forfeiting the Penn State win because of an ineligible player. Now the case will drag on, resulting in tremendous pressure on the Big Ten to do something, but with Michigan’s name being trammeled in the process. The next few weeks will be an embarrassment for Michigan, and bring back memories of Ed Martin. The question is not what the Big Ten will do, but what Michigan should do.

When too many bad things happen, when there is an accumulation of bad tidings, when evil karma strikes, feng shui is unbalanced, bad vibes appear, a negative aura materializes, just a series of poor luck, then sometimes we simply need to throw out the old and start anew. An anomaly exists in the Wolverine force field. Blame it on global warming, or whatever. But end it.

The problem rests with the Athletic Department – not the Coach. The current AD was hired to restore economic success to the Michigan Athletic Department, which must be economically self-sustaining. He has succeeded. Facilities are being renovated and upgraded. The general budget of the University of Michigan rose 1.9 over the past year. The Athletic budget rose an astounding 17.6%.

It was too good to be true. Each home game results in revenue of roughly $5 million. Eight home games this year should bring an easy $40 million into the coffers of the Athletic Department. Booking Appalachian State to open the season only cost Michigan $400,000. The cost to Michigan’s reputation and image is priceless. More attention should have been focused on quality rather then economics.

Bo, Gary, and Lloyd have done a wonderful job over four decades of avoiding the recruiting, academic and improper financial assistance scandals of other schools and programs. Names like Alabama, Auburn, Arkansas, Clemson, Colorado, Florida, Georgia (basketball), Illinois, Kentucky (football and basketball), Minnesota (basketball), Mississippi, Ohio State (football and basketball), Oklahoma, Oregon, Southern Methodist, Washington, and possibly Florida State and USC come to mind. Most painful of all to me is that my other alma mater, the University of San Francisco, shut down its basketball program for two years. The program never recovered.

It’s time to cut the losses. Spring housecleaning in the athletic department should begin this fall starting with the Athletic Director.