There are lessons to be learned from the NFL and its attempt to “fine” the New England Patriots for cheating by under inflating footballs the team used in a conference championship game.

Lesson 1: monetary fines alone don’t always work

Imagine the NFL were to fine the New England Patriots $50 million and their star quarterback $10 million for cheating.  On the surface, these fines sound significant.  However, the fines fail to acknowledge the economic benefits received from cheating or the simple fact that the size of the fines is insignificant to the parties who would have to pay the fines.  The New England Patriots are an organization worth well over $1 billion and the fine can simply be passed on to fans by increasing ticket prices to see the defending Super Bowl champions.  The quarterback makes over $20 million per year from football and undoubtedly saw a significant bump in his endorsement deals as a result of winning the Super Bowl.  His financial benefit from cheating is also in excess of his fine.

The failure to acknowledge the economic benefits received from cheating means even significant sounding fines are in reality only a cost of doing business.  When fines are merely a cost of doing business, every NFL team has an incentive to cheat so they too can be Super Bowl champions.

Lesson 2: make the cheater give up what they cheated to get

In the NCAAs, when a college team cheats to win a national title, it is stripped of the title.

Imagine the NFL were to strip the New England Patriots of both the conference championship and Super Bowl titles.  This action introduces a strong disincentive for cheating.  First, other teams would know if they cheated they too would be stripped of their titles.  Second, it effectively eliminates the ability of the cheating team and its quarterback to use the benefits of winning the Super Bowl to pay the fine.

In the title, I referenced bankers.  This was intentional.  While banks have been fined over $150 billion since the beginning of the financial crisis for bad behavior by the bankers (manipulating markets, selling fraudulent products,…), none of these fines required the cheaters to give up what they cheated to get.  Instead, from the bankers perspective, the fines were simply a cost of doing business.

Why would anyone expect bankers to stop cheating when they can win the equivalent of the Super Bowl and receive financial rewards that greatly exceed the fine if they are caught cheating?

Update

Lesson 3: cheaters will always complain punishment is too harsh

As soon as the New England Patriot’s punishment was announced, the team attacked it as being too harsh and said it would appeal the punishment seeking to have it reduced.  This occurred even though they were not stripped of either the conference or Super Bowl titles.  This occurred even though they received the benefit of winning while cheating to ensure victory.

By the way, the fine was truly the equivalent of a parking ticket and is completely unrelated to the benefit of retaining both conference and Super Bowl titles.  If the fine stands, the team loses a first round draft choice next year, another draft choice in a later year and has to pay $1 million.

Based on feedback after the fine was announced, fans in other NFL cities would be disappointed if their team didn’t cheat also so their team could at least make the playoffs.  When a fine is perceived as the equivalent of a parking ticket, it encourages, not discourages, cheating.

Lesson 4: regulatory capture prevalent and it effects cheaters’ fines

During the last NFL season, one of the commissioner’s biggest backers after he mishandled a situation involving domestic violence was the owner of the New England Patriots.  Given this support and his multi-million dollar paycheck, it is no surprise the commissioner did not look to the NCAA model for punishing cheaters and strip the team of its win in the conference championship or Super Bowl.  Quite simply, it is hard to bite the hand that feeds you.

Lesson 5:  cheaters will try to minimize impact of cheating on outcome

An excuse frequently tossed out for why the New England Patriot’s cheating should be ignored is that it did not really impact the final outcome of the conference championship game.  This may be true.  However, it is clear the New England Patriots intended to tilt the playing field to their advantage by cheating.  The reason for fining the team is they deliberately engaged in cheating and not whether the cheating ultimately was decisive in who won or lost.

As I said at the beginning of this post, the issue is fining cheaters in such a way that it discourages cheating in the future.  Like the financial regulators, the NFL has demonstrated relying on monetary fines without stripping the cheater of what they cheated to get results in encouraging, not discouraging, cheating.