Big-Time College Sports: An Economist’s View

Raymond SauerClemson University

Main points

Competition between schools is intense Athletics is a spillover of more general form Schools free to choose competitive level

The money is huge but the profits are nil

Unpaid playing talent is the key input Competition expenditure on player proxies Coaches & facilities that can attract talent

The landscape

Distribution of 1,458 4-year colleges in 1999 IA 114 IAA 122 IAAA 85 II

239 III 420 NAIA 254 Unaffiliated 170

3% of students are

Inter-colleg. athletes

Trend in 1990s: 109 schools shifted up,

15 shifted down Moves to IA show

gains of 2,000 students

Why do 1,222 non-DI schools play sports? Apply the “survivor principle:” things that

persist do so for a reason

Sports budgets at non-DI schools Revenues are trivial Expenses average ~5% of school budgets

Why do non-DI schools play sports? (2) Q: Why would students attend a school

which spend $300k/yr on DII football? A: They prefer football to feasible alternatives

American universities are unique in the world More choice, more competition between schools Student and parent choices produce academic

excellence (Cal, Cal Tech, Duke, Ga Tech, MIT) Choices also produce inter-collegiate athletics!

Some monetary figures…….

$3.3m $3.0m $2.7m $2.6m $2.5m

N. Dame’s football coach Southern Cal Iowa Auburn Oklahoma

….and an opinion

Andrew Zimbalist:

Salaries are “unjustified .. and inappropriate”

Raymond Sauer:

What market forces drive these salaries?

Economic changes in past 100 years Sustained growth in wealth & income

Compare homes/cars of grandkids & grandparents

Decline in real price of necessities Spend income on luxuries

Increase in leisure time Average work week down from 60 to 35 hours

Econ changes linked with growth of sport Response to more income & leisure:

Go to a ballgame Watch one on TV

Demand for tickets, viewing on TV Decades-long increases in ticket prices Explosion in value of TV contracts

The money is huge

Some comparative figures TV contracts (annual value) World Cup (2002 & 2006) $

825m Men’s NCAA basketball tourney: $ 546m

1999 Gate revenues NBA + NFL $1,697m College basketball & football $ 757m

… and growing

Value of Men's Tourney TV Rights

143

243

546

0

100

200

300

400

500

600

1991 1995 2003

Mil

lio

ns o

f $

2005 SEC cash distributions

Total $110.7 million Football TV $ 45.4 m Bowl games $ 20.2 m Football championship $ 12.4 m Basketball TV $ 11.6 m Basketball tournament $ 3.3 m NCAA Championships $ 17.8 m

Amount per school: $ 9.2m

But profits are nil

Caveats: The accounting is tricky Specific programs earn significant rents

e.g. Notre Dame football

Still, most economists find that big-time programs run modest deficits

Where does the money go?

Non-revenue sports programs Athletes’ tuition (general funds)

Universities are not profit-making enterprises But athletic department pays for resources used

Any net athletic income gets spent on athletic programs… quickly!

Profits and college athletics

Asking “is athletics profitable?” asks the wrong question If profitability were the goal there would be no

swimming teams

Odd combination: ADs are not-for profit operations running in an intensely competitive environment

The athletic department

Sells more “outside” product than, say the engineering or language departments

Like engineering, it keeps most or all of its earned income, & spends it on people and equipment

Like engineering, judged by efficacy of its spending: Does the AD increase the school’s reputation?

Unlike engineering, competition is more visible

Some things haven’t changed

Commercialism & college sport: 1st Harvard – Yale boat race, 1855

Organized by a New England RR Co., with

“lavish prizes” & “unlimited alcohol” for teams

Sport as university promotion

Columbia Pres. H. Barnard to 1870s crew team: “you have done more to make Columbia known than all your predecessors… wherever the telegraph cable extends, the existence of Columbia College is known and respected”

Woodrow Wilson, Pres. of Princeton (1890): “Princeton is known … for three things: football, baseball, and collegiate instruction.”

Visibility remains important

How does small school in the NW corner of S. Carolina get on the national radar? A) research of astro-physicist Don Clayton B) entrepreneurial studies of Bill Gartner C) beat Florida State in football

Media covers a university’s athletic exploits on a regular basis

Benefits of visibility

National prominence More applications, more selective Graduates benefit from recognition

positive feedback loop

Winning gets attention Applications sensitive to athletic success

NC State’s NCAA championships in 70s & 80s S. Carolina’s unbeaten run w/ G. Rogers in 1985 Doug Flutie’s “Hail Mary” & Boston College

Visibility is a double-edged sword

Competition for exposure

Readers and viewers must be interested enough to “pay” for media’s coverage The school must be more interesting than alternatives

Implication: competition between schools: school A’s coverage comes at expense of B

AD Coaches Players Efficient dept. administration recruiting, preparation, and

tactics, athletic skills that win contests

Talent wins games, but…

NCAA rules: can’t pay players Impact of Doug Flutie or Vince Young still exists

Mid-90s estimated value of star players: $500k/yr Imagine Bush & Leinart et al, in today’s market…

Why pay $3m for Coach Pete Carroll?

Impact of the ban on player compensation Schools compete on other margins for talent

Rule enhances value of Coach’s sales skills Non-cash benefits to players (club rooms, etc.)

Rule increases market value of coaches Increase spending on non-cash player perks

Competition for Coaches

What sets pay of top coaches? Competence established Other teams (Lakers) value Coach K’s services

Unrestricted competitive bidding Salary = value of coaches’ contribution

Is the football coach truly worth more than the school president? Is the school president on TV each Saturday?

Sources

Rodney Fort, Sports Economics, 2nd ed.

Roger Noll, The Business of College Sports and the High Cost of Winning, The Milken Institute Review, hird Quarter 1999, pp. 24-37.

Robert Sandy, Peter J. Sloane, and Mark S. Rosentraub, The Economics of Sports: An International Perspective

Andrew Zimbalist, Unpaid Professionals