Monday, 6 May 2013

Additional Thoughts on the Economics of College Athletics

To follow up on Warren's and Rick’s informative posts, I thought I’d add a couple of somewhat countervailing thoughts to the discussion (I haven't had a chance to fully digest the expert reports linked to in Warren's post, so some of these points may be addressed in those filings).  I’ll preface this by stating that I completely agree with the critics of the NCAA that the organization is woefully in need of significant reforms, and also agree as a matter of fairness that college athletes deserve a greater share of profits they generate. 

Nevertheless, it seems that the debate over whether to pay college players often broadly generalizes the issue across all 340+ Division I schools.  In reality, though, the profitability of university athletic departments varies greatly across Division I.  While the SEC, ACC, Big 10, Big 12, Pac 10, and former Big East programs all undoubtedly make significant profits when their football and basketball revenues are accurately accounted for, that is not the case for many of the so-called mid-major and low-major Division I schools.  For instance, USA Today compiled a chart for all Division I public schools listing the percentage of each athletic department’s funds that came directly from the college or university from 2006-2011:

As the USA Today chart reveals, as much as 70-80% of the athletic budgets for many mid- to low-major schools is diverted from other university funds (in many cases, coming directly from student fees).  While this data is a little dated, I do not believe the situation has appreciably changed over the last two years.  So I think there is some merit to the argument that paying college athletes would have a significant impact on the continued feasibility of many Division I athletic programs, as that added expense would likely make continued participation at the Division I level impractical, if not impossible, for many lower ranking Division I institutions.

Of course, one could easily imagine a scenario in which only those schools that make a profit in football or basketball would need to pay their players.  But that would, for better or worse, undoubtedly result in a very different structure for college athletics than the one we have today.  For instance, it would almost certainly entail splitting the so-called BCS conferences off from most of the rest of the mid-major and low-major conferences – effectively creating an additional tier within Division I – as it would be nearly impossible for these lower ranked schools to effectively compete with programs that pay their players.  As a result, I fear that at a minimum the NCAA college basketball tournament would lose a lot of its current appeal – at least in the early rounds – without the participation of the Cinderella teams that make the first weekend of the tournament so exciting. 

Moreover, I suspect that paying basketball and football players would also result in a number of schools (including many of those belonging to BCS conferences) reducing the number of non-revenue generating sports that they offer.  This ripple effect seems to go overlooked at times in these discussions.

None of this is necessarily intended to argue that these considerations should outweigh the fairness issues involved in depriving college football and basketball players a greater share of the revenue they produce.  I'm merely contending that paying college athletes would in fact have a profound effect on college athletics in a number of ways that, it seems to me, are not always fully discussed in this on-going debate.

Finally, on a different note, I can't help but wonder how college basketball and football players themselves come down on these issues.  In my (admittedly limited) experience, many athletes do not necessarily want a significant share of the revenues they generate, but rather would simply like to receive an additional stipend enabling them to live more comfortably on campus, and perhaps receive some financial assistance so that their immediate family and friends -- who can't otherwise afford it -- can travel to see them compete in big games.  In fact, my sense is that many athletes don't mind that a significant share of the profits they produce help subsidize the vast array of non-revenue generating sports programs at most D-I schools.  I'm not sure if anyone has completed a survey of college athletes' perspectives on these issues, but I think that the data from such an undertaking would be enlightening.

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