Thursday, 2 May 2013

The Economics of College Athletics

As the O'Bannon v NCAA litigation progresses, ever so slowly, through our legal system, there is one defense that gets tossed around quite a bit--very few football or men's basketball programs actually make money.  The argument, ergo, is that schools would be unable to compensate these athletes their fair market value without jeopardizing the existence of their entire athletic departments.

Recently, the NCAA released their latest "Division I Intercollegiate Athletics Programs Report on Revenues & Expenses" which can be accessed here.  John Infante on the Bylaw Blog, an expert in NCAA issues, summarizes this report as follows:
  • 23 athletic departments operated in the black last year, same as in 2011. By the NCAA's definition, this means the school's athletic department generated revenue exceeded expenses, and the athletic department needed no allocated revenue (i.e. subsidy) from the school to break even.
  • While revenues are going up, expenses are rising faster. Expenses in FBS were 10.8% in the last year, while revenues increased only 4.6%.
  • The median negative net generated revenue (generated revenue minus expenses) was a "loss" of over $12 million while the median positive net generated revenue was a "profit" of $8 million.
Not surprisingly, there is another opinion.  Expert witnesses for the plaintiffs in the O'Bannon case submitted a document that describes a far different economic reality within Division I athletics.  Dr. Daniel Rascher, a partner at OKSR, LLC, an leading economic consulting firm specializing in applying economic analysis to complex legal issues, submitted this document supporting the plaintiff's claim.  While you are welcome to download this entire submission, and if you do pay careful attention to pages 59 through 99, Rascher argues a few main points:

1. The NCAA's financials are intentionally inaccurate:
2. Athletics departments operate within non-profit universities, thus there is less of an incentive (and mechanism) to show a profit;
3. That "athletic deficits" reflect the accounting practices of universities or the flow of revenues back into expenses rather than the inability of revenues to meet costs.....Within athletic departments it can flow into salaries for athletic staff (coaches, athletic directors, support personnel) or into facilities;
4. And finally a market in which all but a dozen or two programs out of 340-plus are losing money does not experience the sort of entry we have seen in Division I sports since the Board of Regents case ended the NCAA's television cartel in 1984.

Bottom line is we all know the quote "Lies, damn lies, and statistics...."


While we are talking about the never ending legal case of O'Bannon v NCAA, documents were filed in court last week in anticipation of the June 20th class certification hearing.  For those of you captivated by the arguments, or writing semester ending analyses of this case, I wanted to provide two important documents for your review.

1. Here is the "Reply Brief of Antitrust Plaintiffs in Support of Motion for Class Certification."  This document supports the O'Bannon plaintiff's efforts for class certification.  You can download this document here.

2. Please find the "Rebuttal Report of Dr. Robert McCormick in Support of Antitrust Plaintiffs' Motion for Class Certification.  You can download this document here.

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