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Big-Time College Sports: An Economist’s View

Big-Time College Sports: An Economist’s View. Raymond Sauer Clemson 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

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Big-Time College Sports: An Economist’s View

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  1. Big-Time College Sports: An Economist’s View Raymond Sauer Clemson University

  2. 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

  3. 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 The landscape

  4. 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

  5. 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!

  6. $3.3m $3.0m $2.7m $2.6m $2.5m Some monetary figures……. N. Dame’s football coach Southern Cal Iowa Auburn Oklahoma

  7. ….and an opinion • Andrew Zimbalist: Salaries are “unjustified .. and inappropriate” • Raymond Sauer: What market forces drive these salaries?

  8. 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

  9. 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

  10. 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

  11. … and growing

  12. 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

  13. 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

  14. 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!

  15. 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

  16. 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

  17. 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

  18. 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.”

  19. 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

  20. 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

  21. Visibility is a double-edged sword

  22. 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

  23. 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?

  24. 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

  25. 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?

  26. 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

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