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Published on January 24, 2008

Author: Rainero

Source: authorstream.com

Big-Time College Sports: An Economist’s View:  Big-Time College Sports: An Economist’s View Raymond Sauer Clemson University Main points:  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:  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?:  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):  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…….:  Some monetary figures……. $3.3m $3.0m $2.7m $2.6m $2.5m ….and an opinion:  ….and an opinion Andrew Zimbalist: Salaries are “unjustified .. and inappropriate” Raymond Sauer: What market forces drive these salaries? Economic changes in past 100 years:  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:  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:  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:  … and growing 2005 SEC cash distributions:  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:  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?:  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:  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 :  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:  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:  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:  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:  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 :  Visibility is a double-edged sword Competition for exposure:  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…:  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:  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:  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 :  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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