Big-Time College Sports:
An Economist’s View
Raymond Sauer
Clemson University
Main points
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Competition between schools is intense

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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

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Competition  expenditure on player proxies
Coaches & facilities that can attract talent
The landscape
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Distribution of 1,458
4-year colleges in 1999
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IA
IAA
IAAA
II
III
NAIA
Unaffiliated
114
122
85
239
420
254
170
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3% of students are
Inter-colleg. athletes

Trend in 1990s:
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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

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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

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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…….
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$3.3m
$3.0m
$2.7m
$2.6m
$2.5m
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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


Decline in real price of necessities


Compare homes/cars of grandkids & grandparents
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:

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Go to a ballgame
Watch one on TV
Demand for tickets, viewing on TV

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Decades-long increases in ticket prices
Explosion in value of TV contracts
The money is huge

Some comparative figures
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TV contracts (annual value)
World Cup (2002 & 2006)
Men’s NCAA basketball tourney:
$ 825m
$ 546m
1999 Gate revenues
NBA + NFL
College basketball & football
$1,697m
$ 757m
… and growing
Value of Men's Tourney TV Rights
600
546
Millions of $
500
400
300
200
243
143
100
0
1991
1995
2003
2005 SEC cash distributions
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Total
Football TV
Bowl games
Football championship
Basketball TV
Basketball tournament
NCAA Championships
$110.7 million
$ 45.4 m
$ 20.2 m
$ 12.4 m
$ 11.6 m
$ 3.3 m
$ 17.8 m
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Amount per school:
$
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9.2m
But profits are nil
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Caveats:
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The accounting is tricky
Specific programs earn significant rents

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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


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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
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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

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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
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National prominence
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More applications, more selective
Graduates benefit from recognition

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positive feedback loop
Winning gets attention

Applications sensitive to athletic success

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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
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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

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Mid-90s estimated value of star players: $500k/yr
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Impact of Doug Flutie or Vince Young still exists
Imagine Bush & Leinart et al, in today’s market…
Why pay $3m for Coach Pete Carroll?
Impact of the ban on player compensation
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Schools compete on other margins for talent

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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?
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Unrestricted competitive bidding
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Competence established
Other teams (Lakers) value Coach K’s services
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
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Andrew Zimbalist, Unpaid Professionals