big time college sports an economist s view n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Big-Time College Sports: An Economist’s View PowerPoint Presentation
Download Presentation
Big-Time College Sports: An Economist’s View

Loading in 2 Seconds...

play fullscreen
1 / 26

Big-Time College Sports: An Economist’s View - PowerPoint PPT Presentation


  • 71 Views
  • Uploaded on

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

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Big-Time College Sports: An Economist’s View' - zora


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
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
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
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
$3.3m

$3.0m

$2.7m

$2.6m

$2.5m

Some monetary figures…….

N. Dame’s football coach

Southern Cal

Iowa

Auburn

Oklahoma

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
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
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