NCAA Exploitation

Posted on January 16, 2007 by


On Labor Day I posted a column entitled “Labor Day Thoughts”, which focused on how the NCAA exploits college athletes. On November 16th – at the Sports Economist – I posted a column entitled The Purpose of College Athletics” which questioned the argument NCAA president Myles Brand offered that the NCAA’s primary purpose is the education of college athletes.

Over the last month we have seen much evidence that the NCAA is not primarily about education. A number of coaches have been fired, and the primary reason given has often been the coaches’ ability to create wins on the football field.

Surprisingly, this emphasis on wins and losses has even enveloped Stanford University. At the beginning of December, Stanford fired its head coach – Walt Harris – who was just hired two year earlier. But after a 1-11 season, the athletic director – Bob Bowlsby – decided a change was necessary. The Associated Press article detailing this move explained Bowlsby’s motivation.

The stadium was often empty and Bowlsby said the lack of attendance played a role in his decision. He pointed to the final home game this year when he estimated only about 12,000 fans showed up against Oregon State.

“People vote with their pocket books and vote with their feet,” he said. “One has to wonder if those people who had $45 tickets and didn’t care to come to the game will buy them again next year.”

At no point in this article did anyone at Stanford – one of the highest ranked institutions of education in the world – discuss how Harris had failed to provide an education to his football players.

Now with coaches fired, a new round of hiring has begun. The process at Alabama has resulted in the hiring of Nick Saban, a man now famous for emphatically denying an interest in Alabama just a few weeks ago. Today Saban is an employee of the University of Alabama, set to make a reported $4 million per year.

How did college coaches become the highest paid state employees? Fellow sports economist, Andrew Zimbalist, provided several answers to this question in the New York Times (January 7, 2007).

First, the players are not allowed to be compensated. Instead, the coaches walk off with the value produced by the ”student-athletes.”

Second, athletic departments have no shareholders who seek dividends or increases in stock value through higher reported profits. That is, these departments face no market pressure to turn a profit. Money finds a way to be spent in such a circumstance and costs bloat.

Third, athletic departments benefit from privileged tax treatment. Perhaps most notably, boosters can give money to the program and procure the privilege of buying some choice seats on the 50-yard line. Tax laws allow a booster to deduct 80 percent of such a donation, which in practice is little more than a personal seat license.

Fourth, it is in athletic directors’ self-interest to up the ante on coaches’ compensation. Their worth increases along with their coaches’ pay.

Yet, even given the artificiality of the market, do Division I-A football coaches generate $2 million to $4 million of additional revenue annually? Not likely. The average I-A football team earns about $15 million a year in revenue; the average N.F.L. team earns about $160 million. How can a college coach create as much value as an N.F.L. coach?

Today, in an LA Times article by Greg Johnson (which started on the front page), another sports economist commented on this very same issue.

Colleges continue to ignore that “players are generating the money,” said David Berri, an associate professor of applied economics at Cal State Bakersfield and a co-author of “The Wages of Win,” a book about modern sports. “The money for coaches is coming from players. When you put it that way, it really is a reverse Robin Hood effect — rob from the poor, give to the rich.”

The NCAA insists that it’s about education first. The actions of the NCAA, though, suggest that it is revenue generation that is the primary concern. And the effort the NCAA takes to restrict pay to players suggests quite strongly that many athletes are creating substantial revenue.

How much revenue are we talking about? Last April, Darren Rovell wrote an article on the economic value of Reggie Bush when he was at USC. In this article, the research of Robert Brown was quoted:

Bush was worth at least $500,000 in direct economic impact to the athletic department, according to a formula devised by Robert Brown, an economics professor at Cal State-San Marcos, who has been studying college athletes and their worth to their schools for more than two decades. That figure includes Bush’s impact on television contracts as well as championship and gate revenues. But according to Brown, Bush’s real economic impact is likely greater, because those numbers do not account for indirect revenue effects, such as merchandise sales.

There is good reason to believe that the money being generated by athletes like Bush is simply being transferred to the coaches. And if this is true, then we can only conclude that college athletes are being exploited (which I think we should conclude is wrong).

– DJ

Posted in: Sports Econ