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

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Presentation on theme: "Big-Time College Sports: An Economist’s View Raymond Sauer Clemson University."— Presentation transcript:

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 The landscape Distribution of 1,458 4-year colleges in 1999  IA 114  IAA 122  IAAA 85  II239  III420  NAIA254  Unaffiliated170 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

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 Some monetary figures……. $3.3m $3.0m $2.7m $2.6m $2.5m 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 NCAA 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:  1 st 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, 2 nd 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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