Social Science Research: Topic Selection/Annotated Bibliography Assignment

40 The economics of collegiate athletics Karl W. Einolf

The Basic Purpose of the National Collegiate Athletic Association (NCAA) is as follows:

The competitive athletics programs of member institutions are designed to be a vital part of the educational system. A basic purpose of this Association is to maintain intercollegiate athletics as an integral part of the educational programme and the athlete as an integral part of the student body and, by so doing, retain a clear line of demarcation between intercollegiate athlet- ics and professional sports. (2003–4 Division I NCAA Manual)

I – and many others – are concerned that all this college football money is turning college sports into nothing more than a minor league for pro football rather than a legitimate educational activ- ity for student athletes. (Senator Orrin G. Hatch, Senate Committee on the Judiciary Hearing, Wednesday, 29 October 2003)

To examine the economics of collegiate sports in the United States, one must start with the dichotomous perception of the mission of the NCAA. On one hand, the governing body of intercollegiate athletics would like to be seen as the preserver of the amateur status of its athletes. On the other, the NCAA generates tremendous wealth ($354 million in revenue in 2002) and keeping its principal labour force from being paid protects its interest in future revenue.

The NCAA is legally a non-profit organisation, and 65 per cent of NCAA Division I-A athletics programmes do not make a profit as a separate business unit and are subsidised by their educational institution. Of the programmes that do make a profit, half earn less than $1.5 million dollars per year (Fulk, 2002). The few programmes that do make a significant profit use the excess funds to enhance the educational opportunities at their institutions.

The NCAA, in the spirit of maintaining the integrity of amateurism, requires that its athletes are not paid for playing sports. The NCAA has an extensive list of rules for its athletes. Athletes are allowed to make only a small sum of money (currently $2000) in other employment throughout the year. Athletes must have attained a specific Grade Point Average (GPA) and SAT score in order to compete their first year. Athletes may not sign with an agent and still play collegiate sports. Once an athlete signs a letter of intent to attend a school, he or she must go to that school or forgo a year of eligibility. Athletes are only eligible for four consecutive years of collegiate play, although they are permitted to skip a year of competition (a ‘red shirt year’) and only practise with their team. Athletes are also not allowed to accept gifts, monetary or otherwise, in exchange for play.

Critics argue that the NCAA leads a cartel of colleges and universities that collectively underpays its primary labour force in revenue-producing sports. The money that is saved from not paying athletes is used to fund other sports, state-of-the-art athletic facilities, academic programmes, and expensive coaches’ salaries. While the NCAA is a non-profit organisation, it was able to distribute $187 million to Division I institutions in 2002 while

379

C o p y r i g h t 2 0 0 6 . E d w a r d E l g a r P u b l i s h i n g .

A l l r i g h t s r e s e r v e d . M a y n o t b e r e p r o d u c e d i n a n y f o r m w i t h o u t p e r m i s s i o n f r o m t h e p u b l i s h e r , e x c e p t f a i r u s e s p e r m i t t e d u n d e r U . S . o r a p p l i c a b l e c o p y r i g h t l a w .

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an additional $21.3 million paid for management expenses (including salaries paid to NCAA executives). Television rights revenue brought in $237 million (NCAA, 2002). There is no doubt that there is a lot of money in collegiate athletics, but the question is – is the NCAA truly protecting the educational experience of the student-athlete or is it really protecting the economic interests of its member institutions? Walter Byers, Executive Director of the NCAA from 1951 to 1987, supervised the NCAA’s boom in lucrative television contracts. He was not afraid to express the true meaning of ama- teurism: ‘Collegiate amateurism is not a moral issue. It is an economic camouflage for monopoly practice’ (Rushin, 1997, p. 73).

Should college athletes be paid? Athletes generate considerable revenue for their schools. More importantly, three programmes in particular have the potential to bring profit to their institutions: men’s football, men’s basketball and women’s basketball. Of the 112 Division I-A football programmes detailed in Table 40.1, 62.5 per cent generated a profit from their programme. According to the NCAA, the men’s basketball programme at 66 per cent of Division I-A programmes claimed a profit as a separate business unit in fiscal year 2001. Women’s basketball programmes were not as successful, however, as only 5 per cent of Division I-A programmes generated a profit (Fulk, 2002).

Clearly, there is a great deal of competition for athletes coming out of high school. Coaches who can ‘work the living room’ and convince an athlete (and their family) to sign are a very valuable commodity for today’s college and university. These coaches are very well paid. Paying the athletes outright – instead of convincing them that attending state university will benefit their future income – will seriously change the economic landscape of college athletics. Bidding wars for players would ensue, coaches would be paid less, and many of the spillover benefits of profitable athletics programmes would disappear.

The reality is that the market for undergraduate students, athlete and non-athlete, is quite competitive. Students select colleges and universities based on their academic and athletic resources. At many NCAA institutions, athletics programmes fund these resources. There is a lot at stake for the institutions that benefit the most from the NCAA. Certainly, these schools oppose paying players. While their current use of NCAA funds may be admirable, paying athletes in revenue-producing sports may cause many of the academic and athletic resources, their competitive advantage, to disappear.

What is the intent of NCAA member institutions? Are they really trying to enhance the educational experience of the student-athlete or are they more focused on trying to maximise profits in revenue-producing sports to help fund other academic and athletic

380 Handbook on the economics of sport

Table 40.1 Four-class graduation rates at Division I institutions

Male Rate (%) Female Rate (%)

All male students 56 All female students 61 All male student-athletes 54 All female student-athletes 70

Men’s basketball 43 Women’s basketball 65 Baseball 47 Women’s CC/track 66 Football 53 All other women’s sports 72 Men’s CC/track 57 All other men’s sports 60

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opportunities? To examine which objective is dominant, one may compare the graduation rates of athletes in revenue-producing sports with the graduation rates of a typical student at these institutions.

Table 40.1 exhibits the average graduation rates for students at 328 Division I institutions from the NCAA 2004 Graduation Rate Report. The average four-class graduation rate for all male students is 56 per cent, and for all female students it is 61 per cent. At this aggre- gate level, only three sports report a student-athlete graduation rate lower than the average student: men’s basketball (43 per cent), baseball (47 per cent), and football (53 per cent).

While the overall difference in the football athletes’ graduation rate is not significantly lower than the average student, graduation rates are much lower at profitable football institutions. Table 40.2 compares the graduation rates of all students and football players at 112 Division I-A football programmes. The table also displays the revenue and expenses of each of these programmes. Table 40.3 summarises Table 40.2 by comparing the average graduation rate at schools that generate more than $10 million in football revenue with those schools that generate less than $10 million. The difference is striking. Football players at the big revenue schools are less likely to graduate when compared to the regular student at their institutions. The difference is even more pronounced in Table 40.4 where the top 10 revenue-producing programmes are compared to the bottom 10 programmes. Table 40.5 (below) displays the average graduation rate for each Division I-A football con- ference. Again, the difference between graduation rates for regular students and football players is significant for the high-revenue conferences. It does make one wonder whether Senator Hatch’s comment that collegiate athletics turning into a minor league for profes- sional football is accurate.

It is necessary to point out that the graduation rates among football players are not significantly different in Tables 40.2 and 40.3. The revenue production of the football pro- gramme does not seem to have an effect on the average graduation rate of football players. However, one cannot ignore the fact that the higher football revenue schools do better at retaining and graduating all students. Unfortunately graduation rates only capture the percentage of incoming freshmen that actually end up graduating from that institution within a six-year period. If students transfer from one institution and graduate from another, they are not part of the statistic. Many of the lower football revenue schools may be admitting students who are not prepared for college and do not graduate. However, many students at lower football revenue schools may also be transferring to higher foot- ball revenue schools where greater resources exist for both academics and athletics. Thus, the stakes are even greater for a college or university to maintain the success of its revenue- producing football programme.

Member institutions that are on the short end of the NCAA’s revenue distribution system are often very critical of the NCAA. Tulane University, for example, has trad- itionally been a model of the NCAA stated institutional mission to foster the athlete within the broader educational experience. Tulane has a relatively high graduation rate for both athletes and non-athletes. However, as a member of the Conference USA, Tulane traditionally receives a small share of NCAA revenue and is essentially shut out of an opportunity to play in a high-revenue Bowl Game. In 1998, Tulane went undefeated and yet was not invited to play in one of the top Bowls.

The NCAA’s top conferences – Pacific 10, Big 10, South-eastern (SEC), Atlantic Coast (ACC), Big East and Big 12 – corner the market on the four largest revenue-producing

The economics of collegiate athletics 381

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Bowl Games. The current Bowl Championship Series (BCS) system places the conference champion from each of these six conferences into six of the eight available slots in the top Bowls. Any other Division I-A team may fill the remaining two spots, but, since the BCS system’s inception in 1997, no team outside of the top six conferences has played in a BCS Bowl Game. Table 40.5 exhibits the distribution of BCS revenue for the 2002–03 season.

386 Handbook on the economics of sport

Table 40.3 Comparison of graduation rates and football programme revenue

Football revenue

Greater than $10 m Less than $10 m

Number of schools 53 59 Percent that profit from football 100% 29% Average graduation rate of all students 65.43% 52.08% Average graduation rate of football players 53.58% 49.12% Difference –11.85% –2.97%

Table 40.4 Comparison of graduation rates and top and bottom 10 football programmes (%)

Football revenue

Top 10 Bottom 10

Percent that profit from football 100 0 Average graduation rate of all students 65.20 45.50 Average graduation rate of football players 49.40 50.60 Difference –15.80 5.10

Table 40.5 Comparison of graduation rates by conference

Conference Average graduation rate (%) Average conference school ($)

All students Football Difference Revenue Expenses Profit

SEC 60.17 49.33 –11 27 955 868 8 766 501 19 189 367 BIG TEN 70.55 56.45 –14 21 014 083 8 802 673 12 211 410 BIG 12 59.25 48.17 –11 16 235 475 6 681 774 9 553 701 PAC 10 67.70 57.20 –11 16 530 723 9 688 865 6 841 859 ACC 75.67 59.56 –16 11 774 017 7 331 441 4 442 576 INDEPENDENT 64.75 57.25 –8 9 197 729 5 050 129 4 147 600 BIG EAST 66.25 52.38 –14 12 352 704 9 555 659 2 797 045 MOUNTAIN 49.29 34.00 –15 5 220 203 5 327 998 –107 796

WEST WAC 50.44 52.33 2 3 343 856 3 890 255 –546 400 SUN BELT 37.57 41.00 3 2 085 249 2 834 319 –749 070 C-USA 47.00 51.89 5 4 196 609 5 136 999 –940 390 MAC 50.00 52.00 2 1 752 782 2 936 690 –1 183 909

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The Pacific 10 and the Big 10 each received the greatest share because the two at-large selections came from these conferences. Tulane University could secure a greater share for Conference USA, but they would have to be chosen as one of the at-large teams. Yet without a single defeat in 1998, Tulane was not selected to play in a BCS Bowl Game.

In October 2003, the Senate Committee on the Judiciary held a hearing to examine the competitive and economic effects of the NCAA’s BCS system. The committee held the hearing to begin an investigation into whether the system violates antitrust laws. The financial distribution system, as shown in Table 40.6, clearly favours the top six confer- ences. It is no surprise that the schools in the top six conferences do not wish to share a greater piece of the BCS pie with the other Division I-A football conferences. These funds help to bring greater academic and athletic resources to their institutions and help to make these institutions more attractive to prospective students (their future customers). In his testimony before the committee, Myles Brand, President of the NCAA, stated: ‘Although there currently is some revenue sharing that takes place, the large majority goes to those who make the greatest commitment and whom the market rewards. In other words, the current revenue structure is a result of the free-market at work’.1 One wonders whether the recruiting of athletes with the intent to graduate them at a lower rate than regular stu- dents is also part of the NCAA’s ‘free-market’ system.

During the senate hearing, University of Nebraska Chancellor, Harvey Pearlman, remarked that the BCS revenue-sharing system has little impact on the economics of college athletics. The net BCS distribution of about $1.2 million to Nebraska in 2002

The economics of collegiate athletics 387

Table 40.6 BCS revenue distribution, 2002–2003

Revenue ($) Distribution ($)

Television and 72 000 000 Pacific 10 21 477 977 title sponsorships Big 10 21 062 222

Revenue from: Southeastern 16 562 222 Fiesta Bowl 4 420 000 Atlantic Coast 16 562 222 Sugar Bowl 4 400 000 Big East 16 562 222 Orange Bowl 4 600 000 Big 12 16 977 977 Rose Bowl 1 380 000 Western Athletic 960 000

Rose Bowl payout 27 924 842 Mountain West 960 000 Conference USA 960 000Total BCS revenue 114 724 842 Mid-American 960 000 Big Sky 180 000 Atlantic 10 180 000 Mid-Eastern 180 000 Gateway 180 000 Ohio Valley 180 000 Southwestern Athletic 180 000 Southland 180 000 Southern 180 000 Sunbelt 240 000

Total BCS distribution 114 724 842

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represented only 2 per cent of its entire athletics budget. He stated that the university col- lects more than twice as much during one home football game. Changing the BCS distri- bution to a completely even share would only net about $750 000 to each Division I-A athletics programme.2 The change would certainly not affect the balance of power; however, the additional funds would be a windfall for a school like Tulane University. The amount would be ten times as much as it currently receives from the BCS distribution.

While Chancellor Pearlman may claim that moving to equal sharing of NCAA and BCS moneys would not significantly change Division I-A athletics, he still opposes any change to the current system. The NCAA and the schools in the top six conferences are extremely protective of their current financial arrangement. A move by the NCAA to create equity across Division I-A schools will only hurt the University of Nebraska and most other schools in the top six conferences. The schools in these conferences banded together to protect their collective financial interests. The NCAA acts as the overseer of these protective units. The University of Nebraska can realise large paydays from its home football games, because it plays other ‘powerhouse’ schools in the Big 12 conference. If the NCAA were to somehow allow other Division I-A schools access to schools in the top six conferences, the NCAA’s product would become watered down. Television revenue would decrease, attendance would drop, and the interest in Bowl games at the end of the season would wane. The NCAA is not going to do anything to disrupt its current system.

The NCAA, however, cannot have it both ways. They cannot advocate amateurism in collegiate sports while at the same time allowing their top revenue-producing programmes to be a minor league in both football and men’s basketball. It is clear that most of the top programmes are more concerned about keeping their revenue and less concerned about graduating their student-athletes. In his 1999 book, Unpaid Professionals, Andrew Zimbalist recommends that the NCAA actually takes the drastic step to professionalise collegiate sports. The schools in the big six conferences would become a minor league, pay its players, and manage their football and basketball programmes as professional sports franchises. The schools that choose not to enter the minor leagues will be run in the true spirit of the NCAA’s mission: ‘to maintain intercollegiate athletics as an integral part of the educational program’. This way, the NCAA can have it both ways. The split person- ality of the NCAA ends and the true sense of amateurism is preserved.

Notes 1. Testimony of Dr Myles Brand, President, National Collegiate Athletic Association, Senate Committee on

the Judiciary Hearing, October 29, 2003. 2. Testimony of Harvey Pearlman, Chancellor, University of Nebraska, Senate Committee on the Judiciary

Hearing, October 29, 2003.

References Fulk, Daniel L. (2002), Revenue and Expenses of Division I and II Intercollegiate Athletics Programs, Published

by the NCAA at www.ncaa.org. NCAA (2002), Membership Report, Published by the NCAA at www.ncaa.org. Rushin, Steve (1997), ‘Inside the moat’, Sports Illustrated, March 3, p. 73. Senate Committee on the Judiciary Hearing (2003), ‘BCS or bust: competitive and economic effects of the Bowl

Championship Series on and off the field’, Transcript, http://judiciary.senate.gov/. Zimbalist, Andrew (1999), Unpaid Professionals: Commercialism and Conflict in Big-Time College Sports,

Princeton, NJ: Princeton University Press.

388 Handbook on the economics of sport

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