The Economics of College Sports - October 26, 2016

Brawn vs. Brains on Campus? Maybe Not, Economist Says

Success in collegiate sports is not always associated with academic excellence. Harvard, after all, hasn't won a football national championship since 1919, and it won't soon win another.

Yet at the highest levels of collegiate sports, winning football and men's basketball teams help universities in three significant ways, Joel Maxcy, head of the Sport Management Department at Drexel University, said during an October 26 Public Affairs Forum at the Federal Reserve Bank of Atlanta.

TV coverage worth a billion to Butler
First, televised games serve as valuable advertisements that, research shows, help schools attract larger numbers of students. Butler University estimates it garnered television exposure worth $1 billion from trips to college basketball's championship game in 2010 and 2011, Maxcy said. Other schools—including Texas Christian University, Virginia Tech, and Alabama—have seen applicant numbers rise in part because of football success, he said. This larger pool of applicants allows the colleges to be more selective in their admissions, which in turn attracts a better faculty and contributes to high national rankings in publications like US News and World Report.

Second, powerhouse football and basketball teams can generate funds for universities, and not just for their athletic departments. Granted, top teams reinvest most of their revenue in the football and basketball programs, notably in facilities and coaches' salaries, Maxcy said. But in some cases, television rights fees, ticket sales, and other income streams produce enough money to channel some toward academic programs.

Finally, winning teams are fun. And they help unite students, alumni, and university communities. These intangible benefits are hard to quantify, Maxcy acknowledged, but appear to be real. And while there is a clear link between winning and heftier donations to athletic programs, it's unclear whether sports victories translate into more generous alumni giving to academic programs, he explained.

Big-money sports an exclusive club
To be sure, only a small percentage of institutions operate in the top financial tier of collegiate athletics. Among more than 1,000 members of the National Collegiate Athletic Association, only 64 play in the "Power 5" football conferences that dominate air time and championships, and about 300 play in the highest basketball classification. "It's a big business at a small fraction (of schools), but a really visible and important one," Maxcy said.

Of course, professional players are paid large salaries, while college players are not compensated beyond scholarships. In fact, in a market sense, high-level college athletes are underpaid, Maxcy said. Collective action—that is, labor unions—could help players receive more of the considerable revenue they are mostly responsible for creating, he suggested. Players' unions, Maxcy pointed out, have been instrumental in professional athletes securing a healthier share of their sports' financial take.

Maxy noted that because of the prohibition on paying student athletes, the colleges funnel money into facilities and coaching—two important factors in recruiting top athletes. Big-time college coaches are among the financial winners in major college sports. Maxcy noted that college football coaches are paid about 3.5 percent of their sport's revenue, compared to 1.5 percent of revenue for coaches in the professional National Football League. Meanwhile, top-level men's basketball coaches' salaries come to 11.2 percent of the game's revenue, compared to 3.2 percent for National Basketball Association coaches.

For several years, Alabama football coach Nick Saban has been the most highly compensated public-sector employee in the United States. However, University of Michigan football coach Jim Harbaugh recently surpassed Saban when he received a raise to $9 million a year, Maxcy noted. Both coaches are employed by public universities, though most if not all of their compensation comes from sources other than tax dollars.

"That shows you where the money is flowing in college sports," Maxcy said. "It flows to the coaches. Coaches are the ones that recruit the talent."

It's widely known that football and men's basketball are the primary money makers in college athletics, Maxcy said. But it is a common misconception that those two sports finance other teams that bring in little income, such as swimming, golf, tennis, and track and field, Maxcy explained. Those lower-revenue sports are mostly funded by universities themselves, he said. But, he added, if the behavior of college administrators is any indication, they must consider writing checks for sports reasonable investments because they have shown little inclination to stop doing so.

For more details, watch the video (above).