Public Affairs Forum
October 26, 2016
An interview with Joel Maxcy, Associate Professor of Sport Management, Drexel University

Joel Maxcy: My name is Joel Maxcy, I'm an associate professor of sport management and a sports economist at Drexel University in Philadelphia.

How can we use economics to understand college sports?
I think there are a lot of economic implications that can be helpful in thinking about college sports. For one thing, I think it's useful just to think about what universities are trying to do. In economics we'd say, "What's their objective function?" And then, "How does college sports fit in with that?"

And I think that helps us answer a lot of the questions. There are concerns about college sports being too expensive or getting too much attention. But I think, in a lot of ways, if we think of it economically we can answer those questions like we can with a lot of different things: there's a cost-benefit analysis, and that ends up leading to the choices of the college presidents and other decision makers.

What are the benefits of a successful athletics program?
I think for big-time athletics, there really is a legitimate financial benefit, those programs, in many cases, are profitable and bring in the university money. I think that's probably the exception to the rule in a lot of cases, that's true of the maybe top 50 universities playing sports.

The other benefit, though, that's I think very significant is publicity and advertising. In college sports that means if you're winning, you're on television a lot, you're covered in the newspapers, you're bringing in a lot of fans to campus. And there's fairly strong economic evidence that winning football, winning basketball, winning athletic programs help attract students.

Do non-revenue sports help colleges?
Most college sports are actually played by Division III and Division II students, they are non-revenue sports and they are participation opportunities for these students. And those sports do get some publicity—especially in Olympic years, we hear about athletes that compete for the various universities that are competing in the Olympics. It's not to the degree of football and men's basketball, but there are definitely publicity benefits from athletics for non-revenue sports as well.

What role does the NCAA play in the economics of college sports?
The NCAA wasn't a government creation, the schools really got together. Although, the story is that it was originally founded because President Roosevelt—Theodore Roosevelt, in the early 1900s—was concerned that college football players were killing themselves. And that was really happening, so he demanded that the big schools playing football get together and do something about the safety.

That created the organization, but it's an organization of the universities. It's become a monopoly over college sports in the United States. Their most important economic function in—well, they have several, but a very important one is that they fix the compensation to the athletes. They uphold the amateur standard, is how they like to put it, and the amateur standard (as they also like to put it) is how you integrate education and athletics.

To what extent can college athletes be compensated?
It's really an in-kind exchange. The main thing that universities offer to the athletes is an education—up to completely waiving tuition, and then on beyond that. Now they call it "cost of attendance," but always having been covered as part of that scholarship—sometimes they're called "full rides"—are tuition, books, room and board, and some expenses for books and so forth. They've upped that a little bit in the last four or five years, so that they've got what is called a "cost of attendance."

So there's a minor stipend above and beyond the educational costs, but that's the limit and that's the most any athlete can get.

What are the concerns about paying players?
That issue of compensating in the last four or five years is receiving a lot more attention, in part because the money in college sports has increased considerably, with big television contracts and so forth. And it's very noticeable that coaches—the college football coaches—are very, very well compensated, in the millions of dollar ranges for the top paid coaches. And like professional sports, the athletes that are producing the wins are very valuable, but their pay is capped quite considerably.

So I think people are noticing that now, there's been movements and the players themselves are noticing it, maybe more than they ever were. If athletes were allowed to be paid better than they are now, that's where you'd see the difference: there would be a shifting away from both coaches' pay and investing in facilities, because you could pay the athletes better. There's some economic evidence in other areas where cash payments are more efficient than in-kind payments, so we might say we end up with a better product; I don't think we really know that, but I think we'd definitely see a transfer of the rents from coaches and facilities to athletes.

I'm not sure that there would be a big difference beyond that.

Why don't college athletes form unions?
There's nothing to hold them back, I think, except for the cost of organization. And that's difficult; I think a major difference between college athletes and professional athletes is the really short time frame that you're a college athlete. I think they'd be better off with a collective voice; I think it's not an easy thing to organize, though.

How do athletes' graduation rates compare to those of other students?
Graduation rates are not particularly bad for sports, they're probably comparable to the student body in general, although they tend to be a little bit lower in men's basketball and football. They're not terrible, but there's a big incentive to keep them eligible. It's not unusual at all for athletes to be pushed into a common major; it's called "clustering." So here's a major for football players that may be different than what they would choose if they were more...well, they're free to choose their major, but they're not so free to choose their major; they need to choose a major that will keep them eligible.

So, that may not be the payoff that everybody gets from going to college.

Does the NCAA monitor the academics of college athletes?
Well, the answer is no. In fact, in the recent North Carolina case they said, "It's not our job to be the monitor." So they put that back on the universities, they tell the universities what they have to do academic eligibility-wise—and those [requirements] have changed, and that's sort of a recruiting issue. They've become more stringent on who can get in and who can be eligible and how you can be eligible, so they monitor that.

But then the actual academic product that's carried out, they say, "No, that's on the universities"...or, at least, that's what they told North Carolina. And to me, they're much more concerned about recruiting violations.