Should College Football Be Taxed? Bring Your Questions for Allen Sanderson

Allen R. Sanderson is an economist at the University of Chicago who enjoys, among other things, writing about sports. Some of his past work includes pieces on the puzzling economics of sports, why ties should be allowed in baseball, and how football highlights America’s least flattering features.

Sanderson’s most recent piece comes from the November 2011 issue of Chicago Life magazine, entitled “Taxes and Touchdowns.” In it, Sanderson argues in favor of imposing “steep” taxes on college football (and perhaps basketball) and that a college sports tax should be seen as the fifth sin tax, next to taxes on alcohol, cigarettes, gasoline and fat/sugar. And he’s not just talking about taxing certain aspects of college football; he’s talking about taxing the whole shebang: advertising, television broadcasts, logo merchandise sales, gate receipts. And then using that money to help support those “student-athletes” who don’t make it pro in their effort to finish up their education.

With his permission, we are republishing his essay below. Sanderson has also agreed to answer your questions related to this idea. So, read the essay, gather your thoughts, and fire away with questions in the comments section.

Oh, and one more thing: If you’re really into the darker side of college sports, check out this in-depth piece in The Atlantic about the recent flurry of scandals plaguing the NCAA and the idea of paying student athletes.

 

Taxes and Touchdowns

Leveling the Playing Field in College Athletics

By Allen R. Sanderson

As almost a matter of course, federal and state governments now tax commodities that are broadly deemed “sins.” Tobacco products and alcoholic beverages fall under this heading. The rationale, other than elected officials always grubbing for money, is that consumption of these items imposes, in economics jargon, “negative externalities”; that is, it affects people not party to the transaction and/or imposes costs on society as a whole.

With regard to cigarettes, apart from second-hand smoke concerns and litter, inhaling leads to lung cancer and other diseases, and thus the smoker may make disproportionate use of our health-care resources. (That the smoker pays steep cigarette taxes during his or her lifetime, then tends to die around age 65 without collecting much in the way of Social Security benefits, probably means that smokers are actually paying their own way through life—and death.)

Taxes on alcohol are similar. They are levied to produce revenues that offset domestic violence and help defray the costs of alcohol-related traffic accidents. (There is ample evidence that these taxes are generally set too low to “internalize the externality”—maybe because more politicians drink than smoke?—and thus should be raised.)

Currently, gasoline taxes are the third sin item. Because automobile traffic causes air pollution, contributes to congestion and creates accidents, levies on gasoline serve the same purposes as with tobacco or alcohol. The fourth sin category—fat or sugar—involves our concerns about obesity, and has led some officials and jurisdictions to try to tax fast-food and sugary soft drinks. (That those who are obese have to wear XXL clothing is not an externality; and the jury is still out on whether the heavyset are like smokers and offset part of their societal costs by dying young.)

If these four sin taxes now on the table are acceptable, let me suggest a fifth item: college football games. Yes, I am advocating that we impose steep taxes on all intercollegiate football advertising, television broadcasts, logo merchandise sales and gate receipts.

Why?

About 100 universities will field football teams at the Division I level this year; they will play 12 or more games each, plus from December 2011 through mid January 2012, 70 of these programs will also play in bowl contests. These games generate hundreds of millions of dollars—for the networks, coaches, athletic departments and institutions—but virtually nothing for the young men on the field (except for room, board, tuition, a walking-around allowance and a souvenir t-shirt or cap; and because institutions and the NCAA have gone out of their way to label these players, largely African-American youths from inner-city neighborhoods and modest family circumstances, “student-athletes” not employees, if injured they are not eligible for workman’s compensation and other legal redresses).

Only a small fraction of these thousands of college football players will ever earn a living in the NFL, and less than half of them, in spite of being steered to meaningless “gut” majors and wink-wink instructors, will ever earn a degree from the universities they represent on Saturdays.

Although these athletes are amateurs only under the most twisted definition of the word, some fans, college peers and the general public may arguably have some qualms about paying them salaries. (I do not have any such qualms.) Why that is remains somewhat of a mystery because few seem to object to paying run-of-the-mill coaches $2 million a year in base salary plus generous perks.

Let’s impose a sin tax on the revenues intercollegiate football and basketball generate for everyone but the players. This money could be set aside to provide funding for the ex-players to return to earn a degree, enter a graduate program and/or start a small business.

Fans and universities benefit enormously from this exploitation. It is no stretch to treat this as in the same category as smoking, drinking, gorging ourselves on hot dogs and nachos, most of which we do in the stands or our family rooms while these exploited workers toil for our entertainment and the coach’s yacht. As citizens, we should be above having our entertainment whims sated on the backs of these youngsters. Will it put an end to the cesspools at Ohio State, Oregon, Miami, USC, Auburn, LSU and …? No, but it’s time to draw a halt to the current arrangements.

And for economists, raising the price is generally a good place to start.

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  1. Alex says:

    I think I would agree that ‘sins’ like what you mention should be taxed, and I agree that at least some college athletes deserve more (legal) compensation than their scholarship. But what are the negative externalities that make college football/basketball sins? Some players are certainly being taken advantage of economically, but I don’t see the harm caused to anyone else.

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  2. Michael says:

    If you want to help, make the NFL and NBA lift their embargo on 18 year olds (i.e. legal adults) in the draft. If someone wants to play professionally, the professional leagues are the place to do so. No one forces anyone to go to college, and if every single current player joined a minor league instead, college football would be just as popular.

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    • Mike B says:

      Big money college sports ARE a minor league for the NFL and NBA. How do you think such leagues have functioned so long without the same sort of developmental infrastructure used by MLB and the NHL? The thing is that you can’t say that pro leaguess are exploiting or even being subsidized by colleges as colleges do get a nice piece of the pie which ostensibly goes to further their educational mission (or non-revenue sports).

      One can point to the players and rightly claim they are being exploited, but be careful what you wish for in terms of reform because increasing player compensation may have the unintended consequence of simply making an exploitive opportunity turn into no opportunity at all. At the end of the day the chance of these players making a career of the spots they play is remarkably small. Even if they were paid, 4 years of entry level wages a life of poverty will not fix. Look at what minor league baseball players make. It’s basically peanuts and most need a day or off season job and certainly could not afford to attend college at the same time. The root of the problem is the tournament structure of a professional sports profession and the lack of economic opportunity that entices people to try for it. Certainly the NCAA can be less dickish and provide better stipends and health coverage for its revenue players, but the number of players that could hope to command meaningful compensation even under a completely free market would be comparable to those that do so in the professional leagues.

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  3. Michael says:

    Wait, wait. You’re saying as a student I could go to a university and get paid play games (gambling on becoming a multimillion dollar professional athlete) and if I fail I can just come right back to school and have it paid for as a result of my foolhardy gamble?

    It’s a win win situation. I’m immediately joining a sport if this gets picked up.

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    • Joel says:

      Good idea, if this gets picked up, I’m immediately going to get 10x stronger and faster and join a sport.

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  4. Jax Robertson says:

    I think it’s clear something needs to be done. I recently priced out tickets for an LSU game. The cheapest were $200, and prices ran up to $1000 — for COLLEGE FOOTBALL!!! At least in professional football the players get a piece of the pie, and aren’t giving up a real education in the process. Maybe increased taxes will encourage someone to finally start a minor league, and make college football be what it’s intended to be — an extra-curricular activity; not the reason you go to school.

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    • Catmman says:

      You’re complaining about the already high prices you pay for football tickets, yet happily would PAY MORE for those same tickets in the name of some ephemeral ‘fairness’ schtick without batting an eye.

      *facepalm*

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  5. Joshua Northey says:

    I think a simpler solution is just charging the NCAA and Athletic departments for collusion. If every airplane manufacturer got together and agreed on a cap on compensation for a certain type of employee and a system that outlawed certain kinds of compensation it would be deemed illegal.

    The people making money in college sports have hidden behind the schools’ mission to avoid criticism when actually the football program is just a large side business that detracts from the schools’ core mission.

    If the university wants to run an alumni development/student entertainment business as one of its sub-business more power to them. But then they should have to pay the employees and stop pretending they are educating them. I worked as a tutor at a division 1 school, a very large portion of the athletes are not playing by remotely the same rules as the rest of the students.

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    • Michael says:

      Hidden due to low comment rating. Click here to see.

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  6. Tim S. says:

    That’s exactly what we need, taxing non-profitable programs, which in turn requires those universities to funnel even more money to (i.e., subsidize) the athletic departments. The mission of a university is to promote academic pursuits. Using university money to fund athletic departments runs counter to a university’s mission.

    I have a better idea, do away with college athletic departments that can’t sustain themselves. For fiscal year 2010, 51/120 or 43% of Division I football programs reported expenses exceeding revenues. See p. 28, Table 3.6, http://www.ncaapublications.com/productdownloads/2010RevExp.pdf. In addition, even though 69/120 or 57% of Division I football programs reported revenues exceeding expenses, the Title IX scholarship requirements effectively force these athletic departments to create an equal amount of female athletic scholarships. So, the indirect costs associated with the football programs should also be taken into account, and in fact, when combining both male and female programs, only 22/120 or 18% of Division I athletic departments report generated revenues exceeding operating expenses.

    For a great example of the impact that many of these athletic departments have on the university’s academic discourse, see http://www.bloomberg.com/news/2011-08-16/rutgers-boosting-athletics-at-expense-of-academics-fails-to-emulate-texas.html.

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    • Michael says:

      Your general point is true (that many if not most athletic departments are not profitable). However, I don’t think the number not receiving subsidies is as low as 22. That article does not consider the scholarships sponsored by the athletic department (300-600 per year) as money contributed to the university. According to the article, those costs account for 30% of athletic department expenses. Without athletic department funds, these students would either not be attending the school or not paying sticker price for tuition because of financial aid.

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      • Tim S. says:

        Michael, I’m not sure I understand your response/criticism. The figures that I cited came from the NCAA publication, which is found at the following link: http://www.ncaapublications.com/productdownloads/2010RevExp.pdf. Those 22 institutions that effectively reported profits (i.e., revenues exceeding expenses), included direct institutional support, direct state or other governmental support, outside contributions, and other sources of revenue. See p. 103, Glossary. So, in fact, the 22 institutions reporting “profits” would presumably be lower if the state and institutional funding were excluded from the revenues.

        The actual article, not the NCAA publication, that I cited was simply an example of the effect of these athletic departments on the university’s academic pursuits.

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  7. CrimsonCarl says:

    Not sure that your idea will work. Too may programs operate at a loss. However, anyone who refers to Auburn as a cesspool is ok by me.

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    • David says:

      Most football and basketball programs (at least in Division 1) are highly profitable. However, the overall athletic departments usually run in the red because of all the other non-revenue sports (men’s and women’s).

      Whenever the subject of paying players comes up, the NCAA cries poor and claims that the schools do not have any additional money. Well, for example, if Texas cuts down Mack Brown’s $5 million salary to let’s say $2 million, then there is an additional $3 million right there to spread around to the athletes who are generating the revenues. The only reason Mack Brown is worth $5 million is because he is one of the best recruiters in the game and brings in top talent every year. In a free market where athletes could be paid, Mack Brown’s salary would drop and the money would go directly to the athletes.

      P.S. Not picking on Mack Brown. I could have used any of a dozen other names instead.

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      • Michael says:

        Professional coaches make even more than college coaches. Bill Belichick just signed a contract for roughly $8 million a year.

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      • Hoss says:

        Have you noted the cost of a college education these days? Players are hardly being compensated with pennies, and I speak as someone who went to college on a football scholarship. Maybe I’m the exception to the rule: I didn’t leave college bitter that I hadn’t capitalized more – I was ecstatic that I wasn’t stuck with the legacy cost of school loans that almost all of my friends were.

        And if you’re going to give football and basketball players extra perks you’d better be prepared to give them to everyone. I’m sure Title IX would demand it (at least for the women athletes). There’s not enough money to go around for all of that (I think it was Patrick Ewing who once said “Yeah, we make a lot of money, but we spend a lot of money.”), and I’m sure the general student population would end up eating that cost.

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      • Hoss says:

        I’m not sure how my subsequent comment got transferred here, sorry.

        David, do you really think that Mack Brown’s ability to bring in top recruits would result in a salary decrease in the open-market? Absolutely not.

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      • David says:

        Yes, I believe that in an open market, the going rate for coaches would drop and the going rate for athletes (especially star athletes) would rise considerably. Much like in professional sports, the star players usually make more than the coaches, even in the NFL which has a hard salary cap for players but no salary cap for coaches. Mack Brown’s skills as a recruiter would be mostly irrelevant because most athletes usually would just go to the highest bidder. Again, see the pro leagues for examples of this.

        Of course, the only way to truly settle this debate would be to open up the market and see what happens, and that isn’t happening anytime soon.

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  8. Shadow says:

    My problem with your suggestion that athletes being paid is they already are, quite generously.
    They are given an all expense paid education and money for living expenses that are worth 100′s of thousands of dollars. Many also receive Pell Grant money. If they are hurt, they are still given the education and all medical care needed. Whether they accept the education is their responsibility. No one forces them to play for any school and they are free to leave at any time they feel their effort is not worth what they receive. There are thousands of other young athletes who would take their place, gratefully.
    Coach jobs and salaries are dependent on success and are very high stress positions. The decision on amount is based on the employers’ determination, like any other job. It is not for anyone else to decide if it is fair unless they are contributing to that salary. This is provided by boosters. Do you want me to determine what I think is fair for you to be paid?
    If you think paying athletes to play sports will stop the cheating at places like those you mentioned, you are wrong. There will always be someone who will pay more to get that prized recruit or keep him for playing for their rival. There will always be an exceptional athlete with the same attitude you display, that he is worth more. He will ask for it and one of the cesspools will pay it.
    You suggest taxing ticket holders or the universities, I say say it has already been taxed on the backs of those who earned the dollars with their hard work. They have worked for years to support themselves and their families and college sports offers a national past time as a weekend diversion. To want to destroy this through a government grab is more of the same commie crap pushed by our current government to punish profit. Liberal politicians would love to do this in order to gain more control over our lives and fortunes.
    Things can be improved by eliminating trivial rules and imposing swift and hard punishment on offenders. The NCAA must do its job properly or we’ll all see changes we do not want.

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    • David says:

      Of course the athletes are being paid (via a scholarship, food, room and board, etc.). The question is are they being paid a fair wage? In a free market system, a fair wage is basically whatever an employer is willing to pay you. In the instance of football and men’s basketball, the athletes’ pay has been capped and the market price is fixed.

      The easiest way to determine if these athletes’ are currently being underpaid is to look at how many agents, boosters, etc. are fighting with each other to give these kids money. Nobody is begging to give me any extra money at my job, and that’s because the market has decided what my skills are worth. I think we can all agree that the schools would pay these athletes even more than the costs of a scholarship in a free market.

      And for anyone that says: I would gladly take their place! I wish I could have graduated without a mountain of student loan debt! Well, I wish I looked like Leonardo Dicaprio and had his acting skills. Then I could make $20 million a year and date supermodels. Unfortunately, most of us aren’t born with the talent and/or possess the work ethic to be big time collegiate or professional athletes. Such is life. But that doesn’t mean that we should begrudge the people that do possess these skills. More power to them.

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    • Joshua Northey says:

      “If they are hurt, they are still given the education and all medical care needed. ”

      This isn’t actually true…

      “already are, quite generously”

      I would question whether many of them would want that pay. It seems similar to paying a factory worker with thousands of pairs of shoes and then asking why they complain. We made fun of the USSR when they did that. I think most of them would take their compensation in cash if given the choice.

      You are not really claiming that this is a fair market can you? What do you do? How would you like it if employers in your profession dictated you could only be paid the same wage as everyone else in your profession. Moreover you will be paid in Church of Scientology Auditing and any attempt to otherwise capitalize on your position will lead to immediate termination?

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      • Michael says:

        No one is forced to play college football. If they consider it unfair to receive a free education for the ability to run fast, they could try to get a job in industry that fits their talents (chinese food delivery?).

        If an athlete is hurt and can’t play, most schools will give them a medical hardship scholarship, which entitles them to all the benefits of other players, including access to medical care.

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