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 in chicago says:

    How do you ignore that many/most of these kids would not get an education without the sports? The money saved can be put to graduate school for a degree worth even more in the workplace.

    Lastly, what is with the obsession with taxes? I suggest we tax people who suggest more taxes, that should put an end to the suggesting of more taxes.

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  2. DeLong says:

    With all of the NCAA infractions being reported on, plus the millions spent on college football and basketball, the players are looking more and more like indentured servants. They get a marginal education in exchange for slim hopes of making it as a professional. One way to stem the flow would be to make all of the college “booster clubs” into for-profit organizations and take away their tax exempt status. That would also help stop the flow of money.

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    • Michael says:

      Most of the “infractions” are from athletes receiving money/stuff. How does receiving more money make them look more like indentured servants?

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  3. AdamY says:

    Maybe less than half of football players receive a degree, but I would guess that maybe only 20% of the players would be in college at all if it weren’t for football. I don’t know about the rest of the country, but this is definitely the case at my school (SEC school). Since education is a positive externality, college football at my school is actually increasing social welfare. Even if only 40% of them receive degrees, it is still a net positive since otherwise those that would have never attended college got a degree. Not to mention football pays for many other non-revenue sports. Those experiences for those students add to their educational experiences. So again football is increasing social welfare. I’m not seeing the argument that college football should be taxed.

    Another point is that most football programs don’t make any profit anyways. About the top 20-25 make millions, but after that almost every program is in the red.

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  4. paul o. says:

    I’ve never seen gasoline taxes classified as sin taxes. The idea behind gas taxes is to pay for the construction and maintenance of roads and other forms of public transportation.

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  5. Beanerspace says:

    There’s already a tax on college football and basketball, it’s call the Title IX of the Education Amendments of 1972.

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  6. Ernest says:

    Great article. But wouldn’t it be simpler to just force them to pay the athletes? Or allow the athletes to unionize and bargain for wages?

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  7. Jesse says:

    “My problem with your suggestion that athletes being paid is they already are, quite generously.”

    Everytime the student athlete issue comes up something along the quoted is suggested but does anyone believe that division I players are being paid fair market values for their performance?

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  8. Tim McCollough says:

    Would a taxing football not be more justified by claiming CFB is a natural monopoly? You claim college football creates a negative externality. Who is the “third party” that is injured in this action? All actors have freely chosen to enter into this situation. Athletes provide football playing in return for education, food and shelter.

    Let’s treat the BCS / NCAA as a natural monopoly that controls two markets: the market for college football, and the market for college basketball? (the other sports aren’t big enough to be considered for gov’t regulation) The public is best served by just one “league,” but it needs to be regulated for fear of abuse.

    It is this abuse for which clear and compelling evidence can be made. Take the other natural monopoly football league that should be regulated: the NFL. In addition to the gobs of monopoly profit being “earned,” the NFL has sought to expand its monopoly power with such abuses as their league TV station, the NFL Network. With this, the NFL has huge leverage in negotiations with CBS, FOX, ESPN, and NBC. “If you don’t give us what we ask for, we will start showing Monday Night Football on NFL Network.” It’s an abuse of power.

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