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. Canelo says:

    If colleges can’t pay athletes (Title IX might really complicate this) how about just letting the players take what they can get from boosters? I never understood why this was immoral or even any of the university’s concern. It’s not like the athletes are stealing anything (the boosters are willingly giving them money) and it takes nothing away from the college. If a rich stockbroker wanted to pay a brilliant young mind to attend his alma matter, even if it was just for bragging rights, would anyone be against this?

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    • Joel says:

      Yeah. This really does seem like the easiest solution. Unfortunately, it’s also the least savory. Its main drawback is that the school’s with the richest alumni will have the best teams. This will really solidify the top programs since the best teams have the most fans, and the team with the most fans has the most cash which allows them to attract the best talent.

      I’d rather create a system that gives the smaller schools a fighting chance. Maybe we could just put a cap on donations from boosters. But I agree with the article and think sharing amongst the players the profits made from the big time college sports industry seems like the right way to go about it.

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  2. mike says:

    I’m guessing that this is a tax with no impact on the University of Chicago. Based on performance, I’m guessing its gross receipts from football are, roughly, zero. Therefore, this is yet another “Don’t tax you, don’t tax me, tax that fellow behind the tree” proposition. I ignore policy prescriptions from people with no fat in the fire.

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  3. Joel says:

    Here’s something to mull over: Imagine you’re a manager at Widget World Inc. and you’ve got an random entry level-white collar-any reasonably smart person could work this job after 1 week of training-position available. You’ve narrowed the applicants down to two recent college grads-a communications major with a 2.7 GPA who was a 2 year starter for his division I football team and an english major from the same university with a 3.9 GPA. Who do you take? (kind of feel like a bookie setting the point spread when picking those GPAs)

    I’d probably take the football player and I’ll wager that whenever this situation comes up in real life, the football player is just as competitive if not more than the guy who just graduated with his random liberal arts degree. If a guy played football, that reflects well on his work ethic and his team player IQ. I’d also give him some points for intelligence since football really does look pretty complicated when you look at those X’s and O’s.

    The point being that I don’t think football players who finish their degrees are being left in the lurch anymore than majors in english, philosophy, archeology, art history…you get the idea. Maybe it’s enough to just focus our resources on making sure that the student-athletes graduate which is what every school is supposed to be doing already anyway.

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  4. lorien1973 says:

    Don’t most these kids on the football teams get a free (or next to free) college education just for being on the team? If they pick a useless major – well, join the club of students all over college who pick a useless major.

    Also, why just football? There are other college sports as well where you have athletes who are unpaid and risk injury? Are they exempt because, frankly, no one cares about their sports?

    I tend to agree that college football players should be paid. And college athletes in other sports – but the problem there is, is that in the big schools the profits made by college football essentially finance the other minor sports – swimming, lacrosse, etc. So if you pay a football player, inevitably you’d have to pay players in other sports and those programs would probably end up closing down cuz they are already monetary losers.

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  5. M_H says:

    This is certainly among the least thought-out articles that I have ever read on this blog.

    As the first commenter said, where’s the externality which makes this a “sin” tax?

    Also, the article states that universities provide “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. . .” Any college student would kill for room, board, tuition, and a stipend, yet the author writes it off as virtually nothing.

    And the author has evidently never heard of the “economics of superstars:” there are already an economically inefficient surplus of athletes, and paying them would only increase this surplus at a cost with almost no marginal benefit (an excellent description of this effect is available here: http://www.thebigquestions.com/2010/02/23/the-olympics-bernie-madoff-and-me/ )

    If a student turned in an article like this as an economics assignment, it would almost certainly be marked down considerably for not understanding even basics of economics (like “sin taxes” and externalities). It is absolutely shameful that somebody with PhD after his name would write something like this.

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    • David says:

      One solution to this problem that I’ve yet to see the NCAA seriously consider would be allowing college athletes to accept sponsorship deals, like other amateur athletes outside the NCAA system are currently allowed to do. This would allow the best student-athletes to receive financial support closer to what a true open market system would provide, without stretching the already thin budgets of many public universities even thinner. Additionally, this would also to a certain extent deflate the artificially inflated salaries of Division 1 coaches and administrators. Case in point: Coach K at Duke has a contract that pays him $6 million dollars over 15 years for his players to wear Nike shoes. Why not allow the players who are actually wearing the shoes to receive that $400,000 dollars per year? (Some studies suggest that top-level Division 1 basketball players would be able to earn roughly $300,000 dollars per year, which is certainly less than the value of an athletic scholarship)

      Another market liberalization that the NCAA should consider is allowing institutions to offer prospective student-athletes more than just one-year, renewable scholarships. The current system unfairly stresses athletic participation over academics and forces many Division 1 caliber players to pursue less difficult majors so that they can attend “voluntary” workouts and keep their scholarships. Allowing NCAA institutions to offer four year scholarships vs one year scholarships would give prospective college student-athletes some bargaining power and security when deciding where they want to participate in intercollegiate athletics. Student-Athletes are expected to commit to their program for four and sometimes five years and have to sit out a season if they transfer. Shouldn’t coaches have to make the same commitment to the student-athletes they recruit?

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    • David says:

      One solution to this problem that I’ve yet to see the NCAA seriously consider would be allowing college athletes to accept sponsorship deals, like other amateur athletes outside the NCAA system are currently allowed to do. This would allow the best student-athletes to receive financial support closer to what a true open market system would provide, without stretching the already thin budgets of many public universities even thinner. Additionally, this would also to a certain extent deflate the artificially inflated salaries of Division 1 coaches and administrators. Case in point: Coach K at Duke has a contract that pays him $6 million dollars over 15 years for his players to wear Nike shoes. Why not allow the players who are actually wearing the shoes to receive that $400,000 dollars per year? (Some studies suggest that top-level Division 1 basketball players would be able to earn roughly $300,000 dollars per year, which is certainly more than the value of an athletic scholarship)

      Another market liberalization that the NCAA should consider is allowing institutions to offer prospective student-athletes more than just one-year, renewable scholarships. The current system unfairly stresses athletic participation over academics and forces many Division 1 caliber players to pursue less difficult majors so that they can attend “voluntary” workouts and keep their scholarships. Allowing NCAA institutions to offer four year scholarships vs one year scholarships would give prospective college student-athletes some bargaining power and security when deciding where they want to participate in intercollegiate athletics. Student-Athletes are expected to commit to their program for four and sometimes five years and have to sit out a season if they transfer. Shouldn’t coaches have to make the same commitment to the student-athletes they recruit?

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  6. mfw13 says:

    Keep in mind that less than 1% of all college football/basketball players ever play professionally for any length of time, and most of them know that they will never play in the pros before they ever set foot on a college campus. So for them receiving a full scholarship(i.e. room, board, and tuition) is without a doubt reasonable compensation for their efforts.

    What we are really arguing about here is whether the best of the best, i.e. the players who draw crowds and cause their teams to excel, are being fairly compensated or not. Given that most of them turn pro ASAP, they clearly feel that they are not.

    However, it could be argued that the real enablers are the fans, i.e. the people who spend all this time and money paying to watch these athletes. After all, if they felt strongly enough that these athletes were being taken advantage of, they could simply boycott big-time college athletics and go watch the nearest Division III school instead.

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  7. arnoldledesma@comcast.net says:

    Anyone ever done a study on the relationship between Financial/ Government Crooks and the University they attended? Is there a University breeding more financial crooks than others?

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  8. Caleb b says:

    1) Alumni donations to the school, not just the athletic dept, is correlated with football wins. 2)University attendance spikes after national championships.
    3)Sports give schools national recognition.
    4)Non-alumni buy school logo merchandise and not bc of academics.
    All of these things represents direct, or indirect, income to the school bc of football/basketball but are not reflected in the athletic dept’s budget.

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