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. Charles Bock says:

    Dear Mr. Sanderson,

    I found your post quite intriguing as it posed a great suggestion in regards to the utility of revenue in college sports. It is refreshing to find myself reading about a business decision directed towards benefiting the athlete rather than the university. Likewise, amidst the wide-ranging discussions regarding the payment of college athletes during their athletic tenure, I have heard very little discussion about supporting the well being of the college athlete come the end of his/her athletic reign. However, I think this is a significant issue and one worth acting upon. As you mentioned, there is only a small portion of athletes who actually make it big and graduation rates are not ideal. With the opportunity for these student athletes to receive a meaningful education would prove advantageous for the individual, allowing for augmented professional productivity. Nevertheless, despite its great incentives, it seems like it will be a difficult endeavor to bring about due to obstinacy from the universities. While many schools maintain that their sole focus is on the student athlete, I (as well as many others) refute such claims. They seem to only be responsive to change that will generate more money for the program. Do you think universities would be responsive to implementing such an initiative?

    With so much money floating around in the sport, one would think that it would be a feasible concept. Although, with so many programs running at a deficit, I just wonder where the funding would come from. It would seem unfair for some schools to provide this opportunity while others could not afford it. Then again, this could serve as an enticing element for student athletes in their decision to attend a specific school. Alternatively, I suppose it could also be possible for all participating schools to contribute revenues to a communal pot and then divvy out the necessary proportions to each contributing school. Thus, the same way a school like Texas helps cover other university costs with the money generated through the football program, more financially stable athletic institutions could help pay for the less fortunate schools. To reinforce this idea, in a recent ESPN article, Big Ten commissioner Jim Delany stated, “league athletic directors and officials have seriously discussed whether they should use some of their growing TV revenue to pay athletes more.” This view emphasizes the growing revenues, and could in fact be implemented in support of your idea of funding further education.

    -Charles Bock
    http://myportfolio.usc.edu/cbock/

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  2. People's Champ says:

    With the eduacation gap in this country and need for people to go to school a gradute with a degree that can help them get a job in this global economy, my question is why do we spend so much money on sports in gerenal and why can student athletes major in becoming a student athlete and be more prepared for the field they are attempting to get a job doing. If students could see the big picture they could control their own destiny, and if they didnt make it as a professional they could going into other field that are connect to sports such as coaches, trainers, broadcaster, and analysis.

    Back to the sin tax, I think it is a great idea because we need more creative ways to raise revenue if our country is in so much debt and collecting a tax for exportation seem like a good idea to me, but my concern would be that it would just raise the cost of everything even more and not really fix the problem becasue the “power that be” that are making all the money now won’t let any of it go away the would just raise the cost on the consumer

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  3. Michael Bryson Wersonske says:

    Thank you for writing this article, I have a BA in economics from Southwestern University and am an avid college football fan. Though it took me a while to stumble across this piece I am delighted to see solid economic principle applied to one of the most inequitable systems in the US. Over the last century college football has morphed into a billion dollar industry the rules governing it have become ever more repressive for the students who power the sport.

    I have never put my thoughts into an essay, but I have always considered college football to be a modern example of indentured servitude, made even more so when the NFL and NCAA passed regulations requiring two years of college football before a player is eligible to enter the draft. Since the NFL currently functions as a monopoly for high paying professional football, college football is left holding every card and the student athletes are forced to play the game for free.

    I would be interested in reading Dr. Sanderson’s opinions on a more in depth look at recruiting practices. I have argued before that the “market” for high school players looking to play college football functions under a black market model based on the economics factors.

    Players are all paid equally, or I have argued “equally enough” to consider pay equal. Though some players compensated in a degree that cost more, for example Stanford would technically compensate more than Arkansas State based on tuition costs. In reality all players are paid nothing over the short run.

    Schools, athletic directors and Coaches however are all paid very well, and their job hinges on the success of the team. Demand for the high quality players are very high, demand for the low quality players is much less, and yet all players are paid the same. I believe this is enough to make college football recruiting a black market system.

    I believe in this case the track record of recruiting violations backs up my claim

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