Economist Allen Sanderson Answers Your Questions on Taxing College Football

Last week, we posted an essay by University of Chicago economist Allen R. Sanderson on why he thinks a “sin tax” should be levied against Division I college football. His basic point is that student-athletes essentially serve as unpaid labor, and since most of them never make it to the NFL (or end up out of the league after just a few years), the extra tax revenue should go toward supporting them in their effort to finish their education.

You responded quickly with a variety of comments and opinions; though not so many direct questions. So Allen has written a response that’s broadly aimed at some of the points brought up by a number of readers. Overall, it’s a good (and provocative) read that focuses on the bizarre economics of Division I college football.

Taxing College Football
By Allen Sanderson

First of all, thanks for all the great comments, suggestions and complaints. Good conversations!

In terms of Alex’s comment about “where’s the harm” (or the negative externality), I think the best way to look at it is not unlike the Antebellum South and slavery. To be sure, today’s Division I college athletes are not slaves, nor were they drafted; they volunteered, and expected to benefit more by playing football for Big State University than from their next best alternative. That said, the harm, returning to the slavery analogy, is that fans of football today are able to consume a product that is subsidized by the use of unpaid labor. If the price of football tickets rose by 50 percent, as did logo merchandise and TV broadcasts, and you didn’t want to buy in, then fine. But let’s put our money where our mouths is.

In general terms, yes, players do benefit. But that’s not the point. It’s the extent to which they benefit compared to the coaches and other athletic personnel that matters. For example, compare the average salary of NFL players to the average salary of the NFL coach. Then do the same thing for college football players. The Detroit Lions devote about half their revenue to players’ salaries, while down the road a few miles, the University of Michigan pencils in about 10 percent of its revenues for player “salaries.” In a competitive marketplace, these two costs would be much closer to each other. The difference gives you a rough approximation of the exploitation rate.

The age issue – to Michael’s comment – is an important one. I’m allowed to drop out of college, or not go at all, if I want to start a computer business in my garage, star in a Hollywood movie, or pursue whatever whim or dream I have. But the cozy relationship between the NCAA and the NFL requires that these athletes spend effectively half their useful economic lives in unpaid internships (a.k.a. athletic grants in aid) so that professional teams can do things like determine how good their knees are before drafting them. The average NFL player is only in the league for four years (actually, it’s 3.4 years, per Dubner’s conversation with NFLPA head DeMaurice Smith), which is roughly the same amount of time he spends in college before being eligible for the draft. The NFL benefits from this arrangement; the university benefits, but at some point well shy of four years, the player does not.

To Joshua Northey’s comment, it’s much harder to sue the NCAA and colleges for collusion, than it is to sue the NFL. Not impossible, just harder. And the cartel that is the NCAA caps the players’ salaries, but can’t do the same for coaches because they’d be hauled into court (and likely lose) in a New York minute. So, coaches can sell their services to the highest bidder, while the student athlete cannot.

Take this rough example: If the American Economic Association could cap all assistant professor salaries at $50,000 a year, wouldn’t it still be beneficial to pursue a career of teaching and research?  Sure, just not nearly as lucrative. Why don’t the leading 50 PhD programs join together to enact such a plan? (See the Sherman Act)

By the way, I am in favor of Title IX opportunities for women, but I’m not sure why those scholarships, and for non-revenue sports in general, have to be financed on the backs of the football and men’s basketball teams. If the institution wants to field women’s teams, great. (Plus legally it will have to.) But then why should football players fund these things? Find another source. In addition, the vast majority of NCAA football and men’s basketball players are African-American; the vast majority of NCAA volleyball, baseball, swimming, lacrosse, etc. players are white, and from middle and upper-income families. At least Robin Hood took from the “millionaires and billionaires.”

Being a football or basketball player at a Division I university is a full-time job, leaving little in the way for much of a life outside the weight-room or practice field. So the “kid” is unlikely to get anything in the way of a decent education. There aren’t that many hours in the week.  Plus I’m not sure why graduation rates are a good gauge of a program’s academic side. The athlete is really only at the university to play ball. Case in point, during a nationally-televised college game last weekend, the announcer referred to a player who wanted to transfer; not because another university had a better chemistry department, but because the kid thought he could start (at QB in this case) somewhere else. Let’s stop kidding ourselves: these athletes are in college because the professional leagues require a certain period of indentured servitude.

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  1. Jamison Wicks says:

    The revenue gained from college football doesn’t just go solely into the program. that money is used to subsidize all sorts of student events and other sports that aren’t high profit. The players are helping their fellow students and their university. Social capital on college campuses is high and this is essential in maintaining the college experience. The players are paid in free gear, trips, facility use, and many times, a free education. Taxing football profits will hurt students and hinder an environment that strives for cooperation and unity.

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    • Charles D says:

      Please visit an SEC town on the day of a big game, and proceed with a justification of “increasing social capital”–and, more to the point, that even if such an increase exists, it furthers the goal of a university. While I don’t dispute to the legality of boosters, alums, and college kids to get drunk and (literally) trash (many college towns and campuses either explicitly or implicitly suspend open container laws on game-days) campus and the right of the university to shut down all academic functions, the notion that the events directly cause an increase in the quality of academic services simply lacks both data and logic. Moreover, the notion that those who are working on Saturdays to make the event happen are the only ones who go uncompensated is absurd.

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    • Matt N says:

      I think one has to consider that regardless of revenue, very few athletic departments actually make money, when one considers the cost of all programs. Typically only 5-7 schools make a net profit in a given year, and really only schools like Notre Dame or Texas reliably make a profit.

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      • Ryan says:

        Wait a minute. If only 5-7 total schools made money, then why does every other school continue with its football programs?

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  2. caleb b says:

    I see why people want the players to get some of the millions, but is the university going to pay players? Everyone gets the same? The fifth string punter gets the same as the starting QB? The swim team gets the same as football players?

    One other note: the “income” generated from football extends well beyond the althetic department budget.
    1) Alumni donations, to the university itself, are correlated with football wins at Big State U.
    2)Enrollment increases after National Championships
    3)Non-alumni buy school logo merchandise and not bc of academics.

    I live in Oklahoma. 2/3rds of the people of this state buy OU merchandise and most have never attended the school. They don’t do that because of the chemistry department.

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  3. Mike B says:

    Is it possible to have a volunteer driven activity that is also highly profitable? (Although profitable in the non-profit sense where the positive revenue goes to support other non-profit activities.) I mean think about this, the vast majority of college athletes are non-revenue. They play and put in a lot of hard work because they not only enjoy the activity, but it provides a number of other real world benefits such as better health and fitness, post college professional careers, leadership, travel, the chance to distinguish oneself, etc. Let’s say for a moment that the popularity of college badminton really takes off and suddenly the big D-I badminton schools are raking in loads of profit. From what student’s point of view what changed? They would have been playing badminton no matter what the revenue picture, but by your logic the school should feel obliged to pay them because of the independent decisions of fans to start turning out in droves.

    I think in the case of the NCAA the problem is that they have formed a cartel which shield schools from the competitive pressure to pay players. However let’s say that some conferences break away and form legitimate semi-pro or minor pro football and basketball leagues. They attract all of the top talent that could potentially go on to bigger and better things and that talent is paid to some degree. Well, ok, then what happens to everyone else? There are a lot of D-I players out there that don’t have a lot of value and in fact get more value from a scholarship than they could ever hope to earn in a professional minor league. Just because a school doesn’t want to participate in the market for top players doesn’t mean that school can’t be competitive in a conference with similar rules and therefore can’t remain wildly popular and thus profitable. Look at D-II and D-III. Those schools “compensate” their players even less yet players still show up, fans still buy tickets and I am sure in some cases the revenue might be positive.

    I don’t think the proper argument to make here is one based on the “unfairness” of an organizing getting benefits from the efforts of volunteers. The problem with the NCAA is that it represents an anti-competitive cartel. If schools want to compete for top talent with money and run a college-related professional sports league more power to them. If schools decide to run an unpaid football program yet still offer a product that is profitable then they shouldn’t feel any pressure to change their compensation strategy.

    I think that colleges should embrace the concept of eliminating the – or / from “Student Athlete.” Think of them not as students that are also athletes, but perhaps a student at becoming an athlete. Put together a major course of study that prepares someone for a career in or related to professional sports.

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  4. alex in chicago says:

    Good thing he didn’t answer any of the poignant questions, perhaps a career in politics.

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  5. Q says:

    College athletes should be allowed to market themselves and to earn money playing their sport. It may be that if they were allowed to do things like sign with agents, sell memorabilia, earn endorsement fees, and play in semi-pro summer leagues outside of their college teams, some of the most unfair aspects of college sports would be rectified without the need to start paying the players or taxing athletic programs. The prospect of paying players poses a number of difficult questions, so let’s try some more modest steps before we try going there.

    I’m just glad that while I was in school there wasn’t an “undergraduate engineering association” out there threatening my department with sanctions if I took a paid internship.

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  6. Aaron says:

    Mr. Sanderson,

    Do you ever think a football minor league will emerge to solve most of these issues? If Mark Cuban’s UFL, attracts and pays those players whose sole goal is to get drafted by the NFL, then the only remaining college football players are those genuinely taking advantage of their athletic scholarship to fund a college education.

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  7. Austin says:

    I feel you have glossed over a very key point, “what is it about college athletics that allows them to have such large revenues?” The only two minor league sports in the United States that receive any kind of broad viewership are Football and Basketball (both of which are college sports). In most cases the incredible viewership that these sports enjoy are a direct result of alumni support (through tickets and donations). Don’t believe me? Then why is it that the baseball minor league system enjoys a fraction of the revenue (and attention) of Football and Basketball? The answer is it doesn’t have a university institution tied to it as a result the baseball minor league system attempts to sell a very different product.
    Now contrast the minor leagues with the professional counter parts the NBA, NFL and MBL where players are the very best at what they do. Fan support arises in these leagues for the skills the players have and the resulting entertainment of watching the very best in contest. If you were to start paying college athletes you would be dis-incentivizing alumni participation in college athletics(through higher prices and destroying something they see as pure). Numerous football programs would be cut, alumni support would be lost and the entire argument for paying players would be moot as there would be too little money
    There can be no doubt that the situation for non-elite athletes is dismal and in some ways grossly unfair. As many of my favorite economist like to point out “fair” is not an objective assessment. The fact that they don’t receive much has more to do with the fact that they are not the best. Sports are a steep pyramid structure and the sad fact is being on the bottom for lack of a better work… sucks.

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  8. Jesse says:

    I think everyone agrees the players receive some benefit. Continuing with the slavery analogy, slaves received food and shelter.

    The point is that the players don’t receive a benefit which is near the ones they would receive in the free market.

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    • Kevin says:

      Taxing college football might be the dumbest idea I have ever heard. The fans pay for tickets and gear and do not consume freely. The big colleges with successful programs and the NCAA reap the rewards. Any tax would only be passed onto the public, which is already over burdened by an intrusive gov’t. The answer to our problems is not more government, that is exactly how we got into our current mess.

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