Exploitation in College Sports: It's Not Just Football and Basketball

(Photo: Wally Gobetz)

When we think of money and college sports, we tend to think only about basketball and football.  In fact, defenders of the excesses we see in those sports – with respect to salaries to coaches and university expenditures – argue that these sports are necessary to support all the other teams universities field. People often argue that outside of football and basketball, athletes in other sports don’t generate enough revenue to justify their scholarships. 

A recent paper by Leo Kahane (editor of the Journal of Sports Economics) challenges this line of thinking.  Kahane’s paper looks at college hockey, which will hold the Frozen Four this week in Tampa, Florida (really, Tampa).  This is college hockey’s championship, an event which doesn’t get quite the same attention as the NCAA Final Four for men and women. (Perhaps also because people don’t associate hockey with Tampa?)

Before I get to Kahane’s study, let me just note a few items from the first paragraph of it — which I think captures the essence of the college sports business:

  • the NCAA generates a substantial amount of revenue. In 2008, the NCAA had revenues of $4.4 billion.
  • this revenue is used to pay salaries to administrators and coaches: coaches from the Football Bowl Subdivision – or FBS – have an average salary of $1.3 million; while the last NCAA President Myles Brand was paid $1.72 million.
  • a college hockey coach – Dick Umile of the University of New Hampshire — is the highest paid state employee in New Hampshire

I would add that in many states one suspects the highest paid state worker is a coach of a college team. 

How is this possible?  As Kahane notes, the compensation of the people who generate this revenue – student-athletes – is heavily restricted. The restrictions – as past research has indicated – result in the underpayment of some student athletes (i.e. many are paid less than what they receive in compensation) and much higher salaries for other state employees. 

Previous studies have already found evidence for underpayment in college football, men’s college basketball, and women’s college basketball.  Robert Brown, who pioneered this line of research, recently updated his study of college football in a paper presented at the 2011 meeting of the North American Association of Sports Economists.  Brown’s update indicated that in 2005, players eventually drafted into the NFL generated revenues for their respective colleges that ranged from $187,760 to $2.59 million. 

Kahane’s work applies this same approach to the study of college hockey. Specifically, Kahane’s study examines how the revenue generated by college hockey teams is impacted by players who eventually are drafted by the National Hockey League (controlling for factors such as schools size, conference, and team quality). 

And here is what Kahane found:

Empirical results…showed that top-flight college hockey players generate between $131,000 and $165,000 in added revenues to schools. The NCAA reports that the average value of an athletic scholarship for 2008 is between $14,000 for in-state public schools to $32,000 for private schools (National Collegiate Athletic Association, 2010). This implies that a premium college hockey player generates rents in excess of $100,000 per year for the typical institution.

To put this result in perspective, Brown and Todd Jewell – in the journal Industrial Relations — found that a future WNBA player generated between $38,000 and $400,000 for her respective college team.  So it’s not just football or men’s basketball where we see athletes generating substantial revenues for their schools.

As Kahane notes, these revenues tend to find their way into the pockets of the coaches. To illustrate, Nick Saban – head football coach at the University of Alabama – recently signed an extension that will give him $5.62 million per season. Saban just led his team to the BCS championship.  New York Giants coach Tom Coughlin also just led a football team to a major championship (the Super Bowl). He is finishing a contract that paid him $21 million across four years (signed after he won his first Super Bowl title), so Saban’s contract with Alabama is comparable to the upper echelons of NFL coaching.

As sports economist Andrew Zimbalist has noted in the past, this doesn’t make a great deal of sense.  The NFL only has 32 teams sharing at least twice the revenue generated by all NCAA sports (the NFL generated about $9 billion in revenue in 2010, about twice what Kahane reports the entire NCAA generated in 2008).  Not only does college football generate less revenue, there are far more teams claiming a piece of the pie (there are more than 100 FBS schools).  So the revenue per team in the NFL dwarfs what we see at the college ranks.  And yet, the salaries of top coaches in both places are similar. 

How is this possible? Coughlin’s players face far fewer salary restrictions. Consequently, Coughlin’s pay — as a share of organizational revenues – is far less than Saban’s salary.  

And this should be remembered next time you hear someone with the NCAA tell us they cannot afford to pay the players. The coaches and administrators all financially benefit from this current arrangement.  Given that people respond to incentives, we should not expect coaches or administrators to voluntarily give up their pay to compensate the people who make that pay possible. 


Jason

How do donors play in to this? I've heard the argument that they can justify these ridiculous salaries because the school's donors pony up much of the salary. Any truth to that?

DRDR

"This is college hockey’s championship, an event which doesn’t get quite the same attention as the NCAA Final Four for men and women. (Perhaps also because people don’t associate hockey with Tampa?)" -- can you please find writers that don't need to resort to such condescension and think they're far more clever than they really are?

The Frozen Four sells out regardless of the location. Lately the Frozen Four has sought out host cities which are NHL cities but not college hockey cities, in order to expand the overall fan base of U.S. college hockey. That's why the Frozen Four is in Tampa this year. It seems like good business to me, to alternate between NHL cities with no college hockey and traditional college hockey hotbeds like Boston and Minnesota.

Any explanation for why the Frozen Four is less popular the Final Four starts with the same reasons for why hockey is less popular than basketball.

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DRDR

You note "People often argue that outside of football and basketball, athletes in other sports don’t generate enough revenue to justify their scholarships. " Does adding hockey to this list really change this argument? First, this isn't really news, even if the masses don't know it. The NCAA has always been very up front that baseball, men's hockey, and men's/women's basketball at the D-I level are the only championships that are profitable for the NCAA. There are still many other college sports that don't generate revenue, and if hockey instead of basketball is the flagship sport for a New England school like UNH, then so what?
--

Alexei

South Park made a nice episode about slavery.

PFOJ

I think exploitation is only possible when the exploited lacks options. College football is the only real development system for someone looking to make the NFL, but every single NHL draft pick could play in professional leagues in Canada if they so chose. Clearly those that choose the college route find it to be worth their time or they would not choose it

[WORDPRESS HASHCASH] The poster sent us '0 which is not a hashcash value.

nobody.really

“Empirical results…showed that top-flight college hockey players generate between $131,000 and $165,000 in added revenues to schools. The NCAA reports that the average value of an athletic scholarship for 2008 is between $14,000 for in-state public schools to $32,000 for private schools (National Collegiate Athletic Association, 2010). This implies that a premium college hockey player generates rents in excess of $100,000 per year for the typical institution.”

Some questions of methodology:

1. Are we looking at a selection bias problem here?

You don’t need a model to demonstrate that some college teams make money. Rather, I sense the studies are trying to suggest how much an individual player generated in revenues for a school – and, by implication, an estimate of how much the player would have earned in a competitive market.

But presumably college teams don’t know a priori which athletes will make it into the NHL. A study that scrutinized only costs and benefits of players that succeed, judged ex post – and not the cost and benefits of all players, judged ex ante – may produce biased results.

2. What does “the average value of a college scholarship” mean, and what do the figures “$14,000 for in-state public schools to $32,000 for private schools” reflect? If these figures represent tuition costs, I’d challenge their relevance to the discussion.

A. The cost of obtaining a degree from any given school is rarely established via a free market. A school’s published tuition costs may be too low because they fail to acknowledge that, for people who don’t meet the school’s admissions criteria, the price is effectively infinite.

B. It’s also my understanding that many schools relax their admissions criteria in order to attract students with certain attributes – especially athletic attributes. To the extent that getting an athletic scholarship is part of a package that involves getting more favorable treatment for admissions (among other forms of favorable treatment), the value of the package may greatly exceed the published tuition price.

C. Conversely, there’s reason to suspect that the published tuition price may exceed the net value of a scholarship. Among athletes that would have gained admission to the school even in the absence of their athletic skills, how many of them would have paid the full tuition “sticker price”? Most kids don’t, so I see little reason to presume that athletic kids would.

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BSK

Using tuition rats is faulty. Those numbers have profit built into them. It does not cost the university that much to educate the students.

James

In fact, the cost of education is often considerably more than the cost of tuition, especially for state universities.

DHPIV

In evidence about revenue generated by top-flight hockey players, I assume (perhaps incorrectly) that the revenue generated is a a total, not annual, amount and that the scholarship costs are annual. When you multiply costs by 4 it's a lot closer to revenue. Also--what's definition of top players, ones who go pro? That's what, 1 or 2 per team? That means 20 other guys generating little to no revenue and getting scholarships. To me, that's one of the most complicating issues: yes, guys who go to the NFL obviously are a good deal for colleges, but what about the 95% (or more) of guys on a fb (or hockey) team that are getting the better end of the deal with the colleges through their scholarship?

twp

Not thrilled with this analysis. Why, for instance, do you compare Saban's salary to Coughlin's, and then compare mean NFL team revenues to mean FBS revenues? Wouldn't it make a lot more sense to compare Alabama's football revenue to that of the Giants? Even then, the real question is how much value does Saban bring to Alabama as opposed to how much Coughlin brings to the Giants (that is, how much would they change with someone else at the helm). This whole argument relies on Alabama's administration being a bunch of morons, throwing money away on a big name coach for no good reason.

This is not a new argument--I've seen it elsewhere, just never this blatantly. It seems to go something like this: "There's a lot of money floating around college football, and since the players aren't able to soak it up, it ends up sloshing into the coaches pockets." And this just makes no sense to me. There may be problems with college football, and there may be reasons to pay players. Regardless, this argument just doesn't work.

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Steve S.

Since all of these NCAA athletes are playing "for free" anyway, doesn't this economically justify the reason for not paying them? Let's not confuse economic viability and equability as being the same.

Joe

You argue that Saban should not make as much as NFL coaches because the NFL generates more revenue and there are fewer NFL teams. However there are a couple of differences:

(1) Saban and his team generate a significantly larger percentage of the college football revenue than any NFL team generates of the NFL revenue. Alabama is the team always playing in prime time and int he BCS games that generate huge TV contracts.

(2) College coaches are the face of the programs and more important to the fans than individual players. Because college players spend few years in the game, they are never the "face" of the program for more than a year or two. By contrast, players are the face of NFL franchises. (See Eli Manning in New York, as opposed to Coughlin)

This minor contention aside, I agree that if schools had to pay their players, the supply of large contracts for coaches would fall.

beanocook

Bama could out spend every NFL team by 3x if thats what it took to hire the best coach. They already have much better training facilities. Bama just wants it more.

alex in chicago

So no one is going to touch the elephant in the room?

Okay then.

Title IX.

Joe Dokes

Alex,

How so, I do think title IX has been bad for unpopular, non-self supporting male sports. Although very good for female athletes.

That being said, how exactly has title IX created this perverse economic system in top tier college athletics?

Regards,

Joe Dokes

alex in chicago

How many female college athletes would be worthy of pay under any objective economic measurement?
Now compare that to the number of male athletes.

It is certainly nowhere near a 1:1 ratio. Its hard to imagine it even being a 2:1 ratio.

Jack Skellington, ESQ

------How is this possible?--------

How is it possible that the elite end of two labor markets with significant overlap show something close to pricing equilibrium? Serious question?

Should the NCAA require players to paid? Of course. Should they because it's unfair that elite NCAA coaches have salaries similar to elite NFL coaches? No. Would it matter if coaches were volunteers? Would that negate the argument that NCAA athletes should share in the revenue generated by their competition?

Caleb b

ATTENTION WRITERS: Nick Saban is a state employee in name only. He's an employee of the University of Alabama athletic department and more specifically the football program. That football program generated over $70 million in revenue in 2010, which equals 11% of the total revenue of the entire school. The football program generated over $40 million in profit. The taxpayers of the state of Alabama did not pay one cent of Nick Saban's salary - the self-sustaining Athletic department did.

Journalists, writers, reporters, etc could be a little more intellectually honest by ceasing to reference highly paid college coaches as state employees. It implies that tax dollars are used to pay their salaries and that's just not true.

Jameson

This article does not say anything about the tuition the universities receive. If the coach wants a larger salary they can raise tuition costs at the university, and if it is a public school they can raise the tuition on far more students than a private school which makes the salary a much smaller percentage of the organization than this portrays. Also, if many of the coaches are employed by the state I am sure there are many other avenues that can be utilized to compensate these men.

David Ellett

Only slightly related to this post, I was wondering if the effect of one team (Notre Dame) could be analyzed in relation to interest and money spent on college football this year as opposed to the last several years (OK, almost as long as I have been alive...) when they were not as good. Did Notre Dame being competitive really "make college football better" as I heard many people say?