Sportsgeekonomics

Musings on Sports Economics

Presented without comment (from NCAA’s NLRB filing)

"When parents take the long, quiet ride home after saying goodbye the first semester, they want to feel confident that the college or university is working diligently to create the most rewarding educational experience possible.  This feeling is as true for the parents of a student-athlete as parents of any other student.  University leaders have determined that converting student-athletes into paid professionals — injecting a different structure and a different set of motivations for attending college — would destroy their ability to provide a rewarding educational experience for these students and their classmates."  — Brief of Amicus Curiae National Collegiate Athletic Association in Support of Northwestern University, page 18.

Read as much as you care to read here: http://www.ncaa.org/sites/default/files/Brief%20of%20Amicus.pdf

You can read a more fact-driven amicus brief that I participated in here:

http://mynlrb.nlrb.gov/link/document.aspx/09031d45817cccda

Posted by
Andy Schwarz

Middle manager provides housing allowance perks to his staff

Oh sorry, this is college football.  So it’s actually “Scandal!  Director of Football Operations helps Football Athletes with their rent!”

Busby allegedly gave players discounted or rent-free housing, free meals and other gifts. The report says Busby favored offensive players at skill positions. Several players were contacted by the paper, but none said they received improper benefits from Busby or anybody else at the school. Some of the players contacted did say that they “heard” of players receiving benefits, but none went into any detail.

http://www.cbssports.com/collegefootball/eye-on-college-football/24569239/byu-investigating-allegations-of-improper-benefits

Posted by
Andy Schwarz

Price Fixing in the light of day

This is what the world looks like when collusion happens out in the open:

Pac-12 university presidents have sent a letter to their colleagues at the other four major football conferences calling for sweeping changes to the NCAA model and autonomy for those leagues.

A copy of the letter was obtained by The Associated Press on Tuesday night. It was sent last week to the other 53 university presidents from the Southeastern Conference, Big Ten, Big 12 and Atlantic Coast Conference.

Spurred in part by Northwestern football players’ move to unionize, the Pac-12 presidents outlined a 10-point plan for reform that includes many proposals commissioners have been advocating for several years, including a stipend for athletes.

The NCAA is working on a new governance structure that will allow the five wealthiest conferences to make some rules without the support of smaller Division I schools.

From APNewsBreak: Pac-12 presidents back new NCAA model

Posted by
Andy Schwarz

Let us look less to the sky to see what might fall

"Where will this all lead? I know that many suggest we are going down a slippery slope that will have no moral boundaries. To those who truly harbor such fears, I can only say this: Let us look less to the sky to see what might fall; rather, let us look to each other… and rise."

This is from Geiger et al. v. Kitzhaber et al., also known as the Oregon Gay marriage ruling.

I think it applies to much where excessive (and sometimes synthetic) concern for slippery slopes serves the needs of those who oppose change for other reasons.

Posted by
Andy Schwarz

A household analogy

Making analogies between a household and other sectors of the economy can be dangerous, so let me give the standard “don’t try this at home, kids” warning.  I was talking to a reporter from Syracuse yesterday and trying to come up with the right analogy to explain why a business might engage in management-by-accounting that is perfectly benign for its own purposes, but that may confuse an outside who think the accounting represents economic reality.

The example I gave him was if your family has a swear jar, where ever member of the family has to put some coins into the jar if they swear at the dinner table.  I explained that to the kid with a small allowance, the “cost” of putting money into the jar was high — every swear might equate to a lost candy bar.  The goal is to manage the child’s behavior by imposing a cost on activity you want to disincent.  But then I asked whether the family as a whole is better or worse off if the money is in the jar or int he kid’s pocket, the answer is either that the family is in the identical position, or arguably the family is actually better off because the money has been transferred from a kid inclined to spend his money foolishly to the jar, where perhaps it will get saved up for a wiser parental purchase.

In this example, the child is the athletic department and the jar is the university as a whole.  But it fails as an analogy because swearing is an unnecessary bad behavior the parent is trying to stop 100%.

So as a second analogy, let’s think about a family trying to teach their teenager about the value of money and of hard work.  It’s a family with two economists for parents so admittedly, they are a little weird, and they decide for the summer to put a price on every service they provide to the teenager.  They charge rent, they charge for food in the fridge, they charge for the service of cooking the food, etc.  They make him pay a sort of tuition charge for the privilege of attending the nice public school in the good school district they moved into.  They also pay for chores, and the teen has a decent job that brings in money too.

From the perspective of the kid, the food costs whatever his/her parents charge for it.  They may be going to Costco and buying ramen in bulk for 10 cents a pack, and then charging $1.  Housing costs whatever it costs — to the parents, the room would just go empty if the teen moved out (or maybe one of them would set up a drum kit in the room and rekindle a passion for percussion) and so there is no real cost to them of giving the teen space in the host, but to the teen, the $100/mo rent is a huge, looming cost.

In reality, the real costs are what the parents are shelling out and the real revenue is what the teen is bringing in from his job.  The allowance they give him for his chores is not real revenue, and the payments he makes from room, board, tuition, etc. don’t necessarily reflect the actual cost to the household of those expenditures.  Figuring out what the family’s cost of that nice public school is a very hard exercise — it probably involves looking at comparable homes in lesser schools districts, amortizing the difference in cost over the years of schooling, netting out the increased resale value at the end of the schooling process, figuring out the appropriate discount rate for the time value of money.  It’s a lot of work.  But the short-cut of assuming the amount the parents are charging their teenager is a good proxy for the actual cost is a bad one — there need not be ANY relationship.

The parents are picking prices to manager their child’s conduct without having to run his/her life.  They might make studying math come with a payment to the student because that’s conduct they want to encourage (even though it generates zero dollars to the household, at least in the short- or medium-run).  They might make coming in after curfew a very expensive activity.  They are “managing by accounting” in some sense — giving the teenager autonomy but then constraining that autonomy through accounting practice that imposes artificial costs on some conduct.

Anyway, this analogy, like all analogies, is imperfect.  Some colleges face opportunity costs when they let in an athlete — they may be space-constrained so that adding one more football player will mean one fewer violinist can come, and perhaps violinists pay more for dorm space.  But for schools where the dorm room would otherwise be empty (e.g., a school with room that is trying to expand), this might not be a bad one.  And as you can see, trying to judge the profitability of the teens conduct based on the fact that he/she takes all of his summer job wages and spends some of them on real purchases (like buying gas for the car he/she also pays rent to his parents to use) and then also on activities within his family’s rules (like the rent the parents charge on the car) mixes together real costs and fake costs and distorts the picture. 

Is the teenager profitable to the family?  That’s an answerable question but looking at the payments imposed by the family on family members is not going to help you answer that questions.  The teens outside revenue, the teen’s outside spending, the family’s true costs of providing all the services they are charging for, the forgone revenue to the family from housing the teen rather than (potentially) renting out the room — these are what you need to answer the question.  The transfer payments among family members aren’t helpful, unless they are specifically engineered to mimic the true cost.  And that’s a difficult process you don’t just stumble into by putting down the list price of a product if the list price is not the real cost to the family.

Posted by
Andy Schwarz

My morning with Ken Starr: Baylor and Title IX

This isn’t really about my morning with Judge Ken Starr at all.  It is about Baylor and Title IX.  But it did start with the fact that I received the great honor to testify before the Committee on Education and the Workforce of the U.S. House of Representatives (you know, Congress!).  I spent around two and a quarter hours in this House Committee hearing, testifying two seats away from Judge Ken Starr (yes, the Bill Clinton and Monica Lewinsky guy), who was also testifying to the same Committee.  If you’re the kind of person who likes watching 2-hour-plus C-Span archives, go for it: http://www.c-span.org/video/?319264-1%2Funionizing-student-athletes

I apologize in advance for the bags under my eyes, it’s a combination of genetics and the fact that the hearing started at 7am California time.

I want to write about something Judge Starr said toward the end of the hearing.  Congressman John Tierney (D-MA) asked Judge Starr a question starting at 2:15:37 of the hearing, about why Baylor’s financial aid to women was not in alignment with Baylor’s women’s sports participation.  Tierney explained that in 2012-13, Baylor spent 56 cents for men’s financial aid and only 44 for women’s, but that the participation rates would indicate the funding should be more like 42 cents to men and 58 to women, in order to comply with the financial aid portions of Title IX (See my full primer on Title IX In Its Own Words if you want to understand more on this).  Rep. Tierney asked Judge Starr to explain, and this is my transcription for that portion of the testimony of the Honorable Kenneth Starr, President of the University of Baylor:

“Well, that is a very fluid and dynamic process, so it may change from year to year, but if there is in fact a disparity, and I accept what you’ve said, it has to be addressed, so we have to come forward with explanations as to why there may be a temporary disparity. We recently created two new women’s sports with scholarships in order to address the disparity, so we have for example created equestrian with a number of scholarships for women.  We have created acrobatics and tumbling.”

Rep. Tierney then asked:

“Are you saying, you believe this is a temporary issue, you’re saying this isn’t a year to year thing, are you saying that with some knowledge of the facts, or are you just guessing?”

Judge Starr continued:

“Well, I don’t know the specifics of those, that specific disparity, so that is information to me.  What I do know is the academic department, the athletic department does have to focus on this with our Title IX compliance officer, we have a Title IX compliance officer, who reviews all these kids of issues….”

The rest of this article writes itself.  Because Title IX data is available to the public through the Department of Education’s website, I grabbed Baylor’s Title IX compliance data from 2004-5 through 2012-13.  The final year is the year that Rep. Tierney asked Judge Starr about and where Judge Starr implied, but never quite said, was just a temporary issue.  See if you can guess whether the disparity, where male athletes receive more funding than is proportional to the number of male athletes, is temporary or pervasive:

image

I suspect you’re not surprised.  I probably would not have bothered to write this if Judge Starr’s guess had been correct.  But Judge Starr wasn’t just wrong, he was wildly wrong, and Baylor’s compliance on financial proportionality has gotten worse in every year since 2004.  In that first year, women received slightly more than a proportional amount, and likely close enough to count as being “substantially proportionate” as is required by the Department of Education (1.4% isn’t that far from 1%).  But every year thereafter, men received a disproportionate amount of funding and that disparity has gotten worse.  Yes, this “temporary” disparity has gotten worse every year including the last three years, which according to Baylor’s website, are all under Judge Starr’s tenure as Baylor’s president. 

So either Judge Starr doesn’t know much about the facts of his athletic department’s poor compliance with the Title IX’s financial aid requirements or else he does know and just chose to misrepresent the information.  Either way, I would think that would make him a bad choice to be testifying about Title IX to Congress.

Full disclosure.  I also made an error in my testimony, only in amount, not in import.  And obviously not intentionally.  You can read all about it here: http://sportsgeekonomics.tumblr.com/post/85224055693/sportsgeekonomics-regrets-the-error

Posted by
Andy Schwarz

One more follow-up on “Caste System”

I was asked if Bernard Muir really called paying athletes a “Caste System.”  The answer is yes.  This is from written testimony he submitted under penalty of perjury:

"I believe it would be difficult, if not impossible, to maintain the type of cross-sport support and camaraderie with the type of caste system that would be created if some student athletes are paid."

This is from Paragraph 10 of a Declaration Muir filed in December of 2013.

Posted by
Andy Schwarz

Sportsgeekonomics regrets the error

Let it not be said I am afraid to admit an error in those (hopefully rare) cases when I make one.

During my testimony yesterday I said that the editor-in-chief of the Stanford Daily earns $45,000 per year.  That was an error, of magnitude but not of concept.  Based on information I’ve been given since my testimony I’ve learned that $6,000ish is the more typical salary earned by the editor in chief. 

The reason I thought the pay rate was high was because I looked on glassdoor.com:

Vice President of Sales & Advertising

The Stanford Daily Salary

$37k -$40k

Chief Operating Officer

The Stanford Daily Salary: $38k-$40k

Business Manager

The Stanford Daily Salary:$43k -$46k

I was my belief that these are student-held positions.  I have since learned that some are and some are not.   The reason I thought they were student positions is because the Stanford Daily website more-or-less says the paper is entirely student-run:  (my highlighting below for emphasis):

The Daily’s staff is comprised of more than 200 student writers and editors. Membership is open to any registered Stanford student and no experience is required. Prospective staffers should stop by the Lorry I. Lokey Stanford Daily Building at 456 Panama Mall, between Memorial Church and Old Union, or e-mail the editor in chief at eic@stanforddaily.com.

There are always positions open for writers, graphic artists, photographers, online editors, and advertising staffers. Click here for a list of current openings.

(by the way, the Daily’s website also list a series of cash grants that Stanford students working at the Daily can win: http://www.stanforddaily.com/staff-awards-and-internships/

However, as an UPDATE,I received a very nice letter from Miles Bennett-Smith the current COO of the Stanford Daily.  Here are the things he told me:

  • The COO position “is never held by a student prior to graduation. I believe there was once a GSB [the business school at Stanford] student in the 1980s who attempted to hold the position while still in school, but he quickly was forced to resign.
  • The VP of Sales role (which is now part-time) “is currently held by a student. Prior to being a part-time position, it was never held by a student. It is currently paid on an hourly basis.”
  • "Members of the ad staff are paid on an hourly basis; a commission system is added with a high minimum threshold to incentivize exceptional performance."
  • It is all taxed under FICA, no stipends, just hourly wages.
  • "The sports editors are paid, just as news editors, opinions editors and the rest of the editorial staff (about 50 students)."
  • The Daily’s total payments to Stanford students “Varies, but +/- 50K is a good estimate right now in our current business model.”

Bennett-Smith added: “… it’s important to note that many of these things can be changed by any given COO. I changed the VP of Sales to part time, because I felt it was better for our operations and business model. It could be changed again by another COO. And we could change to an ‘award’ system to pay writers and editors, which would not be FICA taxed. Just to think about.”

Here’s snippet from the Daily’s financial report from 2011, listing the (student) Editor-in-Chief’s pay:

So I apologize for my error as to the AMOUNT the editor in chief is paid, but I was not not at all wrong to say that many students working for the Stanford daily are paid, and in fact the Sports Editor who covers the football team is paid an hourly wage even if the athletes on that team are not.

The important point remains that a student-run paper, with a fully student editorial staff is compensating its students with hourly wages to do a typical on-campus student activity.  I hope that won’t get lost in the fact that I made a quantitative but not qualitative mistake.

(as another aside, one of my roommates in college worked for the Stanford Yearbook and was paid a commission for each advertisement space he sold in the Palo Alto community)

Posted by
Andy Schwarz

Fun little example of price discrimination

I took the Metro from Capitol Hill to the airport.  It turns out they charge you an extra dollar per ticket if you get a paper ticket rather than having an electronic ticket.

I am sure a lot people think this is because it costs more to print those tickets, and it probably does cost more — probably on the order of a penny a piece.

What’s the other 99 cents?  Price Discrimination.  Charging different prices for the same good/service unrelated to the cost of providing the good/service.  (Note, despite the nasty sounding name, price discrimination is generally legal and can be quite pro-competitive.  Dan Rascher and I have a Chapter in the Oxford Handbook of Sports Economics (Vol. 2: Economics Through Sports) on price discrimination.)  

Think about who buys paper tickets in Washington DC versus having an electronic pass.  Tourists.  Tourists who often don’t have a car and for whom skipping the Metro probably means a taxi ride.  Since taxi rides are more expensive than for a local to use his/her own car, the extra dollar to ride the subway isn’t likey to change tourist behavior.  Since tourists have a lower price elasticity, the profit maximizing price for them is higher than for locals, and the $1 paper surcharge allows a nice example of price discrimination.

(For the record, I consider this 2nd degree price discrimination, which is defined as a situation where you give consumers a menu and let them sort themselves out).

Yes, this is how an economist thinks while riding the subway.

Posted by
Andy Schwarz