Sportsgeekonomics

Musings on Sports Economics

Monopoly Rents in Action: Gold-plating among Non-Revenue Sports at FBS programs: An Empirical Study

When college sports programs tell you that without a nationwide agreement to cap compensation to college football players at the value of an athletic scholarship, there would be no non-revenue sports (and especially no non-revenue men’s sports), they are telling you a tall tale.  I’ve already written about this myth in “Excuses, Not Reasons: 13 Myths about (not) Paying College Athletes,”[1] specifically in “Myth 5: We can’t pay them or else we’ll have to cancel other sports.[2]

There are several false elements to this claim.  Most obviously, many FCS, Division II and Division III schools (with little or no football profits) still sponsor other men’s sports.  In fact, in 2011, there were 61 Division I men’s lacrosse teams vs. 223 Division II and Division III teams.[3]  Schools sponsor non-revenue sports this because as a campus community, they have decided these sports are worthwhile additions to the campus, like many other money-losing activities such as drama productions, libraries, all-campus parties to celebrate the start of the school year, etc. 

But often missing from this discussion is a recognition that the existence of football profits tends to make other men’s sports more expensive to sponsor.[4]  This is not a truly causal relationship; the presence of football profits doesn’t literally make men’s lacrosse costlier.  Rather, the presence of football profits creates demand for ways to spend that money.  Chad McEvoy and Alan Morse have shown this to be a systematic result.[5]   Football coaches’ salaries increase.[6]  Athletic Directors’ salaries increase.[7]  But generally speaking, what doesn’t happen is that when a new dollar of revenue comes in to a football program, the Athletic Department does not increase its contribution to the school’s non-athletic fund by anything close to $1.  Indeed, a series of studies commissioned by the NCAA found that for every new dollar of revenue, athletic departments generated 91 cents in new expenses over the period 2004-2007 and approximately $1 in new expenses in the period from 1993 to 2003.[8]

One of the places these football profits are spent is on non-revenue sports, especially men’s sports other than football and basketball.  Simply put, in part because the schools don’t pay their players, they have profits just lying around and one of the ways that they spend those profits is to spend more money on their non-revenue sports.  Economists call this gold-plating — spending more than is necessary on aspects of the organization simply because money is available to be spent.  Athletic programs have no real shareholders, no quarterly profit targets, etc and consequently do not face the same demands as public corporations to generate profits.  When the University of Florida’s athletic associations gives the University of Florida $6 million,[9] they are hailed as a great source of profit.  Would that acclaim be all that much louder if they turned over $12 million instead?  In the absence of incentive pay (such as paying the Athletic Director based on how much money he/she transfers to non-athletics), programs tend to engage in use-it-or-lose it spending.

This short paper seeks to highlight one piece of evidence for this phenomenon of gold-plating non-revenue sports.  With assistance from my research assistant Giseob Hyun, I looked at EADA data from 2009-10 and 2010-11, across all of Division I, and calculated the average cost of each non-revenue men’s sports.[10]  I calculate two averages for each sport — one for all of the Division I schools whose football teams compete in FBS (Div-1A) and another for the schools with football teams in FCS (Div-1AA).  The FBS/FCS distinction is only for football, so for these non-revenue sports, the programs are all in Division I.  By splitting up the data this way, we can see how much more money is spent (even after accounting for any revenue) by FBS schools than FCS schools.  In the table below, what I present is the difference between the FBS and FCS average — in other words, this is how much more, on average, it costs an FBS school to run a Division I baseball team, track team, etc., than it costs an FCS school to run the same sport in the same Division.

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As you can see, in every single one of these sports, the average FBS program spends more (even after accounting for any revenue as an offset) than the average FCS program.  In some cases the differences are in the hundreds of thousands of dollars.  And moreover, even in the passage of a single year, from the 2009-10 academic year to 2010-11, we generally see the gap growing in tandem with the increase in FBS football revenues.

Because all of these programs are in Division I, the rules on the number of scholarships, coaches, etc., is identical.  The primary difference is that the schools in FBS make a lot of money on football and the schools in FCS do not.  Now that also means the FBS schools are in more prestigious conferences for these non-revenue sports but there is no economic reason why that, by itself, should make these sports programs more expensive.  Instead, I posit that the reason we see so much more money spent on minor men’s sports at FBS schools vs. FCS schools is that FBS schools simply make more money on football and need to spend it on something.

Some may argue that this is because FBS schools want to win more in these non-revenue sports than do FCS schools.  That may very well be true.  But it doesn’t matter why these FBS schools choose to spend more than they need to run these sports, the point is that they do spend more than they need to.  One of the arguments against allowing competitive compensation for football athletes is that without those football profits, these other sports wouldn’t exist.  It would be a very different argument for the NCAA and its member schools to argue that without those football profits, the FBS schools and FCS non-revenue programs would be more competitive with each other.  Indeed, if the answer is that by agreeing not to pay college football players, the schools in FBS succeed in making lacrosse and wrestling, etc., less competitive, it would seem a very poor justification for that agreement in the first place.

So when you hear someone say that without a nationwide agreement to cap college athlete compensation, schools won’t have enough money to run their other men’s sports, ask yourself whether maybe the solution is to end the collusion, have the expenses of the football team rise to a market level, and then let FBS schools adjust by spending a little less on their other programs, like their FCS cousins, rather than using the fruits of that collusion to subsidize much more expensive non-revenue sports programs.



[1] See Excuses, Not Reasons: 13 Myths about (not) Paying College Athletes, available at http://sportsgeekonomics.tumblr.com/myths.

[2] See “Myth 5: We can’t pay them or else we’ll have to cancel other sports.” available at http://sportsgeekonomics.tumblr.com/post/13848472352/myth-5-we-cant-pay-them-or-else-well-have-to-cancel.

[3] See “Myth 5: We can’t pay them or else we’ll have to cancel other sports,” Note 3, available at http://sportsgeekonomics.tumblr.com/post/13848472352/myth-5-we-cant-pay-them-or-else-well-have-to-cancel.

[4]  In this first analysis, I focus on men’s non-revenue sports because in women’s sports, although we see the same phenomenon in women’s sports, it can be argued that Title IX plays a causal role in linking football profits to women’s sports expenses.  I don’t actually think Title IX really goes that far in explaining it, since Title IX really only focuses on scholarships rather than total expenditures, but it complicates the analysis enough that I’ll leave that for later work.

[5] Their paper (“Factors Influencing Collegiate Athletic Department Revenues” by Chad D. McEvoy, Syracuse University; Alan L. Morse, Mississippi State University) is not yet published, but they presented their results at the Sports Marketing Association 10th Annual Conference, October 2012.  See http://sportmarketingassociation.net.ismmedia.com/ISM3/std-content/repos/Top/Conference/Text%20Blocks/SMA%20X%202012%20Orlando%20Program—no%20cover%20letter%20-%2010-17.pdf

[6] See Charles T. Clotfelter, Big Time Sports in American Universities, Cambridge University Press, 2011, pp. 105-06, 239-40, who shows that between 1985-86 and 2009-2010, the average salaries of football coaches at 44 universities among the top Division IA conferences rose from $273,300 to $2,054,700, expressed in 2009-10 dollars, while the average salaries of college presidents rose from $294,400 to $559,700 and the average salaries of full professors increased from $107,400 to $141,600.

[7] See Jodi Upton and Steve Berkowitz, “Athletics directors seeing major increase in salaries,” USA TODAY  (available at http://content.usatoday.com/communities/campusrivalry/post/2011/10/athletics-directors-increase-salaries-school-presidents/1#.ULzqUu-wV8E) which shows that “… at least five ADs make more than $1 million, and since August 2010, at least 10 public schools have given their AD’s pay raises of $75,000 or more.”

[8] These studies tend to phrase the connection as being one in which expenditures generate revenues, but I think the causal connection is that revenues drive expenses.  See “The Empirical Effects of Collegiate Athletics: An Update Based on 2004-2007 Data,” with Mark Israel, February 2009, available at http://fs.ncaa.org/Docs/DI_MC_BOD/DI_BOD/2009/April/04,%20_Empirical_Effects.pdf: “For total operating expenditure on athletics, regression analysis … cannot reject the hypothesis that one extra dollar of spending leads to a corresponding one extra dollar of revenue. In particular, the estimated effect of increasing spending by $1.00 is $1.10 in revenue, with the 95 percent confidence interval indicating an effect on revenue between $0.90 and $1.30.”  See also “The Empirical Effects of Collegiate Athletic Spending: An Update,” with Peter R. Orszag, April 200, available at http://fs.ncaa.org/Docs/library/research/athletic_spending/2005/empirical_effects_of_collegiate_athletics_update.pdf. “The Empirical Effects of Collegiate Athletic Spending: An Interim Report,” with Robert E. Litan and Peter R. Orszag, the National Collegiate Athletic Association and Sebago Associates, Inc., August 2003, available at http://www.sc.edu/faculty/PDF/baseline.pdf.

[9] See “The University [of Florida] Athletic Association, Inc. Financial Statements, June 30, 2011 and 2010,” page 10, available at http://www.uaa.ufl.edu/uaa/UAA%20FS%206%2030%2011%20-%20Long.pdf.

[10] I define the cost as total expenses, less any revenue the program generates or is allocated — EADA data doesn’t make it easy to discern between real and allocated revenue.  I also haven’t reported the very small sports with limited national reach, such as Riflery.

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Andy Schwarz

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