Musings on Sports Economics

Well, duh

New study out yesterday (which you may have missed because of a certain fake girlfriend story) saying that schools spend more on their athletes than on non-athletes.  You can read it here:

Well, duh.

According to the New York Times, the methodology for this is to tally up all of the money spent on sports programs (coaching pay, facilities costs, etc.) and on academics (professor pay, etc.) and then divide by the number of students involved:

About one-third of athletic spending at Division I institutions goes to salaries and compensation, the report found, and about a fifth to facilities and equipment. In its tally of athletic costs, the report included recruiting, athletic scholarships, marketing costs, sports camps and spirit groups. Education costs included instruction, student services and a portion of academic and instructional support, and operations and maintenance.

But can you see what’s missing?  It’s a small item called Revenue.  Unless I am missing it, it looks like no credit was given to sports or to academics for revenue.  I suspect if you did that and looked at net expense (i.e., expense less revenue) (and if you left out government grants for sciences programs) you’d see a very different story.

But with that said, it’s no surprise that sports are increasingly expensive, but remember, it’s driven (in part) because sports are increasingly profitable.  Moreover, because sports are run by non-profit institutes and because they collectively agree not to pay the primary driver of those revenues, a.k.a. college athletes, they end up dissipating those profits in all sorts of inefficient and wasteful ways.

Fortunately, this is already well known.  And your intrepid sportsgeekonomist discusses one aspect of the problem here:

Key points:

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]

Update: It also just occurred to me that because the analysis looks at per capita expenses, and because those expenses are driven by revenues, that a big piece of what is being shown is a small denominator problem.  By this I mean that even if both athletics and academics were both run at a small profit, sports will show higher per capita expenses because it takes fewer students to generate sports revenue.  In other words, if sports were a less efficient source of revenues that required more students to generate the same revenues, it would likely show lower per capita expenses (as long as the profits are being dissipated as I discuss in my post on gold-plating).   

Posted by
Andy Schwarz

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