From the Orlando Sentinel:
The economic model for major college
athletics is collapsing like an overmatched offensive line under a
relentless blitz. That's the unmistakable message from a recent survey
of university presidents.
The survey for the Knight Commission on Intercollegiate Athletics found
that less than a quarter of 95 presidents at universities with the
largest sports programs believe the status quo is financially
sustainable. The presidents at these Division I-A schools fingered
exorbitant salaries for football and basketball coaches as the main
culprit.
The most recent NCAA
study on the finances of the 119 Division I-A athletics programs found
that only 25 generated surpluses in the 2008 budget year, and 94 ran
deficits that had to be covered from other sources. For every school
like the University of Florida, whose marquee teams generate big bucks, there were almost four bleeding money.
We need to be careful when interpreting the data from which we draw conclusions on the health of college sports programs. A huge problem is on the accounting side of the ledger where the accounting practices of schools lead to misleading tallies on costs and revenues.
First, consider the revenue side of the ledger. Sales of souvenirs, clothing, etc. are often credited to the university as a whole even if the sales were made as a result of the school having, say, a football team. In a perfect world, we'd be able to tell if a sale of a shirt with a school logo on it was due to the school itself or its athletic program.
There are also problems on the cost side of the accounting reports. Schools will usually use the "face value" of tuition when it tallies up the value of its scholarships to deduct from its income statements. But the true cost of having an athlete on scholarship is the marginal, or added cost, of having the athlete on campus. If classes are not at capacity, the added cost of having one more athlete on campus is nowhere near full tuition. For instance, if I teach a my Sports Economic class and there is an open seat in my class, then having an athlete (or any other student for that matter) take that class adds nothing to the cost of instruction from the university's stand point. Added across an entire program or across the entire athletic department, and the scholarship cost of programs are likely much less than reported.
To complicate things even further, keep in mind that college athletic departments are non-profits, which means that for tax reasons, they have to spend what they take in in revenue. Then there is Title IX which places further restrictions on how athletic departments can divide up their resources.
So, in short, we have to take the revenue and cost measures with a grain of salt for these reasons*.
Still, that doesn't stop the Sentinel from recommending slashing coach salaries via collusion.
A panel from the Knight Commission plans to recommend seven cost-saving
changes for university athletics programs to the NCAA. Those include
cutbacks in season lengths and team travel. But the panel is ignoring
the middle linebacker in the room: sky-high coaching salaries.
It's ironic that university presidents would cite salaries for coaches
as the biggest problem, yet do nothing about it. Until they declare a
truce in their bidding war, athletics programs will be on shaky ground.
Apparently the salary cap on the athletes isn't good enough for them. Now let's bring in collusion to control coach salaries.
What the Sentinel sees as a problem will not go away because of the intense demand fans have for football and men's basketball. It is this demand that is the underlying driving force that causes colleges and universities to do what they do in their athletic programs. Fan demand for sports brings the revenues that then go to paying the expenditures for resources that produce the "good" that is college sports.
Artificially controlling coaching salaries does not alter the underlying demand fans have for a given sport and only drives athletic department personnel to search for different ways to compete for coaching talent.
Let's not forget that MLB teams got busted for this type of collusion not once, not twice, but three times in the late 1980's. The law doesn't always look favorably on collusion.
Moreover, this call for collusion to control coaching salaries is an assault on economic freedom. Basically the Sentinel is telling coaches that they can't be paid what they are worth and it tells coaches and colleges that they cannot contract with whom they desire at the terms they wish. This sort of thing should not happen in a free society.
The only way to control salaries in the long term is to control the revenue that flows to colleges because of their athletic programs. But it is human nature to accept revenues when they are being dangled in front of you, so this is a next-to-impossible pipe dream.
HT Stephen Karlson
*For an excellent examination of the accounting practices of athletic departments, see this article by Brian Goff that appeared in the April 2000 issue of the Journal of Sport Management. He argues that while some of the top division 1 (aka Football Bowl Subdivision) schools do lose money, the publicly published data exaggerates the number.