The Business of College Sports. A question of Equity and Ethics Don’t I have the right to do what I want with my own money? Or are you envious because I am generous

Abstract

Over the past year, the integrity of college sports has been challenged by sex scandals, recruiting violations, academic suspensions and other actions that are unbecoming and inappropriate for representatives of higher education. The NCAA regulated, multi-billion dollar industry of college sports has incurred blemishes that parallel and sometimes dwarf those reported in the for-profit, free-market that dominates corporate America. USC, Penn State, Ohio State, Syracuse and other story book programs have been the center of controversial issues that reach beyond the playing field or court and into the households of Americans from coast to coast.

The NCAA, the governing body of college athletics, has proven to be as much a part of the problem as they are the solution. The intent of the NCAA is to maintain the credibility of college sports for the good of the student-athlete; but, given the events of this past year, it appears they, and some of the institutions they represent, are failing at their task. The not-for-profit NCAA agency, which is designed to protect the students, has as much to hide as the programs they reprimand. They hold nearly $445 million in marketable securities and cash, as part of their $570 million in total assets. Their liabilities sum to a mere $127 million.¹ They preach player and university prudence while they regularly take a portion of the incoming proceeds to fund their operations and pad the left side of their balance sheet. They proclaim equity while they reward the universities that generate the most revenue with the largest paycheck. They have been accused of colluding with major conferences and television networks to secure a lucrative revenue stream that is beyond what is necessary to meet their objectives. Yet, they continue to operate their business as usual. This not-for-profit agency appears to be as driven by money as their constituent Universities.

History:

When intercollegiate sports first began in the late 1800’s they were student run organizations with no official ties to their respective universities. By 1905, college football had become wildly popular. The sport was not what it is today. It was played with next to no rules and was excessively violent. It was so violent that from 1890 to 1905 there were 330 student deaths from football injuries. This staggering statistic made it clear that the sport needed to be drastically changed if not abolished. In 1905, a rules committee (the IAAUS) was formed by the presidents of the colleges where football was played. The committee tried to implement rules that would make football safer for the student athletes. The new rules were ineffective at slowing down the death toll. In the 1905 season, another 18 students died from football related injuries. In 1906, the rules committee met again and wrote a constitution clearly outlining a set of rules that all schools had to sign in order to play football. In 1910 the rules committee changed its name to the National Colligate Athletic Association (NCAA).

The early years were not easy for the NCAA. Many of the schools with successful football programs refused to join. These schools were skeptical of an organization that would be in charge of intercollegiate sports and feared that the NCAA would change the rules in a way that would inhibit their success. By 1915, the remaining holdouts decided to join. Although all schools that joined the NCAA had to sign a contract outlining rules and regulations, the schools themselves were the ones in charge of enforcing the rules. The NCAA had no enforcement powers. In 1925, the NCAA asked the Carnegie Foundation to conduct a study on its member institutions to see if they were complying with the rules. The report was completed in 1929 and the results were less than pleasing. The study revealed that 81 of 112 schools made payments to athletes.

It was obvious that winning was important. In 1935, the SEC (Southeastern Conference) was the first conference to allow its schools to offer athletic scholarships. The NCAA was worried that allowing schools to offer scholarships would damage the amateur status of the athletes; as a result, in 1948 the Sanity Code was established banning any payments to student athletes including scholarships. In 1950, the NCAA found 7 schools in violation of the Sanity Code and suggested that the 7 schools be banned from the NCAA. However, at the convention in 1951 the 2/3 required vote failed to pass. The membership also voted that year to remove the Sanity Code. Then, due to the widespread violations, in 1953 the NCAA was given the power to enforce its rules. From that time, the NCAA could hand out a variety of punishments to rule violators (Grant, Leadley, and Zygmont, 2008).

The NCAA has seen many changes since its beginnings in 1910. The current NCAA handbook on rules and regulations for Division I is 434 pages long. The NCAA website claims the following in regards to it its enforcement program:

The NCAA enforcement program strives to maintain a level playing field for the more than 400,000 student-athletes. Commitment to fair play is a bedrock principle of the NCAA. The NCAA upholds that principle by enforcing membership-created rules that ensure equitable competition and protect the well being of the student-athlete at all member institutions. ²

The NCAA claims that its primary goal is to create an equal playing field for all member institutions. However, when dispersing funds among member colleges it appears that the NCAA does not follow its stated objectives. In 2010, the NCAA redistributed $477 million to Division I schools. The six power conferences received $228 million or 47.85% of the total revenue disbursement.³ The six power conferences represent 73 schools which is 21% of Division 1 schools. The non-power conferences received the other $249 million or 52.15%. The non-power conferences represent 264 schools, 79% of Division I schools.

Literature Review:

In previous literature the NCAA has been labeled as exhibiting cartel-like behavior. The basis for this accusation lies in rules and regulations established by the agency. Their rules range from colleges agreeing to not pay student athletes beyond their education related expenses, assistant coaches salaries, limiting output, side payments, and eliminating competition (Fleisher, Goff, and Tollison, 1992; Zimbalist, 1999; Kahn, 2007, Pantuosco and Stone, 2007). Monetary compensation for student athletes who participate in profitable sports has been forefront issue since the NCAA’s inception (Zimbalist, 1999).

The student athletes who are fortunate enough to have a career in professional athletics are most likely the recipients of full scholarships. The median value of a full scholarship from a Football Bowl Subdivision (FBS) school in real 2011 dollars was $28,900, Football Championship Subdivision (FCS) school in real 2011 dollars was $23,000, and Division I schools without football the value in real 2011 dollars was $33,500.⁵ The numbers indicate that for a professional bound athlete the value of a scholarship is well below the marginal revenue product of the player. Because of the cartel behavior among universities and the NCAA, the profit generated by universities with professional bound athletes will persist in long-run.

Another cartel characteristic is displayed by the NCAA with limitations on coaching staff size. The NCAA regulates the number of coaches and off campus recruiters for all sports. FBS football teams are limited to one head coach, 9 assistant coaches and 2 graduate assistant coaches (NCAA pg. 54). FBS football teams are allowed 7 off-campus recruiters. Men’s and women’s basketball teams are allowed 4 coaches and 3 off-campus recruiters. All other sports are limited between 2-3 coaches and 2 off campus recruiters (NCAA pg. 56). The NCAA flexes their cartel muscles by imposing limitations on coaching staff size.

The NCAA has also been described as a collusive monopsony. This idea was discussed by Blair and Romano (1997). They conclude that “the NCAA’s behavior goes unchallenged because the NCAA hides behind a smoke screen of good intentions. But the harmful effects should not be ignored.” While the University prospers, the players are burdened with academic and athletic demands beyond the general student body. The authors contend that a revenue sharing system would lead to a more equitable outcome for participating universities.

While a level playing field is their goal, their hierarchical power and legislative process is skewed toward large football institutions. The NCAA Executive Committee carries the deciding vote regarding policy issues. This Committee consists of 16 voting members and 4 non voting members. Of the 16 voting members, 8 are chancellors or presidents from FBS institutions; FBS schools are the former NCAA I-A football universities. The remainder of the Executive Committee is a smattering of smaller Division I football programs, as well as Division II and Division III chancellors or presidents.

The NCAA’s Leadership Council is responsible for advising the Board of Directors, overseeing the appointment and substructure of cabinets and committees, and taking final action on matters delegated to it by the Board of Directors. The Leadership Council is comprised of 31 members, one from each conference. However the amount of voting power is determined by which conference the committee member represents. Representatives from the six power conferences and Conference USA each receive three votes. The other 4 remaining FBS conference representatives each receive 1.5 votes. The remaining 20 non-FBS conference representatives each receive 1.2 votes. Interestingly the FBS conferences have a combined 27 votes while the non-FBS conferences have 24.

The Legislative Council has the same structure as the Leadership Council. The FBS conferences have the majority of the votes. The Legislative Council is the primary legislative authority. They are in charge of developing educational material regarding pending legislation. While the objective is equity the structure of the governing NCAA committees reveals a bias toward prominent football institutions from power conferences. This power yields the most profitable outcome for the power conference universities.⁶

The Winners

The monopsony power of the NCAA (Blair and Romano, 1997; Brown, 1993; Pantuosco and Stone, 2007) fosters a system where players are providing entertainment that is sold in the market place by the NCAA and their member universities. The NCAA, the participating universities, particularly those from the Power Conferences, and the coaches are sharing the proceeds, while the student-athletes are, in some cases, living below poverty levels.⁷ Basketball coaches, such as Rick Pitino of the University of Louisville, generate an annual salary of $7.5 million per year season.⁸ Nick Saban, University of Alabama’s football coach, and Mack Brown, University of Texas’ football coach, make over $5 million per year.⁹ But it is not just the coaches who profit from the talents of the college athletes. In 2010, the NCAA sold the broadcasting rights of March Madness, Division I Men’s Basketball tournament to CBS for $10.8 billion for 14 years, which averages $771 million per year. CBS has capitalized on their investment by selling over $738 million worth of advertisements alone for the 2011 March Madness tournament.¹⁰

Another winner is the participating universities in the power conferences. The NCAA, in conjunction with the Power Conferences and the television networks, has concocted a system where the Power Conferences are guaranteed more of the NCAA’s revenue than non-power conferences. In 2010-11, the Big East received $39 million, followed by the Atlantic Coast Conference at $36 million. Nearly half of the redistribution money is awarded to the top 6 power conferences. These happen to be the 6 conferences that receive Bowl Championship Series (BCS) automatic bids.¹¹ The BCS controls the national championship for college football which all but insures that a football championship will go to a university from a major conference along with a check for over $17 million per team.¹²

Universities claim that revenue producing sports fund non-revenue producing sports. In essence, football and basketball benefit tennis, golf, and soccer. They also claim that football typically loses money.¹³ But a review of the football data provided by USA Today reveals that over a seven year span (2003-07) 65 percent of the 117 NCAA Division I football programs earned a profit.¹⁴ The profit across the industry far outweighs the costs of supporting a football program. Half of the schools who do not show a profit break even, leaving a small percentage of the schools with losses.

Even when football does not generate a profit it is presumed that its existence adds to the university in other ways, such as increases in athletic department staffing. Coastal Carolina, located in Conway, SC began its football program in the Big South Conference in 2003. The University posts their revenues and expenses to balance to $0.¹⁵ While the school has not officially earned a profit, the athletic department has added 15 full time positions to service the program. The median salary is $72,000 per coach.¹⁶ The grounds crew and equipment departments have also been expanded. Athletic proceeds can also be applied to hire compliance officers, multiple assistant coaches, speed and strength coaches, improve facilities, pay coaches salaries, purchase airplanes, and expand athletic administration positions.

Athletic success can benefit the university in terms of enrollment and finances. Toma and Cross (1998) find a notable increase in the number of admission applications after a national championship compared to peer institutions. Although, Frank (2004) contends Cross’ finding; he claims athletics add very little if any external benefits to universities.

The final beneficiary from a successful athletic program is the student-athletes. There are over 380,000 students who participate in NCAA sports.¹⁷ Of those 126,000 share the over $2 billion in scholarships offered by participating institutions.¹⁸ Many of these students could not afford a college education or would be buried with debt upon graduation if athletic funds were unavailable. Recently, the NCAA has implemented the policy of allowing full scholarship student athletes the opportunity to earn an additional $2,000 per semester to cover living expenses. NCAA President Mark Emmert stated that this policy should be adopted by the six power conferences because they have the revenue stream.¹⁹ While this statement has merit, it puts the other conferences at yet a further disadvantage when competing for student-athletes. With all of these beneficiaries it appears that football programs and other college athletics are part of a successful business model for universities. But, there are problems.

Student –Athlete Perspective:

While college sports provide dividends to the NCAA, media, universities, and the student- athletes, the emphasis on college athletics exposes at least three causes of concern: the demands on student-athletes, the university emphasis on athletics versus academics, and the financial costs imposed on the general student body to fund intercollegiate athletics.

The problem begins with the physical, mental, and time consuming demands placed on the student athletes. One former women’s Division I college soccer player was quoted as saying “playing college soccer is like having an awful job, working for a terrible boss, and not getting paid.”²⁰ This comment summarizes the feelings of a lot of college athletes. The time demands on the student athletes are capped by the NCAA; but students-athletes are as much employees of the university as they are students (McCormick, 2006). The NCAA limits the number of hours a student athlete can participate in intercollegiate athletics to 20 hours per week during the season, with one day off required. The off-season time limit is 8 hours per week.²¹ The off-season lasts about 6 weeks per 32 week academic year, depending on the sport. Some sport seasons flow into the break period or into the summer months. College basketball players continue their training throughout the winter break. A successful college baseball team’s season can extend into late June. In 2010, South Carolina won the College World Series on June 29^th, two months after their last class. ²²

The typical student athletes must engage in 6:00 am running sessions at least two days a week throughout the academic year. One of the running sessions is typically held on a Friday morning to deter students from engaging in potentially damaging extra-curricular activities on Thursday night. Then, a regiment of weight lifting is added to the program, regardless of the sport. It is not unusual for a woman soccer player to spend 4 hours a week in the weight room even though there is no evidence to suggest that weight lifting improves a person’s soccer skills. Clearly, weight lifting can provide strength on the ball, but the best player in the world, Lionel Messi, is 5’5” and 145 pounds, hardly a product of the iron-gym.

It appears that students-athletes are required to participate in this regimented life style so that coaches can justify their enormous staffs. There are 10 people on the University of Kentucky Basketball athletic staff. The team can only travel with 12 players. The greater the staff the more demands placed on the players.

Following the training regiment, the student athlete fills his/her schedule with daily meetings with tutors, advisors, coaches, and/or mentors. Whatever time is left is consumed by classes and studying. In short, between the travel, practices, training and meetings, college athletics is a full-time job without financial compensation.

The mission statement for universities and colleges nationwide formalize their commitment to education. But, recently that focus has been questioned. Schools are dedicating more resources toward athletics, and in some cases placing the success of their sports teams over their scholastic integrity. The Penn State University scandal provides evidence of the over-emphasis of sports on college campuses.²³ While the case is still under investigation, the President of Penn State University was fired for his alleged cover-up of an inappropriate incident between a football coach and student on University grounds. The legendary football coach of Penn State was fired for his role in the scandal. Universities with profitable athletic programs appear to utilize the proceeds solely for athletic department purposes. Coaches and trainers are added to the university payroll while full-time faculty positions remain constant.

Table 1 provides athletic department spending information for a cross section of public universities within each of the 29 NCAA Division I conferences where public universities reside. The data is compiled for the 2009-2010 academic year. The first six conferences listed are the “Power Conferences.” It is clear from the data that Power Conferences dedicate a much higher amount of financial resources to athletics. The operating expenses for athletics in power conferences average over $150,000 per male participant. The overall average budget per school in Power Conferences ranges between $54 million and $82 million per year. The second column posts the student teacher ratios by conference. The third column provides a list of the average class sizes by conference. A casual glance of the conference averages does not indicate any obvious differences between Power Conferences and other conferences in the student teacher ratio (STR) or the average class size. There may even be a slight bias toward larger class sizes in Power Conference universities.²⁴

Table 2 displays additional spending information on men’s recruiting expenses and coaching salaries incurred by public universities in NCAA Division I conferences.²⁵ The universities within the Power Conferences dedicate greater financial resources toward recruiting men’s head coaching and assistant coaching salaries than the other 23 conferences listed. Table 3 provides the same information for women’s sports. Once again, the Power Conferences outspend the other conferences in recruiting and coaches salaries.

A third issue is the financial burden placed on the student body to support their athletic programs. Students at the College of Charleston, a relatively small school in the Southern Conference, located in South Carolina pay 72 percent of the athletic expenses through fees. Meanwhile, students at large revenue producing universities, such as the University of Alabama do not pay any fees for athletic programs. In 2009-10, the 73 public universities in Power Conferences had student fees funding an average of 3.72% of their athletic departments, while the other 150 public universities from Non-Power Conferences collected 31.24% of their revenue to cover athletics from student fees.²⁶

The first column of Table 4 posts the percentage of athletic department expenses covered by student fees in NCAA Division I public institutions. The student fees to support athletic departments tend to be lower in Power Conferences with a few exceptions, one being, the Northeast Conference. This outlier is a result of low fees at Central Connecticut State the only public school in the Northeast Conference. Table 4 also shows the average profit/loss of the athletic departments of each school within the conference. The most profitable conference is the SEC with the average athletic department earning just below $7.3 million per year. Overall, the six Power Conferences generate more profit than the other conferences combined and six of the top seven most profitable conferences are Power Conferences. These conferences are also the beneficiaries of the NCAA Revenue Distribution. The NCAA’s Revenue distribution is based on a variety of factors including performance in the NCAA basketball tournament.

The revenue from the Bowl Championship Series (BCS) is included in the profit/loss summaries of the institutions but it is not part of the revenue distribution column. The BCS, designed for football, is a separate entity from the NCAA formed by the six Power Conferences in 1998 to obtain more bargaining power with television stations. The BCS negotiates with the television stations on behalf of the conferences. They then distribute the media revenue to the conferences, who then allocate the funds between the schools. This adds to the profitability of the school but it is not under the auspices of the NCAA.