Money Ball - College Style

Recent news broke regarding another college sports scandal. The FBI and Department of Justice have been investigating an intricate web of payoffs and bribes in college basketball that has already led to the firing of Louisville’s Rick Pitino, the only coach to win a national basketball championship with two schools. Adidas’s marketers were alleged to have paid the families of athletes to attend schools that Adidas sponsors to sell its sneakers and apparel. Other coaches, bundlers, brokers and agents are also alleged to have played roles in this arrangement.

College sports in the United States is a multi-billion dollar business. Men’s football and basketball generate the lion share of revenues through ticket sales, sponsorships and media rights. Schools compete aggressively on the field and court. Success translates into higher ticket sales, better TV and media deals, better sponsorships and bigger donations from alumni and other boosters.

The compensation earned by the coaches and administrators at the most competitive programs is especially lucrative. For example, Jim Harbaugh, the football coach at the University of Michigan, earns roughly $9 million per year while Michigan’s athletic director earns $1 million. Harbaugh is an especially valuable property given that the football program generates about $90 million in revenue for the school and Michigan athletics produces over $150 million annually.

The NCAA, unlike professional sports, however, does not allow college players to be paid in any way other than through scholarships. College athletics has maintained its amateur status even though these leagues are “professional” in every sense of the word except for the lack of compensation to the players.

Bloomberg’s columnist, Joe Nocera, made a great point on the radio recently. He argued that these scandals in college sports are inevitable since there is no mechanism to reward the players for their efforts within the NCAA’s framework. The economic rewards are so great and colleges are getting rich off of free talent. Therefore, there will always be efforts to pay athletes directly or through their families to gain an advantage. Economic principles can be suppressed, but they cannot be completely squelched. Paying college athletes would more fairly allocate the economic benefits derived from high level college sports. While wages in this sector of the economy would rise dramatically, the change wouldn’t put much of a dent in the macro-economic issue of low wage growth throughout the broader economy.