·January 22, 2023
America’s hyper-commercialized college sports system, which does not exist anywhere else in the world, is in a period of total transformation and a severe financial crisis. A subset of Division I college athletes generate billions of dollars each year for their schools. Nearly all of that revenue comes from football and men’s basketball. However, college athletic departments spend so much that, with all but a few schools, the vast majority of Division I programs spend more on sports than they take in. The average salary for a Division I Football Division (FBS) head coach is over $3.5 million, with generous perks and bonus provisions in addition. Because of the long-standing amateur rule, the athletes themselves do not get paid, even though some are estimated to be worth millions of dollars in market value. But change is coming. Even hot and cold.
In the vast majority of Tier 1 sports, athletic expenses exceed income.
- Division I sports revenue was $15.8 billion in 2019, according to the National Collegiate Athletic Association (NCAA), which oversees student athletics at 1,100 colleges and universities. The NCAA report cited pre-pandemic data because 2019-20 and 2020-21 were outlier years. Men’s basketball and soccer generate the vast majority of revenues, with media rights, bowl revenue, ticket sales, royalties and licensing, donor contributions and other sources accounting for more than half of these revenues. Institutional and government support and student fees accounted for the remaining 44 percent of cash inflows to Division I athletic departments in 2019, according to the NCAA.
- A combination of factors has contributed to some college sports generating billions of dollars in revenue. Football is by far the highest earning sport. Men’s basketball brought in about $1 billion in revenue for the NCAA during March Madness, the second-highest. Over the past forty years, several factors have increased the chances of making money from college sports. 1984 Supreme Court decision NCAA v. Regents of the University of Oklahoma A competitive market for college sports television rights has been validated (see here). Football has benefited greatly from the growth of TV sports with the advent of ESPN, cable sports, and regional sports channels in the 1980s; video playback technology in the 1990s and 2000s; and the introduction of streaming over the past decade (listen here). In addition, the increase in college enrollment has expanded the potential audience, and many US universities and the NCAA are willing to participate in the commercialization of major college sports.
- Despite growth in commercial revenue streams for top-level football and men’s basketball, the vast majority of schools spend more than they earn on sports. In 2019, of the 130 schools in the high-income Football Bowl Subdivision (FBS), only 25 schools with large membership, primarily public universities (with the exception of Notre Dame, Northwestern, and Stanford) reported positive net income (see here place). In fact, the median FBS sports program had an operating deficit of $18.8 million in 2019 (the last year before the pandemic). The same was true for the other two Division I divisions: In the Football Championship Division (FCS) with 125 schools, the project had a median deficit of $14.3 million, compared with $14.4 million for the DI without football (94 schools). Persistently large deficits in the athletic department lead schools to increase student athletic fees (over $1,000 per year for many students) and lead to increased tuition. As the cost of college has risen, so has student debt, which will reach a record high of more than $1.6 trillion in 2021 in the United States.
- Athletic departments are embedded within larger nonprofit institutions, so their incentives and accounting differ from most corporate and professional sports. Sports departments don’t have shareholders who demand bottom-line profits; instead, they have stakeholders (boosters, alumni, students, administrators) who demand victory. Unable to pay players, schools compete for players by hiring famous coaches, building lavish facilities, offering perks like unlimited “education bondage” perks, and rewards of up to $5,980 for maintaining a C average. As a result, athletic directors deploy funds to facilitate more victories, while athletic departments suffer major losses. Participation in major Division I sports may also have rewards for colleges beyond traditional revenue sources, including enhanced school image, increased student applications and enrollments, and increased alumni giving. However, studies have found that participation in high-profile sporting events has an effect on private donations ranging from no effect to a modest increase, or a negative effect when teams perform poorly (see here). Increases in donations to programs that play football tend to be irregular and go directly to the athletic department, likely not benefiting the university as a whole. Any such donations are included in reported athletic department income. A high-profile sporting event can boost a university’s image, but it can also receive negative publicity through reports of cheating scandals and other negative news. While there is no disproportionate evidence that football and basketball victories increase the number of applications to Division I schools, the effect is relatively modest and short-lived.
- The highest-paid college athletes earn only a fraction of the income they generated during their college careers. Of the $15.8 billion earned by NCAA Division I sports in 2019, only $2.9 billion (18.2%) was returned to athletes in the form of athletic scholarships, and 1% went to medical and insurance coverage. This compares to 35% for administrative and coaching compensation and 18% for luxury amenities (see here). And, college athletes’ earnings are distributed to the men’s and women’s teams in many other Division 1 sports — such as track and field, lacrosse, field hockey, swimming and wrestling — that don’t generate the same revenue as soccer or men’s basketball. A recent player-level analysis found that existing restrictions on paying college athletes effectively shift resources from students who are more likely to be black and from poorer communities to students who are more likely to be white and from higher education . income community.
- Division I college football and basketball players face limited prospects after college. Fewer than 2 percent of college football and men’s basketball players ever play a game in the professional National Football League (NFL) or National Basketball Association (NBA). In the current system, the NFL and NBA benefit immensely from the physical and emotional development of future players and the brand those players acquire. The NFL and NBA pay nothing for this, unlike Major League Baseball, which spends an average of over $30 million a year on player development through minor leagues and signing bonuses. Many college athletes who don’t end up playing in the pros also don’t have a valid education and a bachelor’s degree to back them up. NCAA graduation rate statistics significantly overstate the academic achievement of athletes and, by aggregating graduation performance across all NCAA sports, conceal the particularly low graduation success rates of athletes in the highest-earning sports: 52% of NCAA Division I men’s basketball players and Thirty-eight percent of all Division I football players who received full scholarships and were required to become full-time students did not graduate as estimated by the federal graduation rate (author’s calculations using the NCAA Division I Graduation Rate Database—based on the 2018-2021 entering sixth-grade cohort 2011-14 federal graduation rate average).
- Player compensation is currently in a rapidly changing landscape due to recent state legislation, court decisions and pending cases. As a result of recent antitrust cases against the NCAA and state legislative actions, students can now receive a “cost of attendance” stipend of up to approximately $6,000, unlimited educational bondage benefits, educational awards, and be paid for their name, image, and likeness from the Three parties. Some college athletes are now reportedly making seven figures. Since the payment comes from a third party, the athlete can remain with the university and not be an employee of the university. The House antitrust case currently in the 9th Circuit seeks to have 50% of television revenues go toward athlete compensation, while the Johnson case in the 3rd Circuit seeks to have athletes declared employees under the Fair Labor Standards Act, thus , minimum wage, overtime pay, workers’ compensation and unemployment insurance. If a university pays an athlete in any form, all income may be taxable (unlike current tuition scholarships).
Paying student-athletes seems to make an economic case, especially in revenue-generating sports. The question of concern is: where does the money come from? What institutions and principles will govern how students are paid and how remuneration is distributed? If athletes form a union, what is the bargaining unit? Will embracing further marketization keep some teams’ athletes away from getting good educations and degrees? One thing is clear: change will come. Fundamentally, the choice is to move toward unfettered commercialization with a relatively free and open labor market for athletes, or toward a more controlled system that limits spending, places a renewed emphasis on education, and provides adequate short- and long-term medical care Insurance athletes. The latter path would include investing enough money to enhance athlete education, comprehensive injury and health care, and paying loss-of-earnings insurance for promising athletes whose careers are interrupted by injuries while in college. This path will attempt to restore college athletics as the central purpose of college extracurricular activities, where students devote themselves to learning and lead relatively sedentary and cerebral lives. To be legally accepted, the NCAA needs limited antitrust immunity to control coaches and administrators’ compensation. The NCAA, which primarily functions as a trade association for coaches, athletic directors and conference commissioners, is unlikely to be radically reformed on its own terms. Recent experience has shown that leaving the structure of college sports to referees is very time-consuming, very expensive, confusing and capricious. Nothing is easy in Washington, D.C. these days, but Congress is the most promising venue for defining a coherent and economically viable system for intercollegiate athletics in the 21st century.
Higher Education / Labor Market