Power Five colleges spend football, basketball revenue on money-losing sports: Research

 
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September 10, 2020

Colleges and universities that compete in the nation’s five major athletic conferences, known as the Power Five, have collected billions of dollars a year through ticket and merchandise sales, TV contracts and other revenue sources. But less than 7% of it has gone back to the athletes who play the two sports that bring in the bulk of that money — men’s basketball and football, a new working paper from the National Bureau of Economic Research finds.

In fact, Power Five institutions, home to the country’s wealthiest athletic departments, use most of that revenue to fund less popular sports that tend to lose money and draw students from higher-income families, the analysis shows. Those other sports include women’s tennis and men’s golf.

It’s a business model that, according to the authors, “effectively transfers resources away from students who are more likely to be black and more likely to come from poor neighborhoods towards students who are more likely to be white and come from higher-income neighborhoods.”

The authors note that their analysis provides clear evidence that increases in revenue from men’s basketball and football lead to increases in spending on other college sports. They also provide estimates for how much schools could pay college athletes if they eventually decide — or are required — to do so.

Author Matt Notowidigdo, an economics professor at the University of Chicago’s Booth School of Business, told Journalist’s Resource that a combination of state legislation and civil litigation is likely to lead to improved compensation for college basketball and football players in the years to come.

“Our paper provides a way to think through some of the economic consequences of this,” he wrote via email.

Notowidigdo said the 71-page paper provides new insights across college sports.

“We identify a clear causal relationship between the revenue that is brought in by football and basketball programs and the spending on: other sports (women’s sports and other men’s sports), absurdly lavish athletic facilities, and exorbitant coaches’ salaries,” he told JR.

Demographics of Power Five college athletes

Notowidigdo and his colleagues examined data on athletic department revenue and expenses for 64 of the 65 colleges and universities that competed in Power Five conferences between the 2005-2006 academic year and the 2018-19 academic year. They also examined athletic rosters for 2018 to better understand how the demographics of men’s basketball and football teams differ from the demographics of students in other sports.

The authors find that about half of men’s basketball and football players at Power Five institutions in 2018 were Black, compared with about 11% of athletes in all other sports. Men’s basketball and football players also tended to come from lower-income families.

Meanwhile, about 86% of white athletes competed in what the researchers call “non-revenue” sports — those that are not men’s basketball and football. Most of those other programs, which include women’s sports, consistently operate at a loss, explain the authors, four researchers from the University of Chicago, Northwestern University and the University of Michigan.

“We estimate that the average football and men’s basketball athlete went to a high school with a median family income at the 49th percentile of all high schools, while for other sports the average athlete’s high school was at the 60th percentile,” they write. “In addition, we show that football and men’s basketball players come from school districts with a higher fraction of students living in poverty and a higher fraction of students who are black.”

Power Five coach salaries soared

The researchers discovered that it’s not just students who play non-revenue sports who benefit from the money generated by men’s basketball and football. Coaches’ salaries across different sports have soared in recent years, Notowidigdo and his colleagues explain.

“In the case of coaches, the economic benefits are startlingly large,” they write, adding that football coaches received especially large increases in pay. “In 2018, the average Power 5 conference football coaching staff was paid approximately $9.6 million. This was a marked increase since 2006, when the average staff earned only $4 million.”

The authors find that coaches for non-revenue ports at Power Five schools saw their salaries “increase from $7.3 to $12.5 million, which is roughly a 70 percent increase in just a decade.”

The researchers also learned that athletes and fans across sports enjoy new and upgraded athletic facilities purchased with funds raised through college football and basketball. This revenue stream, they write, “creates additional athletic opportunities and increases spending available for sports that do not consistently generate enough revenue to cover their costs.”

A 2015 analysis from The Washington Post showed that over the previous decade, athletic departments in Power Five schools “have built baseball stadiums, volleyball courts, soccer fields, golf practice facilities and ice hockey arenas with money largely derived from powerhouse football teams and, to a lesser degree, men’s basketball teams.”

College sports and the pandemic

The U.S. is the only country that hosts so-called “big-time” sports at colleges and universities, where athletic departments have evolved into complex commercial enterprises. College football alone generates more than $4 billion in annual revenue across Power Five schools, Fortune magazine reported last month.

In the wake of the coronavirus pandemic, college administrators have made a lot of changes to their athletic departments. Basketball and football games have been canceled and postponed, meaning there is less money to go around. The authors of this new paper consider those changes further evidence that non-revenue sports rely heavily on money generated by football and basketball.

“Schools such as the University of Akron, Appalachian State University, the University of Cincinnati, and Old Dominion University and many other non-Power 5 schools have eliminated non-revenue sports in response to the economic damage from the pandemic,” they write. “In perhaps the largest such move to date, in July 2020 Stanford University announced they would be cutting 11 non-revenue sports.”

While many higher education institutions have canceled or postponed games and practices, others have decided to compete in at least some sports. Three of the five conferences that make up the Power Five will compete in football this fall, as will more than 70 Football Bowl Subdivision programs, FiveThirtyEight reported on Tuesday.

Student athletes do not profit

Despite the financial success of football and basketball programs, student athletes are largely prohibited from sharing in the profits. The administrative authority on intercollegiate sports, the National Collegiate Athletic Association, prohibits colleges and universities from compensating athletes aside from providing funding for education-related expenses.

Many colleges offer their student athletes scholarships and stipends to pay for such things as tuition, housing, meal plans and books. But men’s basketball and football players are not the only athletes who receive that financial aid. Students who play non-revenue sports get scholarships and stipends, too.

“At a minimum, a large fraction of these athletes [of non-revenue sports] receive scholarships that offset some or all of their cost of attending college,” the authors write. “In addition, recent events around the ‘Varsity Blues’ college admissions scandal reveal that athletes for these sports can receive preferential admission to colleges they would otherwise not be academically qualified to attend.”

A proposed wage structure

While Notowidigdo and his colleagues do not argue for or against paying student athletes, they did develop a wage structure that allows men’s basketball and football players to receive about 50% of the revenue generated by their athletic activities. Professional men’s basketball and football players in the U.S. collect a similar revenue share as salary.

According to the authors’ estimates, each football player at Power Five institutions would receive an estimated $360,000 per year. Basketball players would receive nearly $500,000 a year.

The paper also outlines a differentiated pay structure that would allow star players to earn more than the others. Under that system, the highest paid college football player — the starting quarterback — would earn $2.4 million. The second-highest paid — the wide receiver — would get $1.3 million.

Starting college basketball players would collect between $800,000 and $1.2 million annually.

“The existing compensation to athletes (scholarships plus stipends) would be subtracted from these totals to arrive at the appropriate cash compensation to players,” the authors write. “We argue that these compensation estimates represent a plausible benchmark of what athletes could negotiate if they could engage in collective bargaining.”

Interested in more research on college sports? Read about how athletes and some other students have an edge in elite college admissions. We’ve also highlighted research on performance-enhancing drugs and sports-related concussions and brain injuries

 

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Citation: Garthwaite, Craig; et al. "Who Profits From Amateurism? Rent-Sharing in Modern College Sports," National Bureau of Economic Research Working Paper No. 27734, August 2020.