Sunday, January 10, 2016

College Sports and Deadweight Loss

The amount of money generated by college sports is staggering: broadcast rights alone are worth over a billion dollars annually, and this doesn't include tickets sales for live events, revenue from merchandise, or fees from licensing. But the athletes on whose talent and effort the entire enterprise is built get very little in return. As Donald Yee points out in a recent article, these athletes are "making enormous sums of money for everyone but themselves." Even the educational benefits are limited, with "contrived majors" built around athletic schedules and terribly low graduation rates.

Since colleges cannot compete for athletes by bidding up salaries, they compete in absurd and enormously wasteful ways:
Clemson’s new football facility will have a miniature-golf course, a sand volleyball pit and laser tag, as well as a barber shop, a movie theater and bowling lanes. The University of Oregon had so much money to spend on its football facility that it resorted to sourcing exotic building materials from all over the world.
The benefit that athletes (or anyone else for that matter) derives from exotic building materials used for this purpose are negligible in relation to the cost. Only slightly less wasteful are the bowling lanes and other frills at the Clemson facility. The intended beneficiaries would be much better off if they were to receive the amounts spent on these excesses in the form of direct cash payments. This squandering of resources is what economists refer to as deadweight loss.

But are competitive salaries really the best alternative to the current system? I think it's worth thinking creatively about compensation schemes that could provide greater monetary benefits to athletes while also improving academic preparation more broadly. Here's an idea. Suppose that athletes are paid competitive salaries but (with the exception of an allowance to cover living expenses) these are held in escrow until successful graduation. Upon graduation the funds are divided, with one-half going to the athlete as taxable income, and the rest distributed on a pro-rata basis to each primary and secondary school attended by the athlete prior to college. A failure to graduate would result in no payments to schools, and a reduced payment to the athlete.

This would provide both resources and incentives to improve academic preparation as well as athletic development at schools. Those talented few who make it to the highest competitive levels in college sports would clearly benefit, since their compensation would be in cash rather than exotic building materials. But the benefits would extend to entire communities, and link academic and athletic performance in a manner both healthy and enduring. It's admittedly a more paternalistic approach than pure cash payments, but surely less paternalistic than the status quo.

19 comments:

  1. Great idea. Maybe a little for the middle and high schools as well.

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  2. Yes, makes sense. I changed "grade" to "primary and secondary"

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  3. One big problem with paying athletes is it could, possibly, really hurt the public enjoyment of college football, basketball, etc., because it might really skew away from parity, with a few really big, big spending programs, spending the money to win and leaving the rest with very little chance.

    Moreover, as far as waste (in maximizing total societal utils, not the ridiculously overvalued by the economics academy compared to public values, Pareto measure), this could start a horrendous arms race.

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    1. Huh. Are we not already in this state?

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  4. Also, interestingly, I just went to a little program by the University of Arizona's athletic department, and they claimed that very little of the athletic program money goes back to the university. Football and men's basketball bring in much more than they cost, but that money almost all goes to other athletics that cost much more than they bring in. They said that at many universities, it's, in fact, negative what the entire athletics program brings in to the university, and they were proud just that they didn't cost the university any money, that they were self funding.

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  5. Richard, I think an arms race that involved payments to athletes and their K-12 schools could be a good thing, and revenue sharing similar to professional sports can keep things competitive. Also, I can't see any equity or efficiency grounds on the basis of which one can make a case for unpaid labor by football and basketball players being used to subsidize negative revenue sports. If these are worth funding the money should come from other sources.

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    1. I'm not saying I agree with men's football and basketball funding other sports (and women's sports); I'm just saying that's how I was told it is (surprising me on how expensive these other sports are).

      Yes, in pro sports there are team salary caps, etc., so that lack of parity doesn't really hurt the enjoyment of the sport. They could do this, and in fact at my little program at the U of AZ I was told they have a lot of this now for non-wage things, like a limit on the number of coaches a team can have.

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    2. But also, if you could cap salary, you could also cap the total amount a program could spend, and this would take care of Disneyland facilities, and exotic stadium mateirals, to compete for the best players.

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    3. I am more or less utilitarian, so I'm not so concerned with being called paternalistic if you can really do a lot of net good.

      I like things that are good for all, and for athletes I'm more concerned for doing good for the struggling athletes who won't be cashing in big, than the soon to be rich top athletes. I like things like a moderate cost of living allowance for all serious athletes in all college sports, and five year scholarships, that cover summer classes too, so during the height of the season when the sport takes so much time and energy, the student athlete can take 12, or even less, units.

      I don't know if you are familiar with Jonathan Chait, but he's extraordinarily intelligent, and clear, and non-misleading. He has a post on this up now you might want to look at:

      http://nymag.com/daily/intelligencer/2016/01/save-college-sports-less-free-marketization.html

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    4. Richard, thanks for your comments. My main concern in writing this post was for those in struggling schools who don't end up with athletic scholarships at all, including those who are not even athletically inclined. The idea was to see if some portion of the significant revenues generated by college sports could flow to these schools in a manner that increases incentives for academic preparation across the board, instead of being sunk into wasteful projects or lining the pockets of individuals higher up in the college sports food chain. But I'm certainly open to alternative approaches that have the same goal in mind.

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  6. I've always though a voucher for a year of college tuition at any school for every year played would make sense. Then they could get an education when they aren't working full time at sports and at a school with a major of interest instead one chosen by sports considerations. I would also skip the taking classes while they play requirement, but that is not going to happen.

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