Big-time College Sports

A recent study commissioned by the Knight Commission on Intercollegiate Athletics looks at the economic results of big-time college athletic programs. The author, Robert H. Frank, a Cornell economist, reviews the literature concerning two kinds of indirect benefits that athletic programs are often claimed to generate: “1) that a winning athletic program leads to additional contributions from alumni and others; and 2) that a winning program generates additional applications from prospective students (resulting, presumably, in a higher quality freshman class).” Frank reports that while the findings of these studies are mixed, “the overall message is easily summarized: It is that if success in athletics does generate the indirect benefits in question, the effects are almost surely very small.”

The article is filled with fascinating empirical information. But it is also theoretically interesting. Frank argues that universities should be understood to be participating in a “winner-take-all-market” in which “the expectation is often that participants as a whole will not make any money, and that indeed a substantial majority will suffer losses.” To illustrate this structure, he has us consider Martin Shubik’s “entrapment game.” Here is Frank’s description:

Although the subjects in these experiments have ranged from business executives to college undergraduates, the pattern of bidding is almost always the same. Following the opening bid, offers proceed quickly to $10, or half the amount being auctioned. There is then a pause as the subjects appear to digest the fact that, with the next bid, the two highest bids will sum to more than $20, thus taking the auctioneer off the hook. At this point, the second-highest bidder, whose bid stands at $9.50, invariably offers $10.50, apparently thinking that it would be better to have a shot at winning $9.50 than to take a sure loss of $9.50.

In most cases, all but the top two bidders drop out at this point, and the top two quickly escalate their bids. As the bidding approaches $20, there is a second pause, this time as the top bidders appear to be pondering the fact that even the top bidder is likely to come out behind. The second bidder, at $19.50, is understandably reluctant to offer $20.50. But consider his alternative. If he drops out, he will lose $19.50 for sure. But if he offers $20.50 and wins, he will lose only 50 cents. So as long as he thinks there is even a small chance that the other bidder will drop out, it makes sense to continue. Once the $20 threshold has been crossed, the pace of the bidding quickens again, and from then on it is a war of nerves between the two remaining bidders. It is quite common for the bidding to reach $50 before someone finally yields in frustration.

One might be tempted to think that any intelligent, well-informed person would know better than to become involved in an auction whose incentives so strongly favor costly escalation. But many of the subjects in these auctions have been experienced business professionals; many others have had formal training in the theory of games and strategic interaction. For example, the psychologist Max Bazerman reports that he earned more than $17,000 by auctioning $20 bills to his MBA students while he was a professor at Northwestern University’s Kellogg Graduate School of Management, which is consistently among the top-rated MBA programs in the world. In the course of almost 200 of his auctions, the top two bids never totaled less than $39, and in one instance totaled $407.

Frank takes seriously the benefits that college athletics generate. He quotes a report given to the board of trustees at Rice University concerning some of these benefits:

Athletic competitions serve as focal points to which diverse constituencies of the University, who might otherwise never share a common experience, can relate. … Athletics also helps achieve the diversity goals of the school—athletes often bring a completely different set of social, ethnic, economic, and experiential backgrounds to the University. Finally, NCAA athletics provide a phenomenal training ground for participants, with valuable instruction in teamwork, leadership, discipline, and goal setting.

But, Frank comments:

For policy purposes at the collective level, however, the important point is that each and every one of these benefits would occur with equal measure if every institution were to reduce its expenditures on big-time college athletics by half.

He is right. And if colleges are driven by an “arms race” analogous to the entrapment game, the solution that he outlines makes perfect sense:

Any institution that made such a cutback unilaterally would substantially increase its risk of fielding consistently losing teams. But if all institutions cut back in tandem, competitive balance would be maintained.

So if governing bodies such as the NCAA were able (or were permitted by the antitrust authorities) to create incentives for each program to limit its expenditures, resources can be diverted to meet other pressing ends without sacrificing any of the real benefits that college athletic programs generate.

But this all assumes that the interests that are driving schools to spend are those listed in the Rice report, together with the prospect of increasing the pool of applicants and alumni donations. But a few years ago, my school moved from division II to division I for reasons that were never made very clear. The suspicion that some had at the time was that this was simply a way of boosting the egos of the administration. They didn’t see a move to division I as means to accomplish some other end – it was the end (not just to win more games or attract more applicants or gather more donations). I don’t know whether that is correct, but it points to the possibility that something not captured in Frank’s account might be at work. If school officials are motivated by something like a macho attitude that is gratified simply by the spending itself, then it seems that much of Frank’s analysis succeeds in debunking a mere rationalization – which, of course, may be a valuable project in its own right.