Big-time College Sports

by Jon Mandle on September 18, 2004

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.



Zizka 09.18.04 at 8:26 pm

I’ve wondered whether there’s a reverse effect. 40 years ago Texas was a football power but academically mediocre, whereas now Texas is a major research U. but not much good in football. The same may have happened to Notre Dame.


Delicious pundit 09.18.04 at 8:54 pm

I note that your school is the “University at Albany.”

My father did graduate work at a school with the exact same buildings on the exact same spot called Albany State.
All part of the makeover, I guess.


son volt 09.18.04 at 9:02 pm

It’s deceptive to talk about college sports in the aggregate at a given college. For schools with established programs, (like the aforementioned Texas and Notre Dame) football and basketball are actually profit centers for the school. Much of the athletic red ink at those schools is for less-popular sports, some of which is dictated by Title IX.

But you do have a lot of Albanys, South Floridas, etc., that are indeed reaching into their pockets to field a Div I football program. The bigger picture here is that big-time college football is considerably more expensive to field than it was just 20 years ago, due chiefly to the greatly increased complexity of the game (Quarterbacks routinely called plays in the huddle a generation go; that’s completely unheard of now).

Because of this increasingly prohibitive expense, Division I football will probably over the next decade shake out to 60 teams or so (roughly half of the current field). Most of them will be the usual suspects: Oklahoma, USC, Texas, Miami, Tennessee, Alabama, LSU, etc. But there will likely be room for maybe 10 arrivistes like Virginia Tech, South Florida, Fresno State. And the competition will be ferocious and expensive among those borderline programs.


Matt 09.18.04 at 9:18 pm

Something similar has happend at my undergraduate institution- Boise State University. It spent a very large amount of money some years back to move to Division I form IA, w/ even more money being paid in to the football program. In one sense it’s paid off- they have been in the top 25 at the end of the year twice in a row now in football, and are there now this year, too. It’s brought a lot of attention to the school. It’s far, far from clear that the accademic side of the university is any better, though, and a larger precentage of courses there are taught by adjuncts all the time.


John Quiggin 09.18.04 at 9:44 pm

It will be interesting to see the effects of making cheerleading an NCAA sport.

Let’s hear it for Robert Maynard Hutchins!


harry 09.18.04 at 9:59 pm

Frank is obviously right. But how odd to choose him to do the study, as it was more or less ocmpletely predictable that he would come to that conclusion. Not doubting his intellectual honesty one whit, but he had alreayd made extensive, and well-informed, comment on this issue. Is this really the result they wanted?


agm 09.18.04 at 11:16 pm

Hmm. I wasn’t aware that a school ranking 8 last week, 6 this week, who finished something like 15 last season, is a mediocre football team. On the other hand, I mourn for my alma mater, for they shall be slaughtered by Boise State in a couple of hours.


Giles 09.19.04 at 1:58 am

who’s to say that universities dont rationaly have rank dependent utility?


Davis X. Machina 09.19.04 at 5:46 am

Clever of pro football and pro basketball to have figured out a way to have the taxpayers (state universities, federal financial aid) foot the bill for their minor leagues.

Would that baseball and hockey, which embrace this breakthrough only half-heartedly, had been this clever…


Ken D. 09.19.04 at 6:16 am

The ultimate problem is that big-time college athletics are built around a fundamentally bad idea — essentially professional athletics that are simultaneously a students’ extracurricular activity. Most of its big problems trace back to that bad fit. A couple of things that would help: cut back football squads from 85 to 60 or so; and try to force the creation for football and basketball of minor leagues, like those in baseball and hockey, to take from high school the good athletes who don’t belong in college full time at that age, or who just don’t want to be there.


Chris Lawrence 09.19.04 at 10:03 am

In the case of both basketball and football, top-level collegiate competition preceded the professionalization of the sports (baseball and hockey were organized around amateur leagues, not collegiate competition), and neither pro sport was very successful until the advent of television.

As the pro leagues grew, they recruited college athletes in lieu of establishing minor leagues because, essentially, nothing the NBA or NFL/AFL could set up would compare with big-time college sports–especially since, into the 1980s, college athletes were probably routinely receiving under-the-table money at every program in the U.S.

So I’d attribute the “minor league” syndrome to historical evolution rather than a conscious effort to shift costs onto taxpayers (although at most big-time programs, the football and men’s basketball teams are profitable).

Interestingly, the structure of basketball may be moving away from this as more players are recruited from European leagues and high school athletics–which may ultimately erode the quality of the college game so much that it will no longer be a “revenue” sport.


Ken D. 09.19.04 at 6:37 pm

Chris Lawrence’s comments are well taken, and get to a key issue: would the diverting of significantly more top high school football or basketball players directly to pro leages (“minor” or European) significantly degrade those industries — which is what they are — in commercial terms? No one really knows, although Chris is correct that we may be about to find out in basketball. The self-perpetuating instinct of the billion dollar college football and basketball industies cannot be underestimated as a factor here.


epist 09.19.04 at 8:40 pm

Call me an asthete, but it seems to me that an important benefit of the university-based expenditure on sports has been omitted, i.e. the production of athletes and teams, or, more pointedly, of great athletes and teams.

If a university is really a center for research and development of human talent and effort, and if sports is a worthy endevour at all, then spending money and time producing great athletes and teams seems just up the school’s alley, no?

Granted, it’s expensive, and getting more so, but so is every area of development. And you can’t argue that the product hasn’t vastly improved (look at the NCAA record in the recent oympics, for a start).

I’m not saying that we oughn’t look at whether it’s time to cut back on sports, or even move this enterprise off campus, but I am saying that we ought to include the actual outcome of sports expenditures, athletes, teams, records, performances, etc. when we do the toting up.


Cryptic Ned 09.20.04 at 6:03 pm

Matt, I believe you mean BSU went from I-AA to I-A. I-A is the highest level you can go.

What I find sad is small, small colleges that are almost bankrupted by stupid decisions to field a Division I basketball team. You’d think that wouldn’t be expensive – 12 guys, you have the gym already – but there’s all the travel, and the greatly increased recruiting budget. I think that happened to Morris Brown College a couple years ago.


Ethesis 09.21.04 at 1:52 am

in the case of both basketball and football the growth in size from 18 to 22 makes, for many, a significant difference in the player’s ability to play and maturity and skill.

Consider BYU in the pre-steroid dominated age, when the extra two years of age made a significant difference in BYU’s favor.

The interesting factor is that many of the benefits of sports can be obtained by having teams at the AAA and AAAA levels and large intramural programs.

Should be interesting to see how this develops.

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