College football and costs

Published 11:00 pm Wednesday, August 20, 2014

The economic landscape of college football is rapidly changing. This is the first year of the Bowl Championship Series “plus one” playoff, and lucrative new television contracts are fueling a stadium renovation boom. Meanwhile, players at Northwestern are organizing a union, the five power conferences plus Notre Dame have received autonomy to offer players more generous assistance, and a federal judge recently ruled against the NCAA in a lawsuit by former players regarding the use of their images in video games.

Do these changes threaten the viability of a sport so many of us love? Most observers concur that players should definitely benefit; beyond this, the effects remain unclear. Some commentators have wondered whether colleges can actually afford to offer players better support. The claim that few schools make money on football would take many fans by surprise, yet closer examination illustrates some points aspects of costs in the economy.

Many people think that business costs are transparent. But if you have run a business, or are a fan of reality shows like “Bar Rescue” or “Hungry Investors,” you probably recognize that reality is more complicated. For instance, how much should a restaurant spend on tables, chairs, booths, bar stools and décor? Should an interior designer be hired and art purchased for the walls? Dozens of such decisions, each with a tenuous connection to revenue, determine costs and the quality of a business’s products and services. Quality, although important, is also elusive, especially because peoples’ tastes differ. Simply focusing on the bottom line offers few specific answers to the questions businesses face every day.

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A football program involves many similar cost questions. The players need a training facility, but do they need all new weights? How nice should the locker room be? How large of a coaching and training staff is needed? Is a professional nutritionist needed to design the training table menu? And so on.

College football adds another complication. Football programs are part of an athletics department, which is part of a not-for-profit university. As a result, no individual or group of stockholders gets to keep any profit generated by the Alabama or Auburn football programs. And the universities’ non-profit status reduces the incentive for higher administration to enforce cost discipline on athletics, relative to the business world.

Economists believe that costs often rise in the “non-profit” sector to match available revenue. Without owners enforcing concerns about the bottom line to preserve profits, managers will spend extra revenue, often on perks. University administrators might use football revenue to pay for other expenses. Winning in football is its own perk. If one professional nutritionist might help and the money is available, why not hire a team of nutritionists to tailor individual players’ diets? This might produce an extra win, which might mean a conference title.

Of course sifting through a university’s athletics budget to determine if it makes money, in light of the above considerations, would be challenging. But we should not expect university sports to earn a “profit.” We can see evidence of “excess” costs. Television contracts provide each major conference member school more revenue than Troy University’s entire athletics budget. Schools generating $50 million a year from football will find things to spend the money on, like Alabama’s renovated football training facility. But SEC teams spend more than Sun Belt teams because the revenue is available.

How will the changing economic landscape affect competitive balance in college football? The main effect will not be at the top, since elite programs have had “first pick” among the top high school players for decades. The primary impact I suspect will be to boost the lower tier schools in power conferences relative to top programs from other conferences. Washington State and Iowa State, I believe, will become more attractive to recruits relative to Boise State and Northern Illinois.

In football we get to see how things play out on the field. The season is almost here, and every team in the nation is still undefeated. So let’s celebrate the new season.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. Respond to him at and like the Johnson Center on Facebook.




About Dan Sutter

I am the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University.

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