Congress Involvement Regarding the Bowl Championship Series: An Economic Perspective

It seems like a strange coincidence -- the most popular and lucrative athletic subdivision governed by the NCAA (Football Division I-A) also happens to be the only one that does not decide its champion through some kind of playoff-bracket system. Instead, the national champion is decided entirely by the BCS National Championship Game. Which two teams get to play in the Game, one may ask? All Division I-A teams are ranked by a complex amalgamation of opinion polls and computer-generated statistics (further explained in detail here: http://www.collegefootballpoll.com/bcs_explained.html). From there, the top two ranked teams at the end of each season are invited to play in the Championship Game. Every year, however, there is controversy as to which teams are going to be ranked in the top two. Since a significant portion of the ranking system depend on media and coaches polls, it has been criticized as very subjective. Some have even mocked the system as "the only sport where an election decides who gets to play in the championship." Opponents to the current system want a playoff system in place, and look to the success of the NCAA Men's Basketball Tournament. Others defend it as the only realistic way to decide the champion without prolonging what is already a very long football season.

However, in December 2009, in a surprising move, the United States Congress passed "The College Football Playoff Act of 2009" (See: http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.390:). Led by Senaor Joe Barton (R-Texas), the bill would prohibit the promotion of the Division I-A postseason game as the "National Championship" game unless it is the result of a playoff.

The legislation was met with heavy resistance from supporters of the current system, as well as BCS officials. "With everything going on in the country, I can't believe that Congress is wasting time and spending taxpayers' money on football," Bill Hancock, the BCS executive director, said in a phone interview. "We feel strongly that managing of college sports is best left to the people in higher education" (http://www.ocregister.com/articles/bcs-223234-playoff-college.html). Supporters of the bill have also been vocal. "We're pleased that Congressman Barton's bill is moving forward because it will require the BCS to choose — either make college football's championship a competitively earned honor or admit that it's currently the equivalent of being elected homecoming king," stated Matthew Sanderson, a founder of Playoff PAC, a political action committee aimed at electing members of Congress who favor a college football playoff system.

While it is debatable whether Congress has more pressing issues to worry about, to say that it is "none of Congress' business" like some opponents, is simply incorrect. The Commerce Clause of the United States Constitution (Article I, Section 8, Clause 3) states that: "[The Congress shall have power] To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes." The fact of the matter is, is that college football and its associated Bowl Games have become a multi-billion dollar commodity whose popularity reaches coast to coast. Therefore, Congress is more than justified in attempting to regulate something that has a profound effect on interstate commerce such as the Bowl Games do. Though the view that Congress needs to stay out of sports is understandable, the legislators can and should look at any issue in the country with such huge economic impacts throughout the country.

Spiraling Out of Control: College Football Coaches' Compensation

On December 10th, 2009, Mack Brown -- the incumbent football head coach at University of Texas -- signed the biggest contract ever awarded to an intercollegiate athletics coach (http://sports.espn.go.com/ncf/news/story?id=4728932). Coming in a hefty price tag of $5 million per year, Mack Brown's yearly compensation package is larger than those of some Fortune 500 CEOs:
* $4.5million -- Joel Staff -- Reliant Energy Corporation
* $4.2million -- George Buckley -- 3M Corporation
* $4.1million -- Mark Parker -- NIKE
* $4.1million -- James Skinner -- McDonald's
(http://www.forbes.com/lists/2006/12/TotComp_12.html)

It is interesting to note that Reliant Energy Corporation is a wealthy enough business to own the naming rights to an NFL stadium (Houston Texans' Reliant Stadium), yet still pays its CEO less than the highest paid college football head coach. Certainly, as previous articles on Economics of the Collegiate Gridiron has discussed, it is true that some college football programs are capable of bringing in revenues comparable to that of Fortune 500 corporations; nonetheless, the issue is that the NCAA and its athletic conferences stand firmly on the notion that its leagues and sports are intended to be amateur, nonprofit, and for the benefit of its student-athletes. How did coaching college football suddenly become so lucrative? A New York Times article entitled "Coaches Receive Both Big Salaries and Big Questions" published in 2004 reads:

"Is Alex Rodriguez worth $250 million to play baseball?" said Skip Bertman, L.S.U.'s athletic director and former baseball coach. "Of course not, and it's not a question of whether a baseball player or a coach is worth that much. The issue is what is the market value."

(Source: http://www.nytimes.com/2004/01/01/sports/ncaafootball/01SALA.html?pagewanted=1)

The truth is, in present day society, the correct question to ask is not, "is the product worth the price?" but rather, "what does the market think the product is worth?" Therefore, as the NYT article suggests, the upward spiral in head coaching salaries in college football is probably attributed to the rising wealth of college athletic programs, and the increase in the willingness-to-pay of the viewers and fans of the sport. Some readers may not think that it is too bad; after all, the athletic programs certainly will not attempt to spend more than they make, so the rising salaries of coaches can only be a good indication of the financial health of the sport. This explanation may make pure economic sense, but there is a macroeconomic issue that must be addressed: tax-subsidies

According to Senator Charles Grassley (R-Iowa), college coaches have enjoyed major increases in pay when other university-employed staff members and students have faced tuition increases, salary reductions, hiring freezes and layoffs during these tough economic times (http://www.usatoday.com/sports/college/football/2009-12-10-coaching-salary-concerns_N.htm?csp=obinsite). Furthermore, athletic departments of universities are completely tax-exempt; therefore, one could argue that it is the American taxpayers who are partially footing the bill for coach salaries.

It is difficult to simply state whether the rise in NCAA football head coaches' salaries is simply a market-driven phenomenon or an unethical practice that is contradictory with the NCAA's amateur spirit (which also caused a great deal of public outrage). However, if the justification for high salaries is simply "supply-and-demand," the athletic departments should not use its tax-exempted funds and tax-deductable donations from its alumni base to fund its coach salaries. After all, most things in the United States that are governed by the "supply-and-demand" principle are NOT tax-exempt.

NHL Playoffs: Detroit Red Wings @ Phoenix Coyotes Game7 Live Blog

An explosion of goals from the Red Wings. And at the end of the 2nd period, it is 4-1 Red Wings. I hate to say it, 'Yotes fans, but it's looking like Detroit vs San Jose in the next round....

NHL Playoffs: Detroit Red Wings @ Phoenix Coyotes Game7 Live Blog

Phoenix scores DIRECTLY off of the faceoff! Fiddler simply slaps the puck forward as the puck is dropping for the faceoff and it zooms over Howard for the first Coyotes goal. Will this shift the momentum towards the Desert Dogs? 2-1 Red Wings, 11mins left in the 2nd.

NHL Playoffs: Detroit Red Wings @ Phoenix Coyotes Game7 Live Blog

The Red Wings have seized complete control of the game both offensively and defensively. The Coyotes, on an offensive faceoff, take a hard shot from the point. Wings goalie Jimmy Howard makes a huge blocker save to keep the score at 2-0.

NHL Playoffs: Detroit Red Wings @ Phoenix Coyotes Game7 Live Blog

1 minute after the goal. The Coyotes get a powerplay of their own on a Zetterberg tripping penalty. The Coyotes give up a shorthanded breakaway, forcing a Coyotes defenseman to take a penalty to stop the break. The teams are 4-on-4, with 16minutes left to go, but Datsyuk on a fast-break scores a goal for the Red Wings. 2-0 Wings with 15minutes left in the 2nd.

NHL Playoffs: Detroit Red Wings @ Phoenix Coyotes Game7 Live Blog

The Wings get an early 2nd period powerplay and they score 10 seconds into the PP. It's 1-0 Red Wings 18mins left in the 2nd period in Game 7.

NHL Playoffs: Detroit Red Wings @ Phoenix Coyotes Game7 Live Blog

The Red Wings amass 4 shots on their first powerplay. Tomas Holmstrom rings one off the goalpost and a scrum ensued. Coyotes successfully kill their first penalty. 8mins left in the 1st period, still 0-0.

NHL Playoffs: Detroit Red Wings @ Phoenix Coyotes Game7 Live Blog

The red wings with the first powerplay of the game at 12:55 left in the 1st period.

NHL Playoffs: Detroit Red Wings @ Phoenix Coyotes Game7 Live Blog

The pace of the game so far has been furious. The goaltenders on both sides have had to make some good saves to keep the game at 0-0. 14mins still left to go in the first period.

NHL Playoffs: Detroit Red Wings @ Phoenix Coyotes Game7 Live Blog

Shane Doan will NOT play tonight. At with less than two minute gone in the first, Holmstrom of the Red Wings is throwing his body around. He already has a few big hits on the Coyotes defensive players.

NHL Playoffs: Detroit Red Wings @ Phoenix Coyotes Game7 Live Blog

Word is that Coyotes star forward Shane Doan may not be available with an "upper body injury." It is worth noting that in the playoffs, NHL teams generally do not disclose any specifics on player injuries so that opposing teams do not target them when the players return to the lineup.

In this case, Doan was knocked out of Game 3 last week with what appears to be a shoulder injury. He was slated to return to the lineup tonight, but his status may still be uncertain. We'll see whether he plays tonight when the game gets going.

NHL Playoffs: Detroit Red Wings @ Phoenix Coyotes Game7 Live Blog

Welcome everybody,

JR Cho will be blogging live tonight on the NHL Western Conference Semifinal Game between the Detroit Red Wings and the Phoenix Coyotes. Tonight is the decisive Game 7 taking place in Jobbing.com Arena in Phoenix, AZ.

It is slated for a 9pm start. Should be an exciting one at hand folks. Stick around for frequent updates.

THE ORGANIZATIONAL STRUCTURE OF FOOTBALL UNDER THE N.C.A.A.

(Frank, given your suggestion, I decided to deviate from my schedule and write an entry that explains the organizational structure of NCAA football as it relates to profitability).

Even the most casual sport fan is aware that the governing body of intercollegiate athletics is the National Collegiate Athletic Association, more commonly known as simply the “NCAA.” Not nearly as well known, however, is the fact that all college sports are highly organized, categorized, sanctioned and supervised by the NCAA. Football – by and large the most popular and lucrative collegiate sport – is no exception. The NCAA organizes all collegiate football programs into various divisions and categories, all of which have great economic significance.

NCAA Divisions

Like all other major college sports, football programs of all colleges across the nation are organized into three major “divisions” – Division I, Division II and Division III.

Division I (D-I) football is comprised of programs from large colleges with big budgets; almost all are from major athletic conferences, and give out numerous athletic scholarships. D-I football alone brings in more revenue than all D-II and D-III sports combined.

D-II programs are generally smaller, less competitive and not as lucrative as typical D-I programs; also, they can only hand out a limited number of athletic scholarships. D-III programs consist of typically small colleges that chose not to offer any athletic scholarships to its student-athletes. Generally, D-III programs exist not to generate revenue for the school, but rather to provide extracurricular activities for the colleges’ students. It should be noted: Given that the economic impact of D-II and D-III programs are negligible in comparison to those of gigantic D-I schools, the blog will focus primarily on D-I football.

Division I Explained Further

There are a total of 138 D-I football programs. These teams, however, are categorized into two smaller subdivisions: Division I-A and I-AA. The distinctions between the two are subtle but significant. D-1A is officially titled the Division I Football Bowl Subdivision (D-I FBS), and its programs participate in the post-season “Bowl” games (which are considered cash cows for the programs, and highly lucrative for all parties involved). All programs from major conferences that get media coverage (Texas, Alabama, Florida, Auburn, Michigan State, USC, etc) are all in the FBS. It must also be noted that FBS schools do not have scholarship restrictions. D-1AA is officially titled the Division I Football Championship Subdivision (D-I FCS) and its programs participate in a 20-team single-elimination tournament to determine its champion at the end of every season. FBS schools are limited to 60 scholarships to recruit its student-athletes. Deciding whether a D-I football program belongs to FBS and FCS is very simple: If the average attendance per game is more than 15,000, then it belongs to the FBS. If it is less than 15,000, that program is in the FCS. Because of the media hype and profitability of the Bowl games are enormous, it is tremendously important for a college to have its football program be in the FBS.

Because a vast majority of the media coverage and revenues come from the participation in the Bowl games and ticket sales, it is obvious to say that FBS schools bring in more revenue, and thus are more profitable. Furthermore, because they generally can attract the best talent with more scholarships, they are more competitive and thus more popular to football fans. Therefore, the blog will primarily be focusing on FBS schools in future posts.

Profitability and Sustainability

Profitability and Sustainability: A Financial Overview of Division 1-A College Football Programs

It can be said with certainty that money talks and rules. While the statement may hold true in a vast majority of situations, one would expect that in the world of college sports – where the student-athletes are encouraged to compete with amateur spirit for the love of the game and sportsmanship – this would not necessarily hold true. The casual football fan would probably also suspect that even if a particular BCS program is profitable, it would be marginal. However, upon a closer inspection of the data available through the Equity in Athletics data released by the US Department of Education, it can be quickly determined that the financial health of most Division 1-A Programs is “A-OK”; furthermore, the collegiate football program of any given school is extremely profitable and there are enough evidence to suggest that the profitability is sustainable for the near future.

The Bottom Line

Every year, the US Department of Education website (http://ope.ed.gov/athletics/) publishes financial data for every single NCAA school in the country. From this dataset, one is able to get an idea of how profitable some of the top athletic programs can be. Here is the gross profit from football operations from the top 5 football schools in 2008:

1. University of Texas - $65.0mil

2. University of Georgia - $45.4mil

3. University of Florida - $43.3mil

4. Penn State - $42.6mil

5. LSU - $39.1mil

· It must be noted here that of the 119 Div.1A programs, only 19 turned a negative profit in 2008.

To put these numbers in perspective, here are some of the profits from several Fortune 500 companies:

- Warner Music Group - $60.0mil

- Universal - $7.9mil

- Bon-Ton Stores - $46.9mil

- Barnes & Noble - $150.8mil

- Toys “R” Us - $28.0mil

- US Airways Group - $304.0mil

(Source: http://money.cnn.com/magazines/fortune/fortune500/2007/full_list/201_300.html)

As evidenced by the data, some of the biggest Division-1A programs bring in enough cash to rival some of the biggest corporations in America. Remember that this is not a discussion of the gross profit of the entire athletic department of each given school; it is a discussion of ONLY gross profit generated from the football program.

If the football program of a school is capable of earning revenues that rival one of the largest retail franchises in the country, then clearly, the health of the major teams must not be in jeopardy even in these tough economic times.

Also, a perusal of the data for the other years are very similar to the 2008 dataset presented above. This analysis indicates that college football as a whole is a rich enterprise (even if it is classified as a non-profit entity) that has a humongous impact on the economy from its sheer size alone. This not-so-well-known topic is definitely worth exploring, so keep your eyes open for the upcoming entries.

Next Week: Money Not Only Talks, But Money Also Recruits, And Puts W’s on the Board

It is true that there may not be a direct relationship between W’s and the revenues that the teams can bring in. However, according to the same US Department of Education spreadsheet, high total football-related revenues were strongly correlated with high recruitment expenses. Stay tuned for the next entry on the relationship between “profitability, revenue, recruitment and wins.”

Welcome and Introduction

WELCOME
Super Bowl Sunday is the most popular unofficial holiday in the United States. However, many American are unaware of how much of an economic impact this football game has; over a billion dollars exchange hands in the United States alone in Super-Bowl-related expenses (Americans spent over $55million on food for Super Bowl parties last year, http://www.associatedcontent.com/article/19089/super_bowl_sunday_partying_eating_and.html?cat=19). Some find these figures bizarre; others, however, suggest that they are perfectly fitting since the National Football League is a multi-billion dollar business, and a season finale between the two best teams in the League merit this much hype and excitement (and therefore the enormous expenses). However, an issue in football economics that is seldom talked about is college football.

COLLEGE FOOTBALL + $$
If the finances and economics behind professional football are justified, well-understood and widely accepted, then their collegiate counterparts are exactly the opposite. Universities, the NCAA do not disclose much information regarding the financial aspect of their college football programs. Therefore, only when scandals involving bribes and illegal monetary gifts to recruits or players are uncovered, do we get to hear about some aspect or rule in place to keep dollars away from so-called “student-athletes” until they turn pro. Having said that, we know that NCAA goes to great lengths to keep college sports segregated from corporate sponsorships and other involvement of professional compensation (they say this keeps the collegiate sports “amateur” like the way it is supposed to be); at the same time, we also know that college football programs bring in hundreds of millions of dollars of revenue for their respective universities. (In 2007, University of Texas brought in $120million in revenue through its football program, and the Big 12 Conference as a whole made $800million in revenue). This is an interesting issue: The “higher-ups” in the collegiate football organizations allege that they are doing their best to keep the sport “amateur” and at the same time, they are bringing in huge revenue for their respective schools. Not only are issues regarding money and college football interesting, they are becoming important issues in the news today. In May 2009, there was even a bill passed in Congress regarding a playoff system for the sport. In order to help a layperson understand the complex economic involvement behind the football programs, this blog was created.

ABOUT THE BLOG
As stated, Economics of the Collegiate Gridiron will explore a variety of issues regarding financial and monetary issues involving collegiate football. The issues at hand will range from recent trends in head coaches’ compensation to the economics behind the BCS Playoff System argument. Stay tuned for the next week’s blog posting about the sustainability and profitability of revenues and expenses incurred by football programs from major-conferences.

SCHEDULE
Week 1: Welcome and Introduction
Week 2: Sustainability and Profitability
Week 3: Economic Involvement of the NCAA and Conferences
Week 4: Recruiting and Money
Week 5: Money, Winning Records and Bowls
Week 6: Trends in Compensation of Head Coaches
Week 7: The Economics Behind the BCS Playoff Argument
Week 8 – 14: TBD