«

»

Oct 14

Print this Post

Revenge of the nerds: money grabbing admins and low cost, cash-generating jocks

University administrators at the highest level are as nervous about the future as a college freshman at frat initiation. The issue? Football. Football means money. Big money. And the amount of money at play fluctuates widely depending on the conference in which a team competes.

During September, a sort of “musical chairs” ensued with teams from major conferences jumping or threatening to jump to new conferences. Tradition, long lived rivalries, and the interests of non-football sports were cast aside as Texas A&M abandoned the Big 12 for the SEC and Syracuse and Pittsburgh notified the Big East they would join the Atlantic Coast Conference (ACC). The Big 12 found itself on the brink of dissolution as Oklahoma and Texas explored joining the PAC-12, which recently added the University of Utah and Colorado. Football’s kickoff month has had as much interest and speculation over which teams will join which conferences as over who will emerge victorious in the biggest games played on any given Saturday.

School administrators have not been bashful at all about their aggressive participation in the money grab that conference alignment entails. In fact, some have complained that conference alignment has developed into its current mess precisely because university presidents and boards have become directly involved in the process, pushing aside school athletics directors. University sports money — especially for football — is huge. And administrators see it as one of their primary duties to protect and enhance a school’s revenues, whether those revenues come from alumni donations, tuition, athletics, or some other source.

Pursuing money is perfectly fine. There’s nothing wrong with the university money grab. That is, until one contrasts it with how the NCAA (National Collegiate Athletic Association) and school administrators preach — and follow up with heavy handed enforcement — that it is wrong for star athletes to benefit financially from their participation in university athletics. They preach that college athletics should not be about money at all. It’s about amateurism, tradition, rivalry, and, most important (wink wink, nod nod) enhancing the academic experience. In other words, college athletics — as far as you are concerned, student athlete — is all about the very things that universities whimsically cast aside in pursuit of football money.

According to its website, the NCAA was founded in 1906 “to protect young people from the dangerous and exploitive athletics practices of the time.” If this was the original purpose of the NCAA over a hundred years ago, the organization’s mission seems to have changed as drastically as the look and feel of college football itself. Danger is one issue, and it seems the NCAA remains true enough to this mission. But exploitative practices are a separate matter entirely. In this regard, NCAA’s mission seems to have completely reversed direction — it no longer protects athletes from exploitation but protects and enforces college exploitation of its athletes. The NCAA preaches “money is evil” to the athlete while it and its member institutions rake in the cash. Nothing puts this exploitation and hypocrisy on display more than the conference alignment money grab. So much so that the NCAA President, Mark Emmert, may have been embarrassed into making the following remarks in an interview with the Associated Press:

“I think what came across is that all we care about is money and what we can do that is to our advantage. Nobody was talking about what this is going to do for student-athletes or intercollegiate athletic programs. It was all about let’s make a deal.”

He continued,

“We shouldn’t say money isn’t important. It is very important to fund intercollegiate athletics because universities can no longer afford to take money out of their regular budgets to subsidize sports.

He rounds out his sermon with the platitude, “Money’s not evil. It’s what you do with the money that’s evil.”

Mr. Emmert fails to comment on why, in his role with the University of Washington last year, he opted, together with other PAC-12 administrators, to expand the PAC-10 to include the University of Utah and Colorado. It might have something to do with a pending television deal that the expanded conference entered into with Fox and ESPN worth an estimated $3 billion.

Mr. Emmert also remains silent on what sort of virtuous goals should be undertaken with all the money that college sports generates. Certainly he’s had a chance to think about how big money from college sports might be used. Let’s say, for instance, what should be done with the $10.8 billion television rights contract that his organization (the NCAA) entered into last year for broadcasting the men’s NCAA tournament. Any suggestions on what might be done with that money that is “not evil”? Hey, why don’t we give that money to the poor. In fact, might it make sense to give some of it to the star athletes recruited out of South Central Los Angeles who are generating that money? Oh no, not that.

The role of the NCAA — explicitly intended or not — has evolved into that of the mobster in cartel theory. Despite the promise of higher profits when cartels cooperate to restrict output, fix prices, or restrict wages, such an alliance is inherently unstable. The problem is that a “cheater” stands to enjoy substantial benefit by deviating from the cartel’s agreement. Having a mobster who is willing to bust someone’s knees if they cheat introduces stability into the cartel since the threat of having your knees busted may outweigh the benefit of cheating. The NCAA is effective in this role.

The NCAA’s most high-profile action in recent years was its discipline of USC for “a lack of institutional control” because football star and Heisman Trophy winner Reggie Bush received “lavish benefits” from sports marketers hoping to sign him. Those “lavish benefits” were hotel stays, a rent-free home where the athlete’s family lived, a limousine ride, and a new suit to wear when he accepted his Heisman Trophy. The NCAA busted USC’s knees and those of its student athletes: 30 lost scholarships and a two-year ban on eligibility for bowl games.

Reports out of Auburn, Oregon, Miami, and other institutions suggest that the NCAA’s members and their boosters are anxious to “cheat” on their agreement. Certain institutions seem convinced that they can actually do better in a truly competitive arrangement that has schools attracting athletes with the promise of money.

Without the NCAA swinging a big stick to keep its members in line with their agreement, the NCAA and Mr. Emmert quickly lose relevance…and money. But this, inronically enough, might be in the best interest of student athletes — of whom Mr. Emmert and the NCAA claim to be a proponent.

The going theory is that the major football conferences are moving toward a set of four 16-team super conferences. With only four major conferences, a playoff and national championship game — and lots and lots of money — are within easy reach. Furthermore, schools in the four super conferences can collectively opt out of the NCAA and set their own rules.

With the NCAA and its big stick out of the picture, the super conferences might be free to take Mr. Emmert’s comments to heart and consider whether all this money should be used righteously. Perhaps college athletes could see a pay day after all.

About the author

Eric Madsen

Mr. Madsen is a Chartered Financial Analyst (CFA) charterholder and a Manager at Fulcrum Inquiry, a finance and economics consulting firm that performs economic damages analysis involving commercial litigation, financial investigations, business valuations, and forensic accounting. He also holds an MBA from the UCLA Anderson School of Management and a B.S. in Economics. He conducts expert analysis in finance and economics. Mr. Madsen may be contacted at 213.787.4122 or at emadsen@fulcrum.com.

Permanent link to this article: http://betweenthenumbers.net/2011/10/revenge-of-the-nerds-money-grabbing-admins-and-low-cost-cash-generating-jocks/

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

*