March Madness and the Economics of College Athletics

March madness

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I just read a nice article on the economic impact of March Madness by Simon Ogus. He goes through the effects on host cities, the TV revenue generated, and the money that flows to schools, conferences and the NCAA.

I’m a strong believer in separating big-time athletics from colleges and universities. I used to be ambivalent, but that was before I read Taylor Branch’s piece in The Atlantic and, before that, Murray Sperber’s Beer and Circus: How Big-Time College Sports Has Crippled Undergraduate Education.

NCAA Division I programs admit athletes in revenue-generating sports such as football and men’s basketball (and, in some cases, women’s basketball and men’s ice hockey), earn revenue and prestige from winning seasons, and then make no provision to ensure that they earn a degree.  Further, the bulk of the revenue earned doesn’t flow to the educational programs of the university but is plowed back into the athletic program.

I don’t see March Madness disappearing, so what’s to be done?  There are proposals to pay college athletes and there are efforts to unionize college athletes.  There are merits to both approaches.  However, I think economics suggests another approach.

College football and men’s basketball programs function as minor league programs for the NFL and the NBA.  The leagues benefit from what economists call a positive production externality; that is, college football and men’s basketball provide a benefit to owners of professional sports franchises without those owners paying for the benefit.  Put yet another way, college athletics subsidizes professional sports.

This externality can be solved by redistributing some of the professional leagues’ gains back to the universities.  One method of doing this would be for the athletic conferences (SEC, Big 10, etc.) to negotiate payments from the NFL and NBA to finance their athletic programs and provide significant resources for academics.  Another route would be for the federal government to tax professional sports leagues and send the money to colleges and universities with conditions on how the money could be used.

Higher education and athletics can be mutually beneficial, but that’s not how it works at big universities.  My preferred solution is to separate the two or set up college athletics at either the club level or something like NCAA Division III.