DOES COLLEGE FOOTBALL MAKE SCHOOLS RICHER OR POORER?
Short answer: It enriches the powerhouses, but the larger story is mixed.
When it comes to raw earning power, college football programs are pretty evenly split between haves and have-nots. The media tends to focus on powerhouse schools such as the Universities of Alabama, Michigan, and Texas, which rake in tens of millions of dollars from ticket sales, TV deals, and merchandise. But those teams are just one part of a much larger and more complicated picture.
In August, the NCAA released a financial breakdown of college athletics programs from 2004 through 2010. In those years, hardly more than half of the roughly 120 teams in the Football Bowl Subdivision, the old Division 1-A, generated a profit from football. Those teams netted a median gain of $9.1 million. Among the programs stuck in the red, their median loss was $2.9 million. So for elite football schools, the game is a cash cow capable of subsidizing less remunerative sports. For the gridiron also-rans, it's just one more expense.
By and large, economists haven't focused on direct revenues. Instead, they've tried to probe the common claim by university administrators that alumni are happier to donate when football teams win. More than a dozen studies have tried to put that folk wisdom to the test, but the jury's still out. For instance, a 2004 study by University of North Carolina at Charlotte professor Irvin Tucker found that better records and bowl appearances could boost alumni giving. Looking at data from dozens of big conference schools, he found that, over a six year period, a 10% jump in winning percentage, an extra bowl game, or extra appearance in the AP coaches poll appearance could increase donations by 1%. On the other hand, a 2001 paper that examined the behavior of thousands of individual alumni donors found no such relationship.
For public universities, though, there's a crucial audience to consider other than alums: legislators. In 2003, UMBC's Brad Humphreys looked at the relationship between gridiron glory and appropriations by state lawmakers. He found that winning teams received more generous treatment come budget season, especially if they went to a bowl game or won a major in-state rivalry match, such as the annual Iron Bowl between the University of Alabama and Auburn. "A successful football season might increase state appropriations by 5% to 8% in the following year, and a team with a respectable losing record might garner a 2% to 4% increase, other things equal," Humphreys concluded. "Very bad teams -- those that win only 1 or 2 games -- get a smaller increase in appropriation in the following year."
Ultimately, the biggest problem with treating college football as a financial investment is that pouring in more funding doesn't guarantee better returns. Before his days in the White House, former Office of Management and Budget Peter Orszag was part of a team commissioned by the NCAA to analyze the impact of athletic spending on colleges. Looking at data from 1993 to 2001, his study found that spending more on football didn't lead to a more profitable team. It also didn't lead to additional alumni giving. Why not? Possibly because that teams that upped their funding didn't necessarily improve their records. Nor did a better record guarantee increased revenue. So schools can spend all the money they want in the hopes of becoming the next LSU. It just doesn't mean they'll get results.