Professor of Strategy; Herman Smith Research Professor in Hospital and Health Services Management; Director of Healthcare at Kellogg
College sports are big business.
In 2018, they took in an estimated $14 billion. That amount has been steadily growing, driven primarily by TV revenue. Yet, unlike professional athletes, college players aren’t the beneficiaries of this windfall.
In professional sports leagues such as the NFL and NBA, about 50 percent of revenue goes to players. For college sports, however, players’ compensation is limited to covering the cost of attending the school and a modest living stipend.
So where does the majority of college-sports revenue go?
That’s the question Craig Garthwaite, a Kellogg School professor of strategy, tackled along with Nicole Ozminkowski, a graduate student in economics at Northwestern University, Matthew Notowidigdo, previously at Kellogg and now at the University of Chicago, and Jordan Keener at the University of Michigan.
They were intrigued by a combination of factors: the steep rise in revenue for college sports, the low percentage of revenue used to compensate players—only 7 percent, by their estimation—and the prevailing argument by universities that it isn’t feasible to pay players.
“They say compensation for players would destroy the nature of amateur athletics because people want to believe players are just like other students,” says Garthwaite, who calls himself a “pretty big college football fan.” He points out that no one makes the same argument for coaches, who are paid massive amounts by the highest-profile programs, even when their teams struggle. He cites the example of the 10-year, $75 million contract for Texas A&M football coach Jimbo Fisher, one of the largest in history.
But still, even generous coaching salaries can’t account for all that revenue. So, if it’s not going to the players, where is it going?
The researchers studied the flow of money from the high-revenue-generating sports of football and men’s basketball to answer that question. They found a large amount of the revenue generated by these sports was used to fund investments in other sports at the same schools. Importantly, there are stark differences between the players generating this money and those who are the beneficiaries of it.
“We find that the prevailing model rests on taking the money generated by athletes who are more likely to be Black and come from low-income neighborhoods and transferring it to sports played by athletes who are more likely to be white and from higher-income neighborhoods,” the researchers write in a recent Brookings Institution article.
This dynamic raises questions of equity.
“We’ve got kids who are playing sports that are known as more dangerous in general and still playing in the time of COVID—when we don’t know how the disease is going to progress—and they can only be compensated for the cost of attendance,” Garthwaite says. “But the money made from their sports goes to support other, non-revenue sports typically played by kids from wealthier backgrounds.”
Because they wanted to examine high-revenue-generating teams, the study initially focused on schools in the NCAA Division I Football Bowl Subdivision (FBS). The FBS comprises multiple conferences, including the “Power 5 conferences” such as the Big 10, SEC, and Pac-12, which house the best-known, highest-performing college football and basketball teams: University of Michigan, University of Alabama, University of Oregon, and others featured regularly on network and cable TV and other media.
They studied athletic-department finances based on data from two main sources: Equity in Athletics Data Analysis, to which schools must report sports-specific data in order to receive government funding, and the Knight Commission, an independent group that maintains a database of more granular university athletic-department revenue and costs.
They examined the data carefully to understand how money flowed within and between sports. Early analysis revealed two very different clusters of schools.
“Schools in the Power 5 conferences clearly operate under a different economic model than the rest of the schools in Division I sports,” Garthwaite says.
Schools outside of those conferences tend to have relatively low sports revenues, and much of the support for athletics comes from the university itself. Power 5 schools, on the other hand, have much higher athletics revenues and minimal institutional support.
Moreover, the study showed that while the average Power 5 school features about 20 different men’s and women’s sports, 58 percent of total athletic-department revenue comes from just two of them: men’s football and basketball. So the researchers focused the next part of their analysis on Power 5 schools. Their goal was to understand how the large amount of revenue from their football and men’s basketball programs was ultimately distributed.
They secured comprehensive revenue and expenses data from 2006 to 2019 for all 65 schools in the Power 5, then measured how money generated by the football and men’s basketball programs flowed to other men’s sports and women’s sports. To understand how athletes’ race and socioeconomic backgrounds figured into the picture, they traced all athletes from 2018 back to their high schools. They then collected data on those high schools to see if they tended to have, for example, a large number of Black or low-income students.
Some of the money made by football and men’s basketball, the researchers found, is reinvested back into those programs, mostly to pay coaches’ sky-high salaries, but also via spending on facilities.
“People argue that spending on facilities is a way to recruit players, as a sort of fringe benefit,” Garthwaite says. “But we can question whether that’s the most efficient way of rewarding kids for the sacrifice they make for their sport.”
Other sizable portions of the revenue go to supporting less-lucrative college sports, such as soccer, golf, and baseball, in the form of scholarships, coaches’ salaries, and improvements to those sports’ facilities. Indeed, while football and men’s basketball brought in six times the revenue of all the other sports combined, on average, they represented only 1.3 times the spending of those other sports.
This is where it’s important to look at the economic dynamics through the lenses of race and class, the researchers say.
“Gender isn’t the only kind of equity we care about. We should also care about a situation where revenue created disproportionately by athletes of one race and of lower income is spent to support those from typically wealthier backgrounds.”
— Craig Garthwaite
They found that students who played the high-revenue sports of men’s football and basketball tended to come from high schools with higher percentages of Black students and with lower average household incomes. (The racial breakdown is not surprising given that half of all players in these two college sports are Black, versus only 11 percent of athletes in other sports.)
There are large implications from these findings in terms of equity, the researchers say.
For instance, consider Title IX, the federal mandate that money coming from a general university fund be spent in an equitable manner across gender lines. This requirement, which is generally well accepted, often encourages a transfer of revenue from men’s sports to women’s sports. But in promoting gender equity, the researchers note, it may actually be exacerbating other inequities.
“Gender isn’t the only kind of equity we care about,” Garthwaite says. “We should also care about a situation where revenue created disproportionately by athletes of one race and of lower income is spent to support those from typically wealthier backgrounds.”
How best to resolve this dilemma “is a question for ethicists, not economists,” Garthwaite says. “That’s about societal preference for what type of equity matters more.”
Garthwaite says the findings make it increasingly hard to support arguments against paying players.
He notes the stark contrast between coach and player compensation: “If you look at the 2018 Ohio State versus Michigan football game, the coaching staffs were making over $30 million total. Michigan’s strength and conditioning coach makes $600,000 a year. The athletes on the field had zero salary.”
The researchers came up with “hypothetical wages” for revenue-generating athletes. They based them on the way professional sports distribute income, which is largely the result of collective bargaining by unions. If Power 5 football and men’s basketball players all split 50 percent of revenue from their sport equally, each football player would receive $360,000 a year and each basketball player would get nearly $500,000 a year. That doesn’t account for the large range in compensation by position and starter status.
Garthwaite points out that moving toward a system that compensates players would make one set of stakeholders considerably worse off: coaches, with the highest burden likely falling on those from non-revenue-generating sports. The researchers’ model predicts that if there were less money generated by big-revenue sports, schools would cut spending for non-revenue sports, including for coaches and facilities. Indeed, that’s exactly what has happened during the pandemic, as multiple universities have cut less lucrative sports due to budget shortfalls.
But compensation for athletes could take multiple forms beyond a direct salary, such as allowing players to be paid for the use of their image or likeness. Garthwaite notes that many states have already passed laws that would allow athletes to do this by signing endorsement deals, selling autographs, and earning appearance fees.
“It is clear that the business model of college sports is facing a fundamental reckoning,” he says. Policymakers and the public, he points out, have grown increasingly uncomfortable with the pattern shown in the paper—where athletes who are more likely to be Black and come from lower-income families work hard to generate revenue that we transfer to coaches and athletes in sports where athletes are more likely to be white and from higher-income neighborhoods. “I predict we will see more federal and state legislative action to force the NCAA and universities to confront the fundamental inequities that are embedded into the current model.”