Economic rents and the Longhorn economy

I didn't have time to comment at the time, but the Statesman had a good piece on the Longhorn economy in Sunday's paper.  This year, the University of Texas athletic department will spend more than $100 million.  A lot of the AD's budget is spent on things like team travel (but chartered jets for the basketball team?), equipment, and medical care.  But a lot of it gets spent sustaining the high life:

• For the football team, after its Rose Bowl victory, "a $200,000 renovation of its players lounge, a retreat with four TV projectors (screens drop from the ceiling at the push of a button embedded in a six-foot replica of the UT tower), six flat screen TVs, four X-boxes and three PlayStations."
• Another new lounge area for the football team, with five flat-screen TVs and a three-dimensional, lighted 20-foot Longhorn on the ceiling.
• $380,000 to rehab Athletics Director DeLoss Dodds' suite overlooking the football field.
• $9 million for the football stadium's new high-definition video and sound system, much of that for the new scoreboard, and $3.9 million to buy out the company that owned advertising space on the old board.

A couple of UT professors predictably called the spending an "extravagance" and an "embarrassment."  I was disappointed nobody mentioned the key phrase:  "economic rent."  The athletic department has these millions to spend on luxury items because it belongs to a cartel that fixes the price of labor.   

Of course, some of the rents are returned to the players as soft compensation; that's what those fancy lounges really are.  But that $200,000 would almost certainly generate more utility if given to them in cash than if spent renovating a lounge to add barcaloungers and flat screen TVs.

This is a good illustration of the twin harms caused by the NCAA's price-fixing:  (1) It redistributes money from student athletes to coaches and middle-aged administrators; and (2) it ensures that much of the compensation that athletes do get is wasted through inefficient barter. 

Comments

[The Overhead Wire]

As a former Texas athlete, I will say that it is the larger sports that pull in money on the backs of its athletes but it does give them a lot in return. In track we made a few dollars at the Texas Relays but much of our budget along with all of the women's sports and swimming, tennis etc came from the Football program's earnings.

So in some ways I am grateful for the opportunities presented to me because of the wealth of the athletic department...for example being able to fly to Stanford to race against the best in the best weather versus staying locally and hoping it wasn't windy on race day for a try at a qualifying time for NCAAs.

I agree with most of what you said, but I'm wondering what would happen if you actually gave that money to the student athletes outright. Just seeing what happened when people got Per Diem, they would go out and buy that stuff anyways. I noticed on a few occasions saved up per diem going to an X Box or car stereo or other things. No one that I know saved that money in a completely meaningful way.

Another thing is that there are only about 20 teams or so that make money. The rest are losers. Many programs have cut sports saying that they needed to enforce title 9 gender equity when it was really about losing money from football. Some have mentioned that maybe they should leave the NCAA and start a super college league and pay players. I'm not sure if thats what I want to see though. Then it's just NFL lite, even more so than now. At least now some teams have somewhat of an equal chance recruiting kids.

Personally what I think would be good is either put a cap on salaries for coaches and administrators and put any extra money back into the research and scholarships at the school. I think it should be the same way for CEOs. You'll make enough money, but you don't really need all of it and it should go back into R+D or something related if you really care about the company you represent.

It's not just scholarships that athletes are provided, we had free tutoring, academic advisors, career advisors, could have come to school naked and been clothed, free medical care, instant post collegiate job connections, and probably many things I can't remember right now. But even if you didn't have a scholarship you were taken care of. I think that should continue but perhaps the rest of the spoils should go back to the reason you're there in the first place, a first class education.

[M1EK]

As with the last time you posted something like this, I disagree heartily. Most of the roster of even an elite school like Texas will never make one dollar in the NFL - their compensation is their scholarship, which for most of them is worth more than they would be paid in a merit scheme.

Even in the pros, team sports require a certain amount of what we'd normally call socialism. Without it, there's just no point at all. (Baseball showed this before they started the slow inexorable march towards a salary cap - the NFL's overwhelming success proves that's the only real way to win in the long-run).

[AC]

Yeah, M1EK, we're never going to change each other's minds on this one.

I'd be more receptive to the competitive balance argument if the players could bargain as a unit, as they do in pro football and baseball.

Just out of curiosity, Pantograph, what did you run?

I can't dispute that athletes at big-time schools get a compensation package that includes more than tuition. I don't think the college education itself is worth much to some athletes, however; some are there to play football or basketball and for no other reason.