Political Economy in the Carolinas

POLITICAL ECONOMY IN THE CAROLINAS he rising cost of higher education is a concern to students, parents, government offi cials, THE COST and citizens across the United States. Nestled OF COLLEGE Twithin this concern is a growing attention to the cost ATHLETICS IN of college athletics. The citizens of North and South THE CAROLINAS: Carolina share these concerns, and in this paper, we examine the determinants of athletic costs, on a per- ESTIMATES student basis, using data on sixty-three institutions of AND POLICY higher education in the Carolinas over the years 2003 IMPLICATIONS to 2016. In particular, we highlight the critical roles of institution size, the size of the athletic program, Jody W. Lipford whether the institution is public or private, the NCAA Presbyterian College division in which an institution plays, and time. We Jerry K. Slice complement this analysis with a closer look at eight Presbyterian College schools in the Carolinas that have reclassifi ed their NCAA division over this period. Our analysis suggests that the purported benefi ts of collegiate sports must be weighed carefully against the considerable costs, especially in light of the limited fi nancial resources that confront many college students in the Carolinas. JEL CODES: I23; Z23 I. INTRODUCTION Across the United States, students, their parents, government offi cials, and concerned citizens are showing increased concern over the cost of higher education. A quick look at some relevant statistics shows why. According to a recent article in Forbes, the infl ation-adjusted cost of a four-year college We thank two anonymous referees and the editors of this journal for helpful comments on an earlier dra . We are responsible for any remaining errors. education rose from under $53,000 in 1989 to high they may be, must be balanced against the nearly $105,000 in 2016, a pace that outstrips wage benefi ts, which are often not monetary. Fort and growth by eightfold. To worsen this bleak picture, Winfree (2013) contend that athletic expenditures fi nancial aid has not been enough to rescue cash- are an investment like any other and an investment strapped students. Inside Higher Education reports that often yields positive returns. This return may that tuition and fees, net of fi nancial aid, have be refl ected in student quality. In an early piece, risen for eight consecutive years at four-year public McCormick and Tinsley (1987) conclude that institutions and for six consecutive years at four- the relationship between athletics and academics year, nonprofi t private institutions (Seltzer 2017).1 is “symbiotic” and fi nd empirical evidence that Mounting student debt has been the result of this membership in a “big time” athletic conference “disconnect” between the cost of higher education, is associated with higher SAT scores, a result wage growth, and fi nancial aid, so much so that consistent with an “advertising eff ect,” commonly student debt is now the largest component of US referred to as the “Flutie eff ect,”4 whereby athletics nonhousing debt (Maldonado 2018).2 increases an institution’s applicant pool. Mixon Documenting these trends is one thing; (1995) corroborates this fi nding with evidence explaining them is another. Economists have that student quality, measured as an increase in long recognized that third-party payment dulls SAT scores, is positively associated with basketball consumers’ sensitivity to price and results in success, a result he too attributes to a benefi cial nonprice competition by producers. Ohio “advertising eff ect.” In later work, Mixon, Trevino, University’s professor emeritus Richard Vedder and Minto (2004) fi nd that football success is places the blame squarely on the major third-party positively correlated with higher freshman- payee, the federal government, whose subsidies retention rates and graduation rates and so is have given “‘every incentive and every opportunity congruent with a university’s overall mission. In a for colleges to raise their fees’” (Finley 2013). Of similar vein, Pope and Pope (2009) fi nd that football interest to our study, the rise in athletic costs is and basketball success generate larger applicant commensurate with that of federal aid. Slaper pools that, in turn, allow schools to expand along and Foston (2013) note that institutions are “only the quality and quantity margins of their student remotely disciplined by market forces,” resulting in body. an athletics and facilities “arms race.”3 In a past Other researchers have taken a diff erent path, study, the Center for College Aff ordability and focusing instead on giving. Koo and Dittmore Productivity (2010) listed twenty-fi ve ways in which (2014) test whether athletic success and giving to institutions of higher education can curb costs, the athletic program increase or crowd out giving including cuts to their athletic programs. to academic programs. They fi nd that football To supporters of college athletics, blaming rising success (but not basketball success) and athletic college costs on athletic expenditures is naïve, short- giving are positively correlated with giving to the sighted, and downright wrong. The costs, however academic program. In eff ect, success on the football 1. e Inside Higher Education article is based on a more detailed report by the College Board, Trends in College Pricing 2017. 2. Articles by USA Today and CNBC sound a similar theme. See Caplinger (2017) and Martin (2017). 3. Nonetheless, they also cite low productivity and labor costs as reasons for rising costs. 4. Doug Flutie was a Boston College quarterback whose “Hail Mary” pass against the defending national champion, University of Miami, in 1984 brought about a much-celebrated Boston College victory and is associated with a large increase in student applications at Boston College the following year. fi eld and donations from athletic boosters are and the College Football Championship Playoff associated with greater resources for the academic have resulted in “revenue inequality” across college side of the institution. Stinson, Marquardt, and athletic programs, in which successful football and Chandley (2012) examine athletic spending as an men’s basketball programs earn increasing multiples investment and conclude it yields positive rates of of the revenues of average schools. The fallout is return for an institution’s core and gift revenues and that most athletic programs run large defi cits. In a is also associated with higher graduation rates. penetrating analysis of who pays the institutional However impressive this research is, much of subsidies to fund these defi cits, Lipford and Slice the public and popular press remain skeptical. (2018) provide evidence that institutional subsidies According to USA Today, the number of athletic are higher at schools with lower graduation rates and programs that generate operating revenues that ACT scores and with higher shares of the student exceed operating costs has ranged in the low 20s body that receive Pell grants and take out student since 2010, and these programs are restricted to loans. members of the elite Power Five conferences: the As to the nonpecuniary benefi ts, not all Atlantic Coast Conference, the Big Ten, the Big researchers share the optimism of athletics’ Twelve, the Pacifi c Athletic Conference, and the supporters. Litan, Orszag, and Orszag (2003), Southeastern Conference (Berkowitz and Schnaars Orszag and Orszag (2005a), and Orszag and Israel 2017). Since most athletic programs lose money, (2009) fi nd no eff ect of operating expenditures the gap, often reaching into the tens of millions on football or basketball on an institution’s SAT of dollars, must be fi lled from some source, and scores or alumni giving. The latter papers also that source is institutional resources (Wolverton, fi nd evidence of an “arms race” for capital and Hallman, Shiffl ett, and Kambhampati 2015 and operating expenses. Frank (2004) argues that Suggs 2017). Some analysts have questioned college athletics are similar to a “winner take all” whether athletic spending is sustainable, while market and that escalating expenditures on college others argue that the continued viability of college athletics contain features of an “entrapment athletic programs, in spite of their fi nancial losses game,” whereby institutions continue to spend in most cases, indicates their nonpecuniary value in hopes of gaining a relative advantage. Frank’s to their institutions (Brady, Berkowitz, and Upton survey of the literature examining the importance 2016). of nonpecuniary benefi ts shows that a large Numerous scholarly studies have also questioned number of scholarly studies indicate that these the viability of college athletic fi nances. The Knight benefi ts are small. Zimbalist (2010) concedes that Commission (2009) provided an early warning of athletic success may bring more or higher-quality the unsustainable trends in college athletic costs students and greater donations but notes that if this and institutional subsidies, and Zimbalist (2010) is true, poor athletic performance should tilt these points out that the cost picture may be worse than outcomes in a negative direction. is commonly perceived because institutions do not Our aim in this paper is to examine and explain generally report athletic-department expenditures on the costs of college athletic programs in detail. capital and debt service. For institutions outside the Specifi cally, college athletic costs, on a per-student Power Five conferences, the fi nancial picture may be basis, depend critically on fi ve variables: the number worsening. Gurney, Lopiano, and Zimbalist (2017) of undergraduates enrolled, the size of the athletic present evidence that lucrative television contracts program as measured by the number of athletes, whether the institution is private or public, the to 2016. The fourth section presents evidence on NCAA division in which a school plays, and the the fi nancial need of students of higher education passage of time. Our focus will be on sixty-three in the Carolinas and the policy implications that institutions of higher education in North Carolina follow from our work.

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