Thursday, March 14, 2013

Should the NCAA regulate how much Alabama spends on athletics?

There is an interesting, albeit unpersuasive opinion piece by Daniel Hare at arguing that college athletics spending is out of control and that some form of regulation needs to be imposed to stop the arms race between major college programs.

Nearly a year ago, this article asked, how much is too much when it comes to spending on college football?  Assuming the answer is whatever they’re spending now, the next question is how to reform it.  I have a thought.  What if there was a cap on the amount of money universities could spend on college athletics?  Think about it.  University presidents and other observers are constantly decrying the “arms race” that exists today, yet nothing is done.  The reason: presidents know (or suspect) their counterparts are going to keep on spending and gaining a competitive advantage, and no president is going to risk crippling their athletic programs and alienating the alumni base.

But what if there was an NCAA rule which capped the amount of money you could spend each year?  Or perhaps a luxury tax imposed on those who spend over the cap?

A policy like this would allow presidents to put athletics spending on a more sustainable path, without the risk that competitors are going to exploit it and surge past their teams on the field.  It would help address the concerns faculty and other constituents have about spending at the expense of academics, including the public relations problem of increased athletic spending at a time of shrinking state appropriations and rising tuition for students.  Capping spending also means more schools would have the opportunity to compete for championships.  This is a big one.  Our country’s most popular sport by far, the NFL, has a hard salary cap to help provide all its teams with a realistic shot at taking home the trophy.  Even Major League Baseball, which doesn’t have a salary cap, has a luxury tax that teams must pay if they go over the spending threshold.

This is a step on a slippery slope, and it only leads to a mucky, stinky mess on the bottom. Any time someone says they have a plan to make something “sustainable,” it should set off alarms in your head.

Free markets are never “unsustainable,” and anyone who tells you differently doesn’t understand even the most basic principles of capitalist economics.

The last thing in the world college athletics needs now is a new regulatory regime. The US is in an economic quagmire with an anemic economy, persistent high unemployment and an overall lack of growth. The only really strong “growth industry” is college athletics, which has resulted in a long term construction and hiring boom on every major college campus in the country. Why would anyone want to choke that off by arbitrarily imposing a limit on how much money can be freely given and spent to build top-notch facilities, hire the best coaches, assistants and administrators and fuel the local economies?

To make things more fair?

The author compares the budgets of the University of Texas and Lousiana-Monroe, and suggests that somehow, it’s unfair for ULM to have to compete with Texas for the same trophies.

No one expects mid-majors and directional schools to field programs that consistently play for national championships in revenue sports like football and basketball.

In the 2010-2011 academic year, the University of Alabama spent about $31.6 million on athletics. That included spending for facilities, salaries, travel expenses, security, equipment and other line items. Almost all of that went right back into local, state and regional economies, which generated income for thousands of people in Alabama. It helped to strengthen local tax revenues and helped the state keep from slashing appropriations for higher education even deeper than they’ve had to, and probably helped keep student tuition from climbing even faster than it has.

Back on the slippery slope metaphor—what exactly do you limit in spending? Is it salaries for coaches and administrators? Is it a cap on recruiting budgets? What about how much you can spend on state-of-the art training facilities, dining halls and academic centers?

As soon as you come up with a laundry list of things you want to cap, some enterprising athletic department will find another way to gain an advantage. That of course leads to even more regulations, more loopholes to exploit and more enterprising ways of getting the edge on the competition.  This won’t end well.

In the 1970’s, our enlightened federal government decided to fight inflation by instituting a regime of price and wage controls in a noble, yet fruitless effort to combat persistent inflation. That led to employers offering candidates a suite of fringe benefits, including health insurance. That led to removing the consumer’s budget constraints from pricing in the healthcare market, and now we have the most expensive healthcare market in the history of expensive healthcare markets.

In the 1970’s, 1980’s and 1990’s, that same enlightened government decided to force banks and S&L’s to lend money to homeowners with poor credit histories and demographics known by lenders to be high risk and then guaranteeing payment of principle and interest to investors. That of course led to the 2007-2008 financial meltdown that wrecked the economy and directly led to the economic malaise that we’re in now.

History shows that the more you try to regulate, the more damage you end up doing through the Law of Unintended Consequences. Don’t believe me? Well, have you seen the NCAA manual? Have you ever seen the Code of Federal Regulations? There ain’t a whole bunch of difference between the two, and both take a bunch of pointy headed bureaucrats to decipher and interpret them.

The best solution is to do nothing at all. Let the bigger institutions raise and spend what they want. Let the smaller institutions do what they can to keep up. Eventually, the most enterprising and richest schools will break off from the current NCAA membership and form their own system. History also shows that in free market systems, those who invest and take risk are rewarded. College sports is a business, and the best solution to a business problem is always a free market.

Follow me on Twitter and Facebook.