What Economists Say About "March Madness"

The first article is March Madness It Is, Economically by ANDREW ZIMBALIST. Does all the money from the NCAA basketball tournament help the schools? No:

"Amid this cornucopia, the schools themselves are usually the losers. According to the NCAA's latest Revenues and Expenses report, in 2005-06 the median Division I men's basketball team generated revenue of $480,000 and had operating costs of $1.33 million, yielding a net operating loss of $850,000. If capital expenses and full university overhead were included, these results would be even more dismal."

But the coaches do well:

"In 2005-06, the head coaches of the 65 Division I teams in Madness had an average maximum compensation of $959,486, with the top paid coach earning a guaranteed salary of $2.1 million and a maximum salary of $3.4 million. Equally startling, the average compensation of these 65 coaches is double or more that of the typical university president."

But if your school has a winning sports team, doesn't that mean more applications? Maybe, but:

"Not surprisingly, those high-schoolers who apply to a college because it has a good basketball team do not tend to score high in the SATs or in class rank. As a result, basketball success may temporarily drive up applications, but it does not raise the quality of the student body."

The other article is The Real March Madness by RICHARD VEDDER and MATTHEW DENHART. One thing they mention is that the student-athletes get very little of the revenue they generate in the form of scholarships. Then:

"If all of that money from ticket sales and television rights isn't going to student-athletes, where does it end up? In 2006, salaries for coaches and administrators accounted for nearly 32% of total athletic-department expenses."

It is true that some students go to the pros and make big money. But

"Of course, for the students who go on to the pros, putting off their financial bonanza won't be a big deal. But most college athletes do not make the pros. They may not even end up with the basic skills necessary to succeed in other workplaces, since only a minority of student-athletes in major sports even graduate (25% in top-ranked University of Connecticut men's basketball, for example). Long practices and missed classes make it difficult to succeed academically. A recent study funded by the Andrew W. Mellon Foundation shows the academic performance of athletes is lower than non-athletes even at Division III schools."