29 March 2010

Even universities are chasing the dollars

The Sports Economist | Phil Miller | Sweet Lew's Sweet Compensation Package

Major college athletic programs are run in ways that are very similar their professional brethren. They compete in markets for top talent (except that in college, the players can't be paid). They practice price discrimination. For example, colleges routinely give ticket discounts to students, an example of what we economists call third-degree price discrimination. They use two-part tariffs to allocate tickets. In the pros, they use personal seat licenses. In college, they use donations. Both the pros and the colleges employ revenue sharing. The primary difference between the colleges and the pros is that the revenue programs in college, generally football and men's basketball, generate revenue for cross-subsidization of non-revenue programs.

But Phil, you'll say, colleges are non-profit while the professional team owners do what they do for profit. Fair enough, but I'd counter that being a non-profit in terms of tax status only restricts what you do with excess income. It does not restrict your underlying motive. Moreover, colleges try to generate as much revenue as possible. Further, since most of their costs are fixed costs, as in the pros, maximizing revenue is the same as maximizing profits (or minimizing losses).
That's the lead-in to a post about the salaries of college athletic directors. (The Kansas AD got $4.4 million last year. Yowza.)

That latter paragraph reminded me of this quote, which I had totally forgotten was also Miller until I looked it up in my notes:
Being non-profit does not mean that you don't have profits as an objective. All it does is restrict what you can do with earned profits, meaning that they can't be dispersed to shareholders. As I was told at a meeting when I jokingly brought up the fact that my university is a non-profit, I was told by an older gentleman at my table "Oh, we get plenty of profits. We just make sure we spend it all."
One of my Bottom Elephants is that non-profits and for-profit organizations aren't that different.

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