Wretched excess

The University of Michigan is a great institution, probably the second or third best public university in the world.  I did not realize how great it is until today, when I found it has such a surplus of brilliant faculty, and such prosperous students who don’t need to borrow a penny to graduate right on time with a fine education, that it is going to pass up about six fully-endowed chairs, or 25 ordinary full profs for six years each, or four thousand full-ride scholarships, to hire the ’49ers slightly used football coach.  [update 30/XII: apparently early reports of a $48m deal were exaggerated: Harbaugh is making a little less than 2/3 of that plus incentives of unknown amount. Numbers corrected above, no correction to my main point required.] Now that’s an academic program that knows its place, one that the football boosters can be proud of! The athletic program claims to turn a profit (from experience, I am highly skeptical of cost accounting for college athletics financials) but things are so flush on campus that instead of wasting this money on students, classrooms, or teachers, Michigan seems to invest it all back into athletic facilities. Michigan’s unemployment rate is almost down to 7%, and its population has stopped shrinking after seven years of flight.  There are those who think business seeks out places with a highly educated workforce and a great science establishment, but those people know nothing about economics: a winning college sports program is what grows a state’s economy; look at Alabama! In fact, all four states with playoff teams have median incomes in the top  (I hate it when the web doesn’t come up with the facts I’m expecting!) bottom half of states…never mind, those out-of-work Michiganders are proud to buy one, whatever it costs, and they deserve the best circuses the state can put on.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

33 thoughts on “Wretched excess”

  1. Two relevant items here:

    1) The Michigan athletic department almost always does turn a profit; it's received a net subsidy of about $200,000 from the general fund each of the last few years but this has come in the context of declining football revenues after a couple of disastrous coaching hires. And most of the usual dodges for keeping expenses out of the athletic department accounting are verifiably not true. Further, the university doesn't allow any profits to flow from the athletic department to the rest of the school as a measure to prevent corruption in things like grading for athletes. So the money is going to stay there one way or the other.

    2) For the University of Michigan, there is almost no connection between out-of-work taxpayers and paying the football coach, or even the professors. After more than a decade of funding cuts, the state government's appropriation amounts to less than 4% of the university's total revenues. Michigan effectively is a private university that happens to charge lower tuition to students from within the state of Michigan.

    3) From the standpoint of potential marginal revenue, Harbaugh probably is worth $8 million a season to the athletic department. They sell about 105,000 tickets for each of seven home games every year. If Harbaugh is successful enough to increase what they charge by even $10 per ticket, which isn't at all implausible given how much demand has fallen over the last several years under Brady Hoke, that would just about pay his entire salary even without looking at increases in any other revenue streams.

    So, while I agree with your concerns in general (it would, for instance, be completely insane for my own University of Minnesota to contemplate any such salary for Jerry Kill), Michigan is an unusual case for something like this.

    1. You are describing a commercial enterprise. So how much of their profit can be attributed to having direct labor costs of approximately zero?

      1. Probably a lot although probably not as much as a lot of people think. The number of players at even the football powerhouses that would be making more than the value of their scholarships even in a theoretically free labor market is pretty limited.

        1. Perhaps. The valuation of a scholarship is subjective, as the marginal costs to the school are minimal. If these athletes were paid in cash, they would make their own choices on room and board, and perhaps even education.

          1. Presumably the athletic department writes a check to the university for the players' tuition bills. Otherwise that would be a huge subsidy.

            If that's true then the cost to the university is having some number of spaces occupied by students who really don't care about school at all. That's not a financial cost, but it's not a good thing either.

            I am surprised that the athletic department makes no payments to the university, but instead seems to operate, as you say, as a free-standing commercial enterprise. Shouldn't it pay taxes?

            Finally, I don't think it's necessarily true that Harbaugh is worth the whole $8 million. The question is how much he adds over say, a $6 million coach.

          2. Yes, the athletic department gets charged for the scholarships.

            The athletic department, by law, is not a commercial enterprise. There are court cases reaching as far as the Supreme Court that have held this. Granted, I think some of the NCAA's legal arguments have been specious and dishonest, but a lot of judges bought them.

            There is a lot of evidence that Jim Harbaugh is just flat out one of the best football coaches out there and much better than anyone else that was available this year. He turned around programs that were all but dead at the University of San Diego and at Stanford. He then took a 49ers team that had been, at best, mediocre for a decade and took them to the NFC Championship Game in each of his first three years. There are no guarantees in sports and he could turn into another disaster but I'd say that the odds are that, yes, he adds at least $2 million in revenues over any other coach Michigan could have hired for $6 million.

          3. It may be true the athletic department is not a commercial enterprise in the eyes of the law. That doesn't mean it shouldn't be, and it's only a matter of time before that changes. Same with antitrust exemptions for the NFL and MLB.

          4. It's hard to look at a NCAA athletic department and see a commercial enterprise, although there are clearly commercial operations within it. When you have at least eighteen product lines and no more than two of them turn a profit, and neither does the entire department at all but a small handful of schools, it's not an easy case to make that an enterprise that considers its mission to include deeply unprofitable operations is commercially driven.

            Note also that declaring it to be a commercial enterprise would remove all Title IX considerations and thus largely seriously gut women's team sports other than basketball.

  2. Idle curiosity–UMich has the largest endowment of any public university in the country, and one of the largest of any university, over $9 billion. This is pretty important to the school oustside the athletic department. From US News and World Report:

    "Schools use income from their endowments – along with tuition and other funding – to fund their day-to-day operations, so changes in the endowment's size can have a big effect on campus. That's especially true at public universities, many of which have faced stagnant or decreased state funding during the recession."

    So what I'm wondering is what percentage of UMich's recent fund raising success, bringing in over $3 billion, was correlated to athletic success. Not that I'm thinking that it ought to be–that the gifts of wealthy alumni should somehow be dependent on the successes of sports teams–but merely that, in our cockeyed world, it is.

    If that be the case then perhaps, irrespective of how it offends our sensibilities, the money they spend to achieve successes on the field of competition is a sound investment simply because it has a big multiplier.

    1. Ken,

      I'm not sure that fund-raising for the general university is particularly correlated with athletic success. I'm not sure it isn't, either. Nor am I sure where to find relevant data. I have a dim memory of some research that says the effect is neutral or worse, since athletic success tends to shift contributions to athletics.

      It's a subject that I think would bear investigation.

      1. Anecdotally, from my mother, who spent 25 years working donor relations at Michigan for both the business school and the music school, it's a lot easier to get donations after a successful football season than it is after a poor one.

  3. As always, these strange trees must be viewed in the context of the Strange Forest that is big-time college athletics. The core strangeness, of course, is that this huge industry, which provides good to spectacular livelihoods for thousands of adults, is built around a workforce that is classified as amateur participants in an extracurricular activity. As peculiar as this is — and it is highly so — it is deeply entrenched economically and culturally, and plausible fixes are not easy to imagine. Non-athletic administrators who have not drunk too deeply of the sis-boom-bah koolade don't like it, but can only hope it won't get worse. Go Badgers, Beat Auburn.

  4. Having taxpayers fund sports teams or venues is never a good idea. How's the spanking new stadium working out for Berkeley? About as well as the spanking new stadium did for the 49ers and the City of Santa Clara?

    1. Again, there are two layers of insulation against the taxpayers of Michigan funding UofM athletics: the fact that the university general fund doesn't support the athletic department and the fact that the state hardly funds the university at all anymore.

      1. Contributions to Michigan Athletics are deductible against US and MI income tax (the latter is a flat 4.35% of federal tax liability), so the $6.5m received this year included a public subsidy of about $2m assuming most donations came from high-income people. The entire UMi sports complex is not taxed by the city of Ann Arbor or the county like other business property. The university provides some of its own services, but not all, including for example streets people drive to games on and cops directing traffic on them, and a fire department prepared to respond to fires and medical emergencies.

        To fully assess the public subsidy for sports would require digging deeply into financial accounts to trace all sorts of direct and overhead costs: Who pays for the water for the fields and showers? who maintains the buildings? What share of overall university administration is charged to the $140m athletic enterprise…how much chancellor and other central staff time is taken up with sports issues?

        The public cost of an operation like this is not the same as the checks written directly to it.

  5. "Having taxpayers fund sports teams or venues is never a good idea."

    How true! But never mind college football, let's start with the Olympic Games.

    1. "How true! But never mind college football, let's start with the Olympic Games."

      No, let's start with college football, which pulls down more money.

  6. This problem will continue until college professors are willing to give up a life dedicated to teaching only those students who “qualify” for post-secondary education.

    When Berkley trains both barbers and engineers, then it will finally deserve the title “University of California”.

    1. Community colleges can train barbers in greater volume and at lower cost than the UC or Cal State systems. That's why we have them.

        1. Sure. Let's charge people who want to be barbers $30,000 a year in tuition so that they can be on the same campus as the philosophy majors. I'm sure they'll be extremely grateful.

  7. Second or third? Not even remotely.

    Depending on what you think of Texas A&M and UC Irvine, somewhere between fifth and seventh. Absolutely behind Cal, UCLA, Texas, and UVa.

  8. Gosh, isn't Jim Harbaugh the NFL coach who made arguably the worst Super Bowl coaching decision in recent years? First & goal against the Ravens late in the game, working against a tired defensive line, with two good running backs plus one of the League's best scrambling QBs, three crummy pass incompletions instead of pounding & scrambling their way to what would have been the game-winning TD? THIS is the guy UMich is spending so much money on? It passeth all understanding….

  9. It also turns out that Harbaugh isn't making $8 million per season. It will come in at an average of about $6.5 million. The rest of the $48 million that got quoted was for increases to the salaries of his assistant coaches.

    1. $6.5M instead of $8M?

      Well then, I guess that makes sense for a public university. What a deal!

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