Dear President Baker,
As you begin your tenure as NCAA president, I wanted to express hope for the impact that your leadership will have on the future of college athletics.
Media accounts have cited your political connections as a central reason for your hire. While those are undoubtedly helpful, even more encouraging is your experience as a leader addressing multilayered problems in the complex environments of healthcare and government.
The problems in college sports today are similar in the sense that differentiating between symptom, proximate cause, and root cause is not straightforward. And even if root causes are diagnosed correctly, various constraints may confine the range of possible solutions – as is the case in both healthcare and government.
Our problems occur in an environment influenced by a nuanced mix of financial incentives, competitive strategy, institutional tradition, and stakeholder passion. Their symptoms have become increasingly apparent – including litigation, NIL regulatory challenges, disjointed conference realignment, and a pattern of reactive governance – but the root causes of these problems are more complicated to tease out.
College sports stands to benefit immensely if you can draw upon your previous problem-solving experiences to understand and address root causes.
Table 1: Example of multilayered problems in college sports| Symptom | Proximate Cause | Root Cause |
|---|---|---|
| NIL regulatory challenges | Swift deregulation to grow the economic rights of athletes. Trigged by increasingly stark comparisons of athlete economic rights with escalating spending on facilities and salaries. | Underlying financial system that uniquely facilitates spending growth. Non-profit athletics departments are motivated to spend every available dollar of revenue trying to win a very competitive zero-sum game. Since there is no for-profit incentive to control costs, athletics department spending invariably grows in lockstep with revenue. As media revenue has grown dramatically, investments in salaries and facilities increased commensurately. More: “Rising Expenses in College Athletics and the Non-Profit Paradox” “Bowen’s Revenue Theory of Cost in Higher Education” |
| Disjointed conference realignment | Aggressive pursuit of incremental media rights revenue. Desire for increased conference distributions to invest in competitiveness and/or reduce operating deficits. Schools are willing to make significant trade-offs on items like regional competitive tradition and student-athlete travel in pursuit of incremental revenue. | Lack of spending regulations in the underlying financial system. Every incremental dollar of revenue is competitively useful since there are no rules to control spending. More revenue is always better since it can always be spent. No matter their financial situation, athletics departments are incentivized to pursue incremental media rights income associated with conference realignment. More: “Why Congress Should Regulate Salaries and Spending in College Athletics” |
| Reactive governance | Rapidly changing environment. Especially during times of complexity and change, there is pressure on legislators to place local interests ahead of systemic interests. Systemic problems are insufficiently addressed. | Insufficient influence of independent board members. More influence is needed from independent board members to prioritize systemic interests over local interests. Must overcome the principal-agent problem confronted by some legislators. |
The Underlying Financial System as a Root Cause
You may have already diagnosed that several of the most important problems in college athletics can ultimately trace their roots back to a unique feature of its industry structure and underlying financial system: College sports is the only industry in the United States where non-profit organizations engage in fierce zero-sum competition.
Similar to for-profit business, there is competitive rivalry between market participants in college sports. But the non-profit classification of athletics departments is more reflective of the industry’s intent to serve as an educational and public good.
This unique industry structure creates specific problems that the underlying financial system of college athletics has proven to be deficient at managing. For example, consider the rapid increase in athletics department spending we have seen in recent years. Unlike in profit-aware pro sports, leaders in non-profit college sports are motivated to spend every available dollar of revenue trying to win a very competitive zero-sum game. Consequently, athletics department expenses invariably grow in direct proportion to revenue.
In other words, when an additional $10M is generated, history shows that expenses are likely to increase by $10M. There is no owner to take a portion of the new $10M as operating profit. There is no collective bargaining agreement requiring that a portion of the new $10M is shared with players. And there is extreme incentive to spend all $10M to strengthen the chances of winning. As a result, certain expenses in college sports – namely, salaries and facilities – are determined less by rational market forces and more by simply how much money is available to fund them.
These financial mechanics are further unpacked in an article I wrote while the Athletics Director at UC Davis called “Rising Expenses in College Athletics and the Non-Profit Paradox”. They are also related to Bowen’s Revenue Theory of Cost in higher education, which posited that costs at universities are nearly always a function of incoming revenue.
So, while media rights revenue skyrocketed and spending on salaries and facilities grew commensurately, claims that student-athletes were not being treated fairly gained significant strength. A wave of deregulation thus ensued, leaving college athletics in its current state of disorganization.
Antitrust Protections Should Address More Than NIL
Antitrust protections to address student-athlete compensation issues should also extend to enable regulation of athletics department spending. Said another way, if we are asking Congress to treat symptoms of the athlete compensation problem, we should also ask for help dealing with its root cause.
Inviting this kind of regulation may run counter to your free-market instincts, as it certainly does for mine and many others. But further examination of the specific circumstances encountered in college athletics may convince you that the systemic benefits of spending rules would outweigh the drawbacks.
The disjointed conference realignment occurring in recent years provides an illustrative example. In one instance, UCLA and USC will significantly increase travel demands on student-athletes and forgo literally one hundred years of regional competitive tradition by joining the Big Ten. The closest Big Ten school to Los Angeles is Nebraska, which is 400 miles farther from Los Angeles than the most distant school in the Pac-12 (University of Washington).
Underlying this decision-making is not greed or stupidity, however, but instead a reflection of the incentives created by an underregulated financial system: Without rules to control spending, our eat-everything-you-can-possibly-kill system motivates schools to push the limits in pursuit of further revenue. Every incremental dollar strengthens a competitive advantage or closes a resource gap, so schools justify trade-offs they would not otherwise consider.
Regulations to control spending would help schools to stop making these harmful revenue-seeking trade-offs because they would establish a finite target for revenue generating efforts. Even relatively high spending limits that don’t markedly reduce current levels of expenditure would allow for more long-term certainty about the ongoing cost of competition. In other words, if UCLA and USC knew that they could sustain budgets that are reasonably near national spending limits, they would not feel the need to jump conferences to keep up financially.
And if the athlete compensation landscape evolves and labor costs are borne directly by athletics department budgets, spending limits would also help reduce the number of Olympic sports programs that are cut. Athletics departments would have better long-term clarity about the maximum allowable cost of competition in various sports and could work with donors and campus stakeholders to make future financial plans with more certainty.
Spending Limits Would Not Be Anti-Competitive
Spending regulations are also compatible with a nuance about the nature of competition in college sports: Schools compete for athletics success and institutional prestige, not for commercial outcomes.
Critics who attribute the commercialization of college sports to “greed” have gotten this point wrong. Commercial success has never been an endpoint objective for athletics departments. Rather, revenue is considered important so it can be turned around and spent as a means to the end of winning the zero-sum competition for athletics success. So, while some may view them as restraining from an ideological or commercial perspective, regulations to control spending would not harm the actual competition that is taking place among schools.
In fact, spending limits would likely enhance the quality and fairness of athletics competition because they help to level the playing field. Such logic is embraced by owners of professional sports teams – usually very strong advocates of free market capitalism in their business careers – who specifically choose to configure their leagues with heavily regulated financial systems because of the associated competitive and commercial benefits. Accordingly, when viewed through a competitive lens, spending limits should be broadly popular – including among Power Five schools, except the very few at top of the revenue generating hierarchy.
Leading Through Complexity
In her book The Watchman’s Rattle, author Rebecca Costa writes about patterns underlying the collapse of societies throughout history by drawing on examples from the Mayans, Romans, and other extinct civilizations.
The primary insight behind Costa’s theory of collapse is that a society begins to unravel when its problems become too complex.
According to Costa, the pace of environmental and technological change in a civilization is always faster than the cognitive growth of its citizens. In other words, people create complexity faster than the human species evolves its intellectual capacity to deal with it, and at some point, a society will no longer be able to think its way through its own problems. Instead, people try to solve problems by reverting to dogmatic beliefs rather than diagnosing and dealing with root causes. The inability to manage complexity has foreshadowed the collapse of societies throughout history.
Problems in college sports have never been more complex. It is a critical time for someone with your skill set and experiences to exert strong leadership influence. I am hopeful that you will help college athletics work through its current problems in a way that diagnoses and addresses their root causes.
Kevin Blue, Ph.D., is a board member of AthleticDirectorU, AllVoteNoPlay, and the Arizona State University Sports Law and Business program. He was the athletics director at UC Davis from 2016 until 2021 and is currently part of the national sport system in his native Canada. He is also a former senior associate athletics director and student-athlete at Stanford. He can be reached at KevinABlue@gmail.com and kevin-blue.com.
[1] Political elections are similar in that they are zero-sum competitions, but campaign regulations attempt to create checks on certain kinds of competitive behavior.
[2] For example, spending limits could be set at the 85th percentile of current Power Five spending on a per sport basis and forecasted to grow over time in alignment with the general rate of inflation. The detailed design of a cost control system is beyond the scope of this article. In practice, spending rules would need to account for several variables including regional differences in CPI, tuition differences, inflation over time, travel cost differences, involvement of third parties, exceptions for infrequent expenditures (e.g., new stadium), audit mechanics, and enforceability.
[3] Of course, athletics success may result in commercial benefits for some institutions and individuals. But the primary motivation for athletics departments to generate revenue is to spend it on competing rather than to retain it for commercial purposes.
[4] There are obviously alternative lenses that reduce the popularity of spending limits, including the perception of possible limits to personal income.