Thursday, January 10, 2013

Economic Valuation of College Football Progams

Earlier this week the WSJ provided an update to estimates of the economic valuation of college football teams produced by Ryan Brewer, a finance professor at the Indiana University-Purdue University Columbus. Brewer wrote a dissertation on the subject and the methodology is described in this paper (in PDF). This post provides a few visualizations of the data and a bit of commentary.

Because college football programs are not bought and sold on the open market, estimating an economic valuation requires making assumptions and applying a methodology. Necessarily such an approach will be far less satisfying than observing a price paid by a buyer to a seller. Nonetheless, Brewer's methodology provides a consistent and defensible way to look at valuation.

Under Brewer's method Texas comes out on top at $805 million. To convert that into a university metric, that amount of money could endow about 400 faculty positions ($100k per position, 5% return on endowment per year), or about 20% of the total number of faculty at UT-Austin. The University of Colorado, my employer, sits at #29 at $156 million. For a university with a billion dollar budget, this valuation does not seem particularly high, it is equivalent to the endowment value of about 78 faculty members, or in round numbers about 5% of the campus total.

There are 52 programs with a valuation >$100 million -- what might called big-time football programs. The figure below shows the breakdown by conference, showing that there are 2 big time conferences -- SEC and Big 10, 3 wannabe big time conferences, and 5 minnow conferences.  The huge disparities suggest that the resorting that has gone on in football alignments in recent years might yet have a ways to run.
The figure below breaks out the conferences by team, and shows large disparities within conferences. Consider that in the Big 12 with Texas is lowly Kansas valued at only 5% of the Texas valuation, at $40 million. The valuation estimates reflect a number of factors, including the ability of each program to secure its financial future.


  1. "Because college football programs are not bought and sold on the open market, estimating an economic valuation requires making assumptions and applying a methodology."

    The "Because" in that sentence is incorrect. By the same token, the comparison of the value of footballers to the price of professors is incorrect too.

  2. Thanks Richard. If you donated to the University of Colorado $156M (please do so;-), then I could in principle hire 78 faculty members. If the football program is indeed worth $156M, then 1 football program = 78 faculty members. QED.

    1. No, not QED. The hypothetical 'value' of the football program exists because... it is a football program. If the football program didn't exist, would that value be transferrable to faculty salaries? Without reading the paper, I think I can assume that part of the value comes from television revenue. No football, no revenue. I think I can also assume that some of that value comes from alumni donations.

      When I was at one of the SEC schools, the athletic director gave the university library system $100K. That was on top of the regular contribution from the athletic program - read football team. If they shut down that football program tomorrow, not only would the entire NCAA sports community at the school collapse - no more champion women's gymnastics, no more women's basketball - but donation to the school itself, apart from football would drop significantly. And faculty would be checking each pay envelope for pink slips.

      I'm surprised that someone who does this for a living would make such a naive equation between fooball 'value' and faculty positions.

    2. Mark B., Thanks, but I never said anything about transferring value. What I did say was

      Thus, A~C

      A could be the Mona Lisa, Roman Abromovitch's yacht or $156M in cash. It is just an equivalency argument.


    3. Roger: You're mixing up consumer surplus and market price.

    4. Thanks Richard, and perhaps so, though Brewer's arguments are more than just consumer surplus. That said, you are confusing technical economics claims with facile comparisons for the simple purpose of communicating a meaningful sense of scale.

      Given that the valuation of a college football program is a highly metaphysical concept to begin with, this is all kind of funny ;-)

  3. You're comparing a variable to a first partial derivative. You would not compare a position of a car to the speed of a plane, so why would you compare a value to a price.

    If you want a fair comparison, compare consumer surplus to consumer surplus.

    If you want a fair and easy comparison, compare wage bill to wage bill.

    1. Richard, what would the wage bill of a college football team be?

      Another metaphysical question! Hence the need for abstract valuation metrics.

      Were Roman Abramovitch to trade his yacht for the Mona Lisa, it would be fair (perhaps not correct, but fair) to conclude that they have the same value, even though only one has a price.

      Of course, because such a trade would never occur it is a metaphysical question suitable for the pub or a philosophy of economics course.

      All that said, the intrinsic valuation model used by Brewer may have far more practical value that you allow, as college administrators do in fact make resource decisions in universities based on perceptions of value across different units.

      For many, my claim that 78 faculty members have the same value as 1 football program would seem laughably low.