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athletes

Pay to Play

November 21, 2007 · 0 comments

150px-Joe_Paterno_Sideline_PSU-Illinois_2006.jpg

One of the most closely guarded secrets in the history of sports is about to be revealed: exactly how much does JoePa get paid?

The Pennsylvania Supreme Court has ruled that the Penn State University football coach’s salary must be made public. The request had initially been made by a newspaper (The Patriot-News in Harrisburg) to the State Employees’ Retirement System; employees enrolled in the system are covered by an open records law. The university had previously blocked attempts to make Paterno’s salary public.

Speculations run rampant about exactly how much Joe Paterno is paid for his role as head coach at Penn State University. He holds more bowl victories than any coach in history. He has won each of the major bowls, the Rose, Orange, Fiesta and Sugar Bowls, at least once.

Those numbers put him in a class all by himself – will it be reflected in his salary? And more importantly, what does it have to do with tax?

Plenty. As I reported previously, salaries for coaching collegiate sports outpace the salaries of college faculty. And the trend is continuing: the University of Alabama agreed to pay Nick Saban $4 million per year to coach their football team. In comparison, the average UA professor makes $108,000 and the average UA associate professor makes just under $75,000 (source – pdf). That’s a pretty wide discrepancy. And it’s worth noting that UA didn’t even crack the top 25 of the BCS for November.

Colleges are increasingly devoting more and more of their resources to raising money through sports programs, since sports programs bring in astounding amounts of revenue. Those schools are, however, not paying tax on this money – ostensibly from entertainment revenue and not related to the college’s primary purpose (education) because most colleges and universities are de facto tax exempt.

Congress has conducted a ridiculously half-hearted inquiry into the tax exempt status of colleges and universities in light of accusations that these institutions are not using funds for education and are instead focusing on paying coaches, building stadiums and selling tickets. Critics have focused on the frenzy to collect dollars on the backs of student athletes, when many of student-athletes in top programs perform poorly in an academic setting; in that regard, those critics argue, NCAA sports programs are little more than pro-sport training camps. So far, no decision has been reached by Congress or the IRS with respect to the inquiry.

If Paterno’s salary is as high as some speculate (numbers that have been bandied about go as high as $5 million per year in straight salary, not including perks), it may well accelerate the inquiry into coaching salaries and the tax exempt status of the NCAA and educational institutions. Of course, it could be revealed that he was paid $20 million per year and no one would really care until the end of January. It is, after all, bowl season.

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Football mania

October 26, 2006 · 0 comments

Back in February, Madeline authored an interesting post about the tax implications of college football. Not to be outdone at the beginning of football season, DevilGrad followed up on an inquiry by some Congressional officials into the tax-exempt status of college sports. It seems, these days, that as the popularity of college sports grows, so, too, do the questions about the economics.

It seems awfully straightforward, doesn’t it? Kids go to school, some of them play a little ball, they all get an education and life goes on. But recently, a number of practitioners, policymakers and even the IRS have paused to wonder if maybe it’s a little more complicated than that. They have begun to publicly question whether college football, college basketball and other college sports are, in reality, less about education and more about industry. And, perhaps most significantly, that has lead to a question from many that asks if college sports are a multi-million dollar business, why are they exempt from federal taxation? If the only tie-in to education is the shared name of the college on letterhead and athletic marquees, does that count? And should it?

Let’s talk numbers. Penn State reportedly has an athletic department budget in excess of $40 million each year. Sound high? Its rival, Ohio State, has an annual budget for its athletic department which is more than $80 million. Duke University, lauded for its college basketball program, is reported to have an annual athletic budget around $30 million.

While a piece of these budgets may be athlete-scholarship oriented, the “outside costs” are staggering. Particularly of note are the costs of compensating coaches. Recently, LSU paid Michigan State’s Nick Saban more than $6 million over five years, making him one of the highest paid college football coaches – that figure is approximately 17 times more than the average compensation for an LSU professor. He joined more than 50 other college coaches in the millionaire’s club including USC’s Steve Spurrier (football); Florida’s Billy Donovan (basketball); former Texas A&M’s R.C. Slocum (football); Louisville’s Rick Pitino (basketball); Florida State’s Bobby Bowden (football) and of course, Duke’s Mike Krzyzewski (basketball) who is the highest-paid employee at Duke University, with a salary nearly nearly three times as much as Duke’s president. Those numbers do not take into account perks, which can include free housing, luxury transportation and retirement packages, or bonuses which are tied to winning championships. Sometimes, these compensation packages are funded or increased by outside funds, such as booster groups, radio, television and internet contracts and merchandising.

And who pays for it? We do, as taxpayers. Nearly all of the revenue generated by ticket sales, television deals, bowl games and corporate sponsorships flows tax-free to the colleges as part of the school’s tax-exempt status. Total revenues that stream into colleges from ticket sales, booster payments, corporate sponsorships and radio, television and internet sales are thought to top $4 billion each year. Yes, billion, with a b.

The argument for exempting such large sums from taxation is that these programs are still part of the academics at the schools, and provide opportunities for student athletes to succeed. That, of course, begs the question, what is the measure of success?

The NCAA actually allows athletes who score a mere 400 on the SAT (the lowest possible score) to participate in athletic programs provided that their GPAs are appropriate. In some cases, the cost to provide private tutors and academic “assistance” to athletes climbs as high as $100,000 per student athlete, up to ten times the cost of tuition at some schools.

And the result of these efforts? All over the map.  Some schools such as Duke and Penn State graduate more than 80% of their student athletes; in contrast, LSU, Florida International University, Clemson and Weber State are among NCAA schools that graduate less than 50% of their student athletes.  It’s worth noting that many of these schools (such as Ohio State) have their overall program numbers buoyed by graduation rates of student athletes of lesser known programs such as lacrosse and volleyball.  You can check rates of schools by division and by program here.

With all of the emphasis on winning, for many schools, student athletic programs have become less about the business of teaching students and more about making a name for the individual schools. Jim Delany, commissioner of the Big Ten since 1989 even went so far as to tell the Philadelphia Inquirer, “We’re definitely in the entertainment business, and I think we have been for a long time.”

And yet, the IRS is still treating these programs as if they’re in the education business. Stay tuned for more.

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