TCS Daily


The Residual Value of Marshawn Lynch

By Raymond Sauer - September 1, 2006 12:00 AM

By all accounts, Marshawn Lynch is the real deal. Overshadowed last season by Heisman winner Reggie Bush, the Cal running back is himself ranked among the leading candidates for this year's trophy, and is the chief reason some believe the Golden Bears will challenge the dynastic Trojans for the Pac-10 title.

Big-time recruits who turn into big-time players, as Lynch has done, are the dream of college coaches throughout the country. Without a draft like the NFL, and subject to rules that can put a school on probation for giving a kid a sweatshirt, it takes a special kind of magic for a coaching staff to attract the talent required to win in major college football. Getting a Marshawn Lynch to play at your campus in return for a scholarship is like winning the lottery.

It is thus no wonder that University of Tennessee spends on the order of $800,000 (see sidebar) per year recruiting football talent. And had they, and not Cal, obtained the services of Lynch, every penny of their recruiting budget would have been money well-spent. One Lynch equals a huge return-on-investment.

That's so, if you believe John Wilner's $800,000 estimate of Lynch's annual value, reported recently in the San Jose Mercury News. Economist Robert Brown of Cal State-San Marcos, who has studied the value of college athletes, concurs. Based on Brown's prior work and Wilner's own method, my sense is that $800,000 significantly understates Lynch's impact on revenues at Cal, and hence is an underestimate of his true value. But whether we are talking about $800,000 or north of $1 million, the fact remains that Lynch's compensation -- a scholarship, food, a dorm room, and occasional expense money -- is a very small fraction of the revenue he brings to Cal. This is the subtext for the Mercury News' headline "Is it fair?"

The gap between Lynch's value and his compensation is clearly a function of the economic system that governs college football. But the tools of economics are ill-equipped to answer the specific question posed by the News. Fairness is largely in the eye of the beholder. What economics can do is point out two things which follow from the existence of gaps of this magnitude. First, they are inconsistent with competitive bidding for talent in an unregulated marketplace. If Tennessee were to offer Lynch $600,000 per year, it is unlikely he would have attended Cal for a mere scholarship. Second, large gaps become forces in and of themselves to change the system. The gap between value and compensation is not an idle vacuum.

Tennessee, USC, and the like would risk the NCAA's death penalty if they openly offered cash payments for top athletes. So rather than spend the difference between value and compensation in direct cash payments to players, the schools compete through spending on other attributes that attract players to campus.

Tennessee's recruiting budget, and the fine fare that accompanies it, is one item on the list. State-of-the art facilities that create the best conditions for training will get the attention of the more serious professional prospects. But chief among these are the personal and professional skills of the coaching staff. These people are the primary link between recruits and their prospective college team, and smart administrators will compensate the best recruiters with higher salaries. Great recruiters in college football are what I call "player proxies" -- they are not the talent on the field, but they are the closest human ingredient to it.

On this aspect, there is a telling fact reported in Wilner's article (indeed, mis-handling this fact is partly responsible for his underestimate of Lynch's value). Wilner states that the "best college coaches earn $1.5 million to $2 million per season, about one-third of their NFL counterparts, but most college programs generate less than one-tenth the revenue of NFL teams." That's a three-fold increase in the ratio of pay to revenue, and is directly related to the player-proxy argument made above. Stanford economist Roger Noll is quoted on this point by Wilner: "One of the conditions of being a top coach is that you recruit top athletes... If you attract star athletes to your university, you get the value of that player in your salary."

Considerable recent attention has focused on the increased spending by colleges on facilities and coaching staffs. Many commentators refer to this trend as an "arms race", but as my Sports Economist blog colleague Rodney Fort is fond of saying, "arms race" is a misnomer. The increased spending is merely a reflection of the increased money flowing into the revenue sports of college athletics. Were it not for the "play for no pay" restriction on college athletes, the lion's share would accrue to players themselves, as it does elsewhere in the world of sport. Given the rules of the game, the money gets spent in a competitive drive to make a school attractive to players, rather than to the bank accounts of the players themselves.

But the second economic point remains in effect: The difference between the value and compensation of top football players remains, and it is large. The groups that receive the benefits from this pot of gold are determined by a combination of market forces, politically determined rules such as Title IX, and slowly evolving institutional norms. As long as the rules prohibit players from getting paid, there will be a struggle over the residual. Wilner's "is it fair" question will remain unanswered, while interest groups of every stripe vie for a piece of the revenue derived from the college football juggernaut.

Skip Sauer writes The Sports Economist column for TCS Daily. Find more of his writing here at TheSportsEconomist.com.

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24 Comments

Ugly LIttle Truth, Colleges are in Big Business
Whats amazing to me is that nobody seems to notice that the NCAA is two things: 1.) A Cartel and 2.) A big business that is run by tax-exempt organizations that has become wholly unrelated to their exempt mission, unless you think running a sports team for a small cadre of well-paid coaches, 40 or so regulars, another contingent that is little more than a contingent of practice pinatas for the BMOC's and an excuse for the rest of the student body to get drunk, go shirtless in December and Scream and Yell.

Why isn't the NCAA challenged under the antitrust laws? Surely, you've got to be joking. Other than perhaps senior citizens, there are few groups with such clout and clearly dependent on government support than the academy.

Of course if the IRS was on the ball, they'd find a way to better define sports programs that are part of the educational mission (intramurals) and those that are nothing more than "unrelated business income" and force the colleges and universities to declare the proceeds from their programs as UBIt on their annual return (990).

Of course, don't hold you breath.









Colleges are little more than the farm team for the NFL.
They should cut the charade, and make the relationship official.

Pro-teams should be allowed to form relationships with colleges, and the athletes should be paid.

What?
And cause schools to have no need for degree programs like "turfgrass management", "recreation and parks" and other "disciplines" that allow students academically qualified by virtue of their 4.4 40 or 400 pound bench to obtain a degree?

You really hate poor inner-city kids, don't you?

Tax it as "unrelated business income", which it is, and we'll have stopped one of the flows of "unearned income" (Roy your queue) that allow the bloviation of the greatest source of liberal idiocy, the modern professoriate teaching imaginary subjects.

I don't know which is worse, the article or the responses
This is a very one-sided view of college athletics. first off, the value of a college education, exposure and training, etc. is no small sum over the course of the athletes life. It is up to the athlete to "make it pay". Second, new regulations make it so all the football money (and men's and women's basketball, the only other "revenue generating" sports) goes to paying coaches and expenses in other sports at the college and maintain programs that are net losses (in direct revenue; it is doubtful, upon close examination, that any sport actually loses money). Anything left over after that might go to the university for academic uses. But, in a big national championship year, that can still be several million.

Man, this issue is complex.

First off, the only "NFL farm" schools are those in the top 30 year after year. The other 100+ division 1A and 70+ Division 1AA schools are a different matter entirely. They generally produce an NFL prospect or two, but seldom make any big money. When you get below that level, it is the exception who ever see an NFL scout.

Secondly, the number of players who become NFL prospects while in college is greater than the number who come to college as such. When do you begin the payment process? If recruiting is so important, then it is at that level. So we want an NFL draft in college? Look at the umber of top draft picks that wash out in the NFL, the number of big money college selections would be even larger that than the NFL number.

I could go on but there isn't room here. Suffice it to say, that the "worth" of a few high-level college athletes shouldn't be relavent. The colleges who could afford to "buy" these athletes are doing so now, through various progams and incentives. But a person should look at the numbers: One high school player in 100 will play at any level of college ball; 1 in 10,000 will play at a D-I college. Only about 2% of D-I players have any hope of ever making it to the NFL and less than 15% of any given team at any time.

Calling college football a"farm system" for the NFL simply isn't backed up by these numbers. Perhaps 1 high school football player in 100,000 will ever get the barest whiff of the NFL. How do you recruit that 1 in 10,000 that is even D-I calibre? It isn't easy. There are a large number of wash outs, transfers up and down the line and NFL prospects playing for teams you never heard of. (Do Randy Moss or Walter Peyton ring any bells?)

Generally, while it creates some really strange situations, the present system is a decent one. There are ways to make it better I'm sure, but paying players big money to play isn't it.

farm systems
less than 10 to 15% of the players who go into baseballs "farm system" ever make it to the big leagues.

Its exactly why the pros need a farm system
That low success ration that requires the additional physical and technical development to determine who really has the "real thing". Doing it on their own would cost money and the revenue would be taxed and the developmental league would clearly be seen as inferior. Thats why you can get a AAA baseball ticket for less than ten bucks, but you won't being to get near a big league ticket for that.

Colleges on the other hand, have a 501(c)(3) exemption from tax and can marry the game to the foolish affections of graduates,(except for people like me-who don't believe my college requires any more loyalty than my grocery store-i bought and paid for a degree-i'm not married to the school)

Take a look at a 10 year old Street and Smith, see how many "sure things" are never heard from again. Even when these guys are a 22 year old first rounder-well, think about Tony Mandarich and Mike Mamula.

And?
How does paying players make it better

so start one
If it should be done and can improve things then why not?

NFL Farm system
NFL Europe is the farm system.

College athletes compete because they enjoy it. There is money in college football because other people (fans like me) enjoy it. No harm, no foul. I'm reminded of someone's definition of a puritan as someone who has a sneaking suspicion that someone somewhere might be having a good time.

easy
The people who are creating the wealth, get a portion of the wealth.
Those players who have their careers ended before making it to the pro's still have a chance of making something.

It's more honest, instead of the sham we have now.

how can we compete with someone who's giving their product away for free?
Because that's what the NCAA requires.

college athletes compete, because they hope to make it to the NFL.
...

All?
Even the senior 2nd string left guard for the Ball State Cardinals?

You are I will never agree on this
I think the NCAA rules are a bit too tight, but I do not, and never will, agree to giving a handful of players money to play. This is especially true in football because so few come out of high school even able to compete in big time college ball. It usually takes two to three years to bulk them up and teach them the system. Again, when do you start paying them? When they come out of high school as a prospect or when they actually start producing on the field?

There is no sham, a player is already paid the equivalent of $200,000 (If they aren't red shirted a couple of times, then you can add and additional 25% of that for each red shirt year) or more in scholarships to attend Notre Dame or several other big time private colleges. That is before the "work study" and other perks. The scholarship "worth" is less at other colleges but it is still a good chunk of change.

I would say the system is pretty honest and no "sham at all.

That is total BS mark
These athletes are given the opportunity to get a college degree, free of charge or at a significantly reduced cost, that is not "giving the product away". At a small D-I college that is worth at least $15,000 a year in tuition and fee waivers alone. Many, if not most, will red shirt a year; that is a total of $75,000, minimum, at Northern Iowa or Chadron State. It is a lot more at UCLA or Michigan.

With tuition, fee, dorm and meal ticket waivers, plus work study and a few other perks, these guys "make" the equivalant of $60K a year or more. the problem with creating a "farm system" like pro baseball has it that they can't afford to pay that much, not that they can't compete with "free".

Very well put
But college athletes are paid in the form of tuition and fee waivers, dorm and meal ticket waivers and work study programs. One reason a farm system for high school grads won't work is that no farm system could afford to pay as much as the college equivalant. At most colleges a "full ride" can be worth as much as $60K a year; even more at some private schools.

There are several reasons college athletes play. First and foremost is the honor of even getting to play at the college level and because they enjoy it. A close second is to pay for college. The stress and pressure of playing, even at the D-III level or NAIA, wouldn't be worth it for many if they didn't enjoy the game. Small college athletes don't put in as much time as the big boys, but a he ll of a lot is still asked of them.

What a crock
Any athlete knows their chances of making to the big show are limited at best. I have a friend who came out of NAIA school Carroll College and plays for the Detroit Lions; he never in his wildest dream thought he would come from a high school of 100 students and make it to the college level. When little Carroll College took the 6'4" 190 pounder he never even considered the NFL. But, he was a 6'5" 240 pound tight end with decent speed and good hands his senior year. His senior year his college team won the NAIA National Championship and he got noticed.

A kid I know came out of high school as a 6'6" 260 pound lineman and was immediately pounced on by Washington State, UW, OSU, and a crud load of other western colleges. He went to UW and had a decent college career. He graduated at 6'7" and 290 pounds but no call to the NFL. Why? Who knows. Some say his footwork was too slow and that would explain it.

Both guys had talent and genetics on their side. Sure, both dreamed of playing in the NFL some day; but neither went to college in "hope" of making the NFL. Neither ever gave a career in the NFL a single serious thought.

Lots of little 8 year old kids dream of playing in the NFL but by the time they are 18, most, understand the reality of actually getting to do it is another matter entirely. Maybe a hundred kids come out of high school realistically believing they are going to get a shot at the big show. Sure, all who go to big D-I programs harbor a "hope", but that is not why they go.

Yeah, but he can't buy Cal any class.
"Based on Brown's prior work and Wilner's own method, my sense is that $800,000 significantly understates Lynch's impact on revenues at Cal, and hence is an underestimate of his true value."

Lynch had a sub-par game, accounting for only 97 yards total offense. Tennessee kicked their [censored] today. I don't think anyone needs to worry about Cal giving the Trojans problems in the Pac-10. SC, without any individually marvelous performances, dominated Arkansas 50-14.

But point well taken. Leinart, Bush, and White were football in SoCal for 3 years. Heck, you can't even get SC season tix between the goallines anymore without being in one of the booster clubs.

Signed,
Trojan Fan

A modest proposal
Better yet-- if the academic sectors of institutions of higher learning aren't producing as fast as their other profit centers, why not just phase them out? Universities could just be kept on as professional sports franchises.

Colleges in business?!!! Say it ain't so.
Many colleges in Div. 1 sports are private schools and therefore businesses with or without sports. Is that bad? Are state universities morally superior or something? I would maintain that anyone who pays money so their children can get degrees in Women's Studies or something from CAL is a fool as are the raxpayers who subsidized CAL.

Lynch'es value
"Based on Brown's prior work and Wilner's own method, my sense is that $800,000 significantly understates Lynch's impact on revenues at Cal, and hence is an underestimate of his true value."

Based on week one, $8ooK" oversates Lynch's value. Recruiting is a very inexact science. Baseball and hockey have farm systems and the players aren't paid much at all. There is a provision for players to declare early for the draft, but it rarely benefits an athelete to do it. The present system works alright.

Trojan fan, will OU or ASU give USC any competition in the PAC 10?

Oregon and ASU
"Trojan fan, will OU or ASU give USC any competition in the PAC 10?"

ASU had a little trouble with a 1-AA team through 3 quarters yesterday, and plays powerhouse Nevada next week. They also have a tough game against Oregon before traveling to LA the next week to play USC. So no, ASU won't be much trouble.

Oregon faces two 1-AA teams (Portland State and Washington) in the two weeks prior to playing USC in Los Angeles, so I don't think they'll be much competition either.

If SC continues to take care of business, Nebraska, Cal, and Notre Dame will be their biggest challenges of the year, all at home. UCLA in Pasadena will be interesting like it is every year, but not a worry. A USC-Texas rematch for the BCS Championship would be a great reward!

Signed,
(Unbiased) Trojan Fan

USC prospects
Thanks for the analysis. I don't think Nebraska will provide much competition.

shams
They should be paid the minute they show up for training camp. The same way the real pro's are.

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