Wednesday, April 21, 2010

Taxing the Poor to Entertain the Rich

By Richard Vedder

My Chief Whiz Kid Matt Denhart and I are traveling to Chapel Hill, NC, tomorrow to speak at the annual conference of the College Sports Research Institute. In our paper, we are going to argue that the growing financial burden of intercollegiate athletics (ICA) is very unevenly distributed, and that students at mostly relatively poor state schools pay a high "tax" for ICA, while those attending wealthier flagship universities face very little in the way of sports "taxation." In short, there is a highly regressive ICA tax nationwide that is of a consequential magnitude.

Specifically, big-time sports schools like Ohio State or the University of Texas roughly break even from ICA, and there is little university subsidy. These schools mostly are also the prestige flagship institutions in their state that draw students from mostly upper middle class, affluent families. The second tier state institutions in the state, say Eastern Michigan University, or my own Ohio University, aspire to make it big in ICA but their aspirations are not matched by revenues (e.g., lower attendance, fewer big-time TV appearances), so they end up subsidizing ICA a lot --and ultimately, since state governments do not generally provide special athletic subsidies, the burden of the cost falls on the students. These schools tend to have a higher proportion of lower income students, those receiving Pell Grants.

Compare the University of Michigan with Eastern Michigan University (EMU), whose stadium is less than six miles away from the Big House in Ann Arbor. At EMU nearly 39 percent of students are on Pell Grants, triple the proportion at the U of M. The students there on average are considerably poorer. Yet the huge $20 million subsidy at EMU for sports is equal to nearly 16 percent of tuition revenue. One could say there is a 16 percent ICA tuition tax at EMU. By contrast, at the relatively well to do (not only in terms of student body but in terms of university endowment) University of Michigan, that ICA tax is zero. The burden of intercollegiate athletic varies a lot --and it burdens the students who struggle the most financially to attend college. If one views big time ICA support at wannabe schools like EMU largely as a consequence of pressure from affluent alumni, one could say we are taxing the poor to entertain the rich.

The example above is not an isolated example. Let's compare entire athletic conferences. The Big Ten Conference serves a geographic area highly similar to that of the Mid American Conference. In the Big Ten, the average ICA tuition tax is under one percent, while in the MAC it approaches 15 percent. Yet the proportion of Pell Grant recipients in the student population averages just 16 percent in the Big Ten (excluding private Northwestern), compared with 27 percent in the MAC. There are four athletic conferences besides the MAC where the ICA tuition tax is 13.8 percent or more, while there four other conferences besides the Big Ten where the subsidy averages four percent or less. The four conferences where the average Pell Grant recipients are under 20 percent of the enrollment all have average tuition taxes of under four percent; the four conferences where there are over 25 percent Pell Grant recipients all have average tuition taxes exceeding 13.8 percent.

So is ICA truly a sizable financial issue for American higher education? The answer depends a lot on the schools. But we can say that on balance the subsidization of ICA is regressive in nature, burdening the poor more than the rich. We will post our entire study on the CCAP web site shortly.

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