College Athletics Spending: Principals and Agents v. Arms Race

Abstract

It is widely held that collegiate athletic directors are trapped in an expenditure arms race.  But the arms race explanation completely omits the actual consideration of the university budgeting process.  In its place, the arms race logic imposes strained assumptions about the cooperative setting and the naïveté of university administrators, along with a curious distinction of one type of revenue to reach its conclusions.  And the interpretation of the data on spending and benefits from college sports has not been done particularly well in the past. This paper presents an alternative principal-agent explanation that is based on the observed actual financial (budget) relationship between university administrators and their athletic department and consistent with the entirety of the aggregate-level data on college athletics finance.  Empirically discerning between the two models is crucial since each generates decidedly different policy implications.