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Sunday, November 27, 2011

A HARD RAIN'S A-GONNA FALL

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The discussion is already occurring:  "What to do at Penn State?"  I have my opinions as well.

But this blog is a place for sports economics rather than opinion.   It isn't the economist's job to take sides as an economist.  We reserve that to our non-professional side where we are free to have our opinions like everybody else.  The economic contribution I think of goes like this.

The athletic department is part of an organizational hierarchy at the university at large.  As such, there are levels upon levels of principal-agent oversight going on.  For university oversight, at large (we'll get to the athletic department shortly), there is an immense of amount of slack in this oversight.  This produces quite a bit of independent action by all units at the university with the reckoning coming at budgeting time.

By and large, while not without failures here and there, the monitoring works pretty well across campus.  It has its greatest chance for catastrophic failure as follows.  With lots of slack, an ideologically homogeneous unit with strong external clientele will obtain more freedom than other units.  The chance that this type of unit will do something counter to the welfare of the institution, at large, goes up.

And this special set of circumstances describes the oversight relationship between university administrators and the athletic department to a tee.   [This has been known for years by economists, but has been ably presented by Prof. Clotfelter in his current book Big-Time Sports in American Universities.]

Now, as long as this independence is constrained to just hiring multi-million dollar coaches, or putting up multi-million dollar scoreboards when other academic units struggle, no real harm is done.  That money comes from athletic boosters (by donation or paid attendance, etc.) explicitly for an athletic purpose and never would go to academics in the first place.

But this independence (especially the homogeneous ideology part) has a chance to produce unit cover ups of rule breaking and even criminal behavior.

Unfortunately at PSU, university administrators allegedly committed acts of complicity instead of taking decisive, public, counter-action.

The lesson from economics is that the oversight process is flawed.  Indeed, that the probability of a PSU-type episode was non-zero is clearly predicted.  But hindsight is 20/20 and the question now concerns future action.

On the one hand, just don't play the game at all.  This was the choice early on at The University of Chicago when then President Hutchins abolished big-time football after the 1939 season.  If the costs are so high for university administrations, they can follow suit.

Football fans will scream, but the impact will be small.  Most university administrations spend very little on athletics (trivial percentages of their operating budgets), some none at all.  And the returns to the university end up to be quite small as well (again, as a percent of operations).  The primary hit would be on student leisure choice.  Any number of high-quality institutions simply do not have big-time football.

On the other hand, administrators can recognize the holes in the monitoring process and fix them.  This does not drive the chance of a PSU-like occurrence to zero (nothing can).  But it will reduce them, probably dramatically.  This will undoubtedly result in curtailing the independence of athletic directors, with accompanying pain.  But all administrations face this same possible negative outcome and they have collective decision bodies to do the job across all of college football.

Pulling a third hand out of my hat, it could be that the monitoring process is as efficient as it can get.  This makes for the dismal (science) prediction that, on rare occasion, as in the rest of society, bad things will happen in college sports.  What to do about it now becomes a society-wide issue and beyond the college sports arena.  If the small probability of a truly bad outcome is onerous enough, politically, then Congress can act.

As Bob Dylan put it:

And it's a hard, it's a hard, it's a hard, and it's a hard
It's a hard rain's a-gonna fall.

Right now, it's falling on Penn State.  If the same homogeneous ideology of football exists at other places (an empirical question that will be simply stated as true without any investigation, I suspect), the forecast is cloudy with a chance of rain.