The cost of a scholarship

Sorry to get a little Econ 101 on you, but this is a point worth making when we discuss player compensation.

If you pull up a school’s report on the USA Today or Department of Education databases, “scholarships” are generally listed as either the second or third largest expense, behind salaries and facilities. Tuition is expensive, and if you add up the sticker price for tuition, room, board, books, and more, you could be looking at more than $50,000 an athlete. So it’s easy to see how a school could list scholarship spending at over $10 million a season (in FBS, the median is around $6 million, per the NCAA).

That’s what it says on paper, but the school isn’t actually cutting checks like that.

As economist Andy Schwarz has explained several times, here for Vice, the athletic department is “paying” the school, using something called transfer-price accounting. But that isn’t an accurate depiction of the real costs.

This is true whether the department is called “Communications” or “Athletics.” If central school accounting says each full scholarship costs $50,000, then to the department head or Athletics Director (AD), it likely feels like a real cost. But to the school as a whole, unless forgoing that scholarship really increases total cash by $50,000, that’s not what it actually costs.

Currently, when athletic departments give a scholarship, they commonly get charged the full retail price (sometimes of an out-of-state student) regardless of the actual cost to the school of providing one more space at the school. The food and books provided probably costs half of what they charge. The real cost of tuition and dorm space is probably de minimis, unless by giving that space to an athlete, a paying customer is forced out. Except for very selective schools with tight space constraints, most of the expenses listed as part of an athletic scholarship are overstated and sometimes purely fictional transfer prices.

Scholarship spending does cost something, but unless giving a football player a scholarship means a full-tuition student can’t attend, the school’s not actually losing that entire 50 grand. Very few colleges are so full that they literally have to give up a chemistry major’s lecture seat every time they give a scholarship to an athlete.  [Emphasis added.]

If a school is trying to grow enrollment, which is the case for many FBS institutions, the actual scholarship cost, according to Schwarz, might be “pennies (or at least dimes) on the dollar of listed cost.”

And before you sensitive romantics go there, nobody is saying there isn’t some value there.  But if you swallow the schools’ version of the math, it’s because you want to.

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60 Comments

Filed under It's Just Bidness, The NCAA

60 responses to “The cost of a scholarship

  1. Go Dawgs!

    Yup. We’re having American Lit 1101 this morning whether a linebacker is sitting in the third row or not.

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  2. JCDawg83

    Couldn’t the same be said about any individual student on campus? The actual marginal cost to the university for one student is probably not worth calculating.

    Maybe this is how Bernie and the other socialist Democrats have come up with the “free college” thing?

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  3. 81Dog

    Does that mean the value to the student is less than what he’d have to pay if he wasn’t on scholarship? It’s fair to point out that the actual cost to the school is less than “full price,” but it’s also true the value to the student is the full sticker price, isn’t it? Cost to the provider is almost always less than the value to the recipient in every other capitalist transaction, isn’t it? It doesn’t mean the recipient/buyer is getting shafted, especially in a voluntary transaction.

    I’m not against students being fairly compensated (which is actually harder to figure, player by player, than some people seem to think), but I admit I’m sometimes confused why the idea that a student getting a 30,000 dollar a year education/room/board, plus training/coaching in return for playing on the school team isn’t getting ANYTHING valuable. I get that tv money, licensing, etc is way greater than the per capita player receipt, but it isn’t exactly involuntary servitude.

    this isn’t a deep thought, it’s just off the top of my head. It also isn’t a troll, I just wonder what the answer is.

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    • … I admit I’m sometimes confused why the idea that a student getting a 30,000 dollar a year education/room/board, plus training/coaching in return for playing on the school team isn’t getting ANYTHING valuable.

      I thought you said you aren’t trolling. 😉

      Seriously, nobody is arguing there’s a complete absence of compensation currently. The argument is simply that there would be more compensation in the absence of a fixed labor market.

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    • Napoleon BonerFart

      If fair compensation really difficult to determine? Should college football players be free to charge for their labor like plumbers, or lawyers, or electricians? Or should the NCAA appoint a salary czar to set prices? I agree the the second scenario would probably be difficult.

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      • South FL Dawg

        I think setting prices is exactly the problem now. The price is set equal to 1 scholarship. It needs to be that the schools decide what they can afford to pay and offer that. If some of them want to just offer the same as today, ok. If some want to offer more, ok. They each get to decide what they can afford and are willing to pay. It will, I think, redirect some of the funds from fancy waterfalls to actual moola.

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    • South FL Dawg

      Yeah I see both sides.

      One thing you are leaving is out is the athletes also have to do certain things for the school. It’s different if you get a scholarship that doesn’t require you to do anything but go to class.

      Another thing you are leaving out is the athletes are not allowed to get paid with anything beyond a scholarship even by a 3rd party. But yet, they CAN earn money by what they do; it’s just that the proceeds go to their institutions.

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      • 81Dog

        I’m not leaving it out, and we all realize the limits on outside income. But nobody seems to answer the actual question, which was “is the value of a scholarship TO THE STUDENT the retail value it the actual cost to the school? If it’s retail, why does the cost to the school being less than retail matter so much?

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  4. Normaltown Mike

    https://www.admissions.uga.edu/prospective-students/first-year/fy-profile

    Certainly not all schools are equal in this area…but at Georgia, every single athlete on campus really IS taking the place of another qualified and eager student. This doesn’t mean they don’t add more value than they get in return (most obvious for football), but there is a finite amount of slots on campus.

    from the link:
    Applications Received: 26,448
    Applicants Admitted: 12,724
    New First-Year Students Enrolled: 5,750

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    • paul

      However, that qualified and eager student isn’t necessarily paying full price either. As applications at Georgia have become more competitive, very few students enter without HOPE. Or they may be on some other academic scholarship. Adding 85 scholarship athletes can be achieved at FAR, FAR less than what the school claims those scholarships are worth. Do some research on transfer pricing. You’ll see the IRS is very picky about what they allow companies to get away with. Schools, on the other hand, are allowed to liberally cook the books in this area.

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      • Napoleon BonerFart

        Sounds like my health insurance EOBs. My annual checkup cost $47,000, but my provider immediately adjusts it down to $200. Am I “getting” $46,800 of medical services for free by having insurance? Or is it just an accounting game where everybody knows starting prices are bullshit?

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      • JCDawg83

        HOPE pays the university, the university doesn’t mark down the cost of tuition for HOPE recipients. Academic scholarships are funded by some entity and that entity pays the university. The university IS collecting full price on the eager student.

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  5. TNDAWG

    Anything to strengthen the mantra, “Pay the athletes”. Lets not believe the institutions, but some economist and journalist. If you swallow this version of math, it’s because you want to.

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    • But to the school as a whole, unless forgoing that scholarship really increases total cash by $50,000, that’s not what it actually costs.

      Hey, if you know better, please explain. I’m all ears.

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      • Don’t you know that all journalists, scientists and economists are liars hellbent on misleading the public for the benefit of athletic directors? They recruit them right out of Grady!

        Sorry, the playpen was obviously way too civil yesterday.

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  6. stoopnagle

    The costs in higher ed. If any of y’all figure that out, there’s a named chair at Michigan or UGA or Vandy awaitin’.

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  7. PTC DAWG

    Whatever they charge regular students, that’s what it costs.

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  8. ASEF

    I’m not going to into the weeds on the economic semantics of this, but a question, with a lengthy set up:

    When I was selling technology – hardware and software – customers often balked at the fact that the software was more expensive than the hardware. And there was always the request for free software as a “make good” when something went wrong.

    The software was what we did. We provided an intellectual property service. So, yes, you just paid $60,000 for a disk drive. Because of the value of what’s on that drive to your business. And even though our cost to produce it was, by that point, essentially nothing.

    Universities are multi-billion dollar infrastructures. Technically, their cost to let me into a classroom is nothing – but the cost for that classroom to exist is gargantuan.

    So – we talk about players being paid market value. What’s the market value of being a student at Georgia? Simple answer: what students pay to go there.

    Not sure it’s fair to talk about the regulatory requirements for accounting as if they’re a shell game creating a random and misrepresentation of value.

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    • Value and cost aren’t the same thing, either. Value is a subjective, eye of the beholder, concept.

      Point to my post, which is about cost, is that the schools are FOS when it comes to calculating their costs.

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      • ASEF

        Would you be comfortable with a reciprocal agreement – players get paid market value for their services, but they have to be students – and they have to pay their full tuition and fees? Player option? AJ Green can opt out of the scholarship arrangement, but he has to pay Georgia to be on the team, and he can’t include Georgia his promotions?

        For me, this gets really awkward when you move it out of binary. Which is what business amounts to. Working through awkward details and finding common ground relative to leverage.

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        • You guys keep focusing on the details of an eventual deal. That’s not where I’m at. I just want schools and players — both! — to enter into a mutually agreed contractual relationship, just like everyone else in the country. As long as one side isn’t imposing a deal on the other, I’m cool with whatever shape that takes.

          Liked by 1 person

          • Scott

            So what we end up with is a negotiation on two fronts: 1) the amount of compensation paid to the player by the school to play football and 2) a separate negotiation on the amount that the player has to reimburse the school for the education and related academic support services provided. Those two negotiations would quickly merge into one. You are absolutely correct that the school would quickly give away the “fair market value” of the education cost (very little variable cost to the school other than the people necessary to provide academic support) in order to justify (in the negotiation) a lower the out of pocket expense for cash paid to the player for services rendered. Ultimately, the real negotiation quickly becomes how much to pay the player. The education part is a red herring for a 5 star, but something more important to a 3 star… ….I just get lost in the complete free market on exactly where does the education part fit in, if at all.. Are we OK with the NCAA imposing some requirements around meeting academic milestones in order for the kid to retain playing rights as a backdrop to any negotiation for $$$.

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      • sniffer

        Value is a subjective, eye of the beholder, concept.

        Can I be your financial advisor?

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    • Napoleon BonerFart

      One can argue that the value to most athletes is less than the value to regular students. For a star like Chubb, the value of his education was high because it provided him exposure and a pathway to NFL millions. But most athletes don’t go pro. So the benefit to them is their diploma.

      But athletes generally aren’t free to major in anything they want. So high value majors aren’t available to them because of the time investment required. That’s one of the reasons that sports communications is more represented on the football team than chemistry. And the value of a sports communications degree is low. Even if the university could have charged $100k for the degree, it doesn’t open many doors.

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      • That sports communications major may have a hell of a lot of value to a young man who is the first from his family to go to college especially at a public Ivy like UGA.

        Nick Chubb majored in Agribusiness because he wanted to be able to take what he learned back to Cedartown to apply at the family farm after his playing days are over. Keith Marshall changed his major to Finance after he got hurt because he wanted a more rigorous degree at Terry. Fromm is also a finance major … not exactly an easy road to hoe while trying to be a starting QB in a pro style offense. Remember Myron Rolle at FSU who the league thought he was too smart to play because he wanted to go to medical school in the offseason to study to become a brain surgeon.

        These guys can study what they want if they are willing to put the work in.

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        • Napoleon BonerFart

          I’m not arguing that exceptions don’t exist. I’m pointing out the fact that most football players receive degrees that qualify them to be bartenders.

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  9. Dylan Dreyer's Booty

    There’s lies, damn lies, and statistics.
    Oh, and then there is accounting. 😉

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    • 81Dog

      And then there’s insurance company accounting. And then there’s hospital charges accounting.

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    • 69Dawg

      Then there is the art of governmental accounting. The universities are masters in computing the “Overhead costs” for any government contract or grant. I know because I used to audit them. Even the states do the same thing to the federal government. Uncle Sugar doesn’t have enough auditors to catch all the crap they reimburse to the states and other governmental entities. Then there is just the out and out fraud that the Feds are paying for to states, counties, cities and educational institutions etc. I worked for the old Health, Education and Welfare Audit Agency for just six months at the start of my career and found two cases fraud committed in two separate audits of the State of Georgia. One was by an employee and one was by the State. The State was postdating checks to take advantage of a change in the Feds reimbursement percentage. Guess what it was all just a wink wink nod nod slap on the wrist. That’s why I left that agency.

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  10. DawgPhan

    Its also how these athletic departments can claim that they are in the red or barely breaking even and couldnt afford to pay players

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    • Russ

      Yep. I remember a few years ago Auburn athletic department was almost “broke”. Of course, that didn’t stop them from throwing $49M at the Gus Bus, or almost throwing $32M to throw Gus off the bus. It’s all in how you cook the books.

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  11. MDDawg

    So the argument (or at least your argument) isn’t that the players aren’t being compensated, it’s that they’re not being compensated fairly as they would be in an open market, if the schools and the NCAA weren’t working together to put an artificial cap on their compensation? Is that correct?

    I swear I’m not trolling. If I’ve understood it correctly, then that might be the first time I’ve connected the dots despite the number of posts related to this subject.

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    • Derek

      Yes. He thinks Deangelo Gibbs was underpaid. That’s essentially the argument. That these kids would contract for more than the cost of attendance plus benefits if they were allowed to negotiate.

      And that this would be a better and fairer system. No elaboration as to the actual workings of such a change has been forthcoming.

      I’m left to assume the model is similar to this: https://youtu.be/3zc4bGkU05o

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    • So the argument (or at least your argument) isn’t that the players aren’t being compensated, it’s that they’re not being compensated fairly as they would be in an open market, if the schools and the NCAA weren’t working together to put an artificial cap on their compensation? Is that correct?

      Bingo, brother. It’s not the end result I’m focused on. It’s the fairness of the process.

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      • MDDawg

        As they say in Oz, “that’s a horse of a different color”, at least compared to how I’ve typically thought of it. I’m used to seeing the conversation get mired in whether or not the scholarship counts as compensation, but I guess the “open market” aspect hadn’t really sunk in before. I don’t think I’ve given it enough consideration to have a fully formed opinion, but it’s definitely food for thought.

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  12. Can the student athlete’s cost:
    -cost to have staff during workout/practice/film room, in season/out of season
    -cost of class room/ tutoring
    -cost to laundry workout/practice/game day uniform, in season/ out of season
    -cost for medical attention/rehab, in season/out of season
    -cost per room/board
    -cost per books per required studies
    -cost per play book/i pad
    -cost per nutritional/meals, in season/out of season
    -cost per?????
    Did Alec Kesslers micro biology courses cost less than Matt Stinchcombs finance cources? (Both DGD’S)
    I get it that player compensation (no matter the sport) is generated and possibly not enough falls to the student athlete……some instances student athletes receive more compensation than the general student population might receive or actually have access to….got NFI down here my friend.

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  13. The bottom line is that all of these costs that flow through as cost of attendance would be eliminated in consolidation if you looked at a university’s athletic association as a part of the university. You can make the case that it costs a university very little to add scholarship athletes to a class roll since a traditional, bricks and mortar university is a very high fixed cost entity. The difference at UGA now is that admissions is so highly competitive for a myriad of reasons including the Miller/HOPE program.

    Yes, you can also make the case that a student-athlete may be taking the spot of a more qualified potential student. That has existed from the day that schools began offering athletes admission based on their athletic talent alone.

    The only cost of an athletic scholarship to the university is the opportunity cost of the revenue foregone from the first person denied admission. The revenue generated by said student-athlete and the potential of giving from a more loyal alumnus/nae due to athletics far outweighs that opportunity cost.

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  14. Derek

    Value is different than actual cost.

    The accounting trick aside the value of the scholarship is what it’s worth on the market. When I buy a $7 combo meal at Wendy’s I don’t think it cost Wendy’s $7 to provide it to me.

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    • sniffer

      The accounting trick aside the (market) value of the scholarship is what it’s worth.

      That being true, there is a “book” value, to. And it’s verifiable, explainable, and generally understandable. Both “values” are real things. I’m not intending to argue with you. You make a good point; there’s just more to it.

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  15. Rocketdawg

    So tiresome….either go to college under the current rules and try to make the NFL or go train with an agent for three years and spare us all the bitching and whining.

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