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.