The NMFishbowl Podcast: Andy Schwarz

By Daniel Libit

In the statewide commotion over the University of New Mexico’s decision to terminate several of its Olympic sports programs, including its perennially ranked men’s soccer team, there has been no shortage of political grandstanding and moral melodrama. But amidst all the warring diatribes, all the schmaltzy rhetoric about soccer’s sacred place in New Mexico, perhaps the most convincing and sane argument against the cuts came from my guest in today’s episode of The NMFishbowl Podcast.

Posting on his blog on August 28, antitrust economist Andy Schwarz decided to take up UNM’s sports-slicing austerity measures as a pro bono case study, and determined that the school was likely overstating the resultant savings by at least $800,000. The San Francisco-based Schwarz might be an outsider in New Mexico, but he is about as studied up on this issue as anyone you’ll find. Indeed, Schwarz has fashioned himself into one of the nation’s leading expert-critics of the ways in which college athletic departments count beans. In 2015, Schwarz was hired by the University of Alabama at Birmingham to evaluate the financial rationale of its decision to drop football, a decision the school ultimately reversed.

Program-reduction is not the end of Schwarz’s interests in college athletics, but a front in a larger intellectual battle over the precepts of amateurism. Over the last decade, Schwarz has served as an economic expert in some of the most consequential cases dealing with college athlete compensation, including White v. NCAA, Keller v. NCAA, O’Bannon v. NCAA, and the ongoing Alston v. NCAA. Schwarz’s efforts in the Ed O’Bannon case are richly documented in the book, “Indentured: The Inside Story of the Rebellion Against the NCAA,” by Joe Nocera and Ben Strauss, which won the 2017 PEN/ESPN Award for Literary Sports Writing. Aside from writing on his own blog, Schwarz, a founding partner at the litigation consulting firm OSKR, has served as a contributing writer to Deadspin and VICE. Recently, Schwarz has been behind the launch of The Historical Basketball League, which plans to “substantially” pay college athletes to participate in summer competition, starting on Juneteenth 2020.

Schwarz sees a direct relationship between the financial subjugation of college athletes and the (misguided) rationale schools like UNM deploy when deciding to eliminate sports. As evidenced by the public declarations of New Mexico’s two main gubernatorial candidates, Reps. Michelle Lujan Grisham (D) and Steve Pearce (R), as well as some recent Schwarz-channeling remarks by New Mexico State Auditor Wayne Johnson, this issue is by no means behind us.

As it were, Schwarz tells me he’s willing to offer his services to the Office of the State Auditor — for free. “I would love to give them some pro bono work and just walk them through,” Schwarz volunteered at one point in our 90-minute conversation. “Someone who is a state auditor is going to have the requisite understanding even if he hasn’t focused on it…There are components of managerial accounting that are directly appropriate for this.”

Here are some other key takeaways (click the relevant links to jump directly to that portion of the audio)…

Schwarz explains what is fundamentally absurd about the legal and economic arguments for amateurism: “Both sides agree that if there were no NCAA caps, some athletes would receive very high compensation because they have very rare talents that are very valuable to schools. So, the real question comes down to whether schools should be immunized from having to pay a market price, essentially, because either: paying a market price is bad because I guess we’re a communist country now; or, paying a price is bad because it will damage the snowflake football players, cause them to underperform academically; or, that there are people who will go out there and refuse to watch the sport because athletes are paid too much…

“Imagine you run a coffee bar and you know that people don’t like to have nuclear waste put into the coffee. It is really damaging to consumer demand, which is what the NCAA says about paying athletes…you don’t need to collude with the coffee shop down the street not to put nuclear waste in your coffee. The argument the NCAA is making is that, even though you know nobody wants nuclear waste in your coffee, you’re going to do it anyway unless there is a rule against it.”

In the first episode of The NMFishbowl podcast, UNM basketball coach Paul Weir made some news when he said college athletes should “absolutely” be entitled to earn whatever additional compensation they can, without restrictions from the NCAA. However, Weir said that the ultimate consequence of such a scenario would fall on minor sports. I submitted that the real consequence would fall on coaches like Weir, whose salaries would drop dramatically.

Schwarz explains why he thinks I’m “definitely more right” than Weir on who is really threatened by amateurism: “There are tons of Division II schools in this country, and not one of them makes any money on their football and basketball programs. But they have minor sports. They have minor sports because the school decides that it’s got a budget and wants to allocate some money to having those sports, because having those sports goes to offering the well-rounded campus (experience) to the non-athletes. It is also a way of getting athletes to come to those schools, with partial scholarships, to play these minor sports…There is an economic connection, and we can talk about it, but it is far, far smaller than (Weir) says…

“If schools had to pay athletes more money, the idea is there would be less surplus to spend on other things. The idea that it has to be a minor sport is an economic fallacy; it’s not even a budgetary truth. So, for example, after the Ed O’Bannon case, when schools were permitted to increase the scholarship to include that (cost-of-attendance expenses), Florida State adopted it right away…when they did that they did not cut minor sports. They went into the budget and reduced the staff salaries — not even coaches — but secretaries and compliance officials and various bureaucrats within the athletic department, they reduced everyone’s pay by two percent, and they shifted it to athletes….Money is fungible…

“To an order of approximation, about half of what coaches get paid for is for coaching, and the other half is recruiting…About half of (coaches) compensation now is essentially money that would be better spent luring athletes with compensation…Roger Noll, who is one of the experts in the O’Bannon case and in the (Alston v. NCAA) matter…did a little model in his O’Bannon thing where he showed it was about half. So I get that number from him. But there have been peer-reviewed economic studies that show that coaches pay is higher than it would be if there were not two monopoly facts: one the monopoly of teams over players, and the other being the college football playoffs…”

Schwarz explains why UNM did better than other schools in its sports-cutting budget analysis, but still largely missed the boat: “I think everybody out there has an idea that there is a difference between price and cost, but oftentimes we tend to use them interchangeably…The NCAA’s self-promulgated standard…requires the schools to account for a scholarship at list price…”

“Once you have a University of New Mexico up and running and the electricity is going, and the professors are being paid, and the dorms are being run and the food is being cooked, it does not cost an additional $30,000 to bring in one more out-of-state student…”

“…My understanding is not only is the University of New Mexico under-enrolled, but their enrollment is shrinking. So they have space in the dorms, they have excess classroom space. essentially, when you have an unfilled dorm room, and you have an extra seat, putting a person in that dorm room costs you almost nothing.”

Schwarz explains why schools like UNM, even when under pressure to cut an athletic department budget, still won’t publicly embrace his argument about the actual costs of athlete scholarships: “…It’s sort of the same reason why magicians won’t explain where the rabbit came from when they pull it out of the hat. If you tell people how the trick works, the illusion goes away. There’s a great paper by Brian Goff and Dennis Wilson that says there’s two competing tensions: There’s one tension that if you show how profitable college sports are, then the labor force is going to say, ‘Wait a minute, we want a cut.’ But, on the other hand, if you hide that profit, then the faculty says, ‘Why are we spending so much on sports?’ And what you want to do is find the right balance where you can effectively hide enough profit to fend off the labor force, but not look so poor that the faculty senate, which is generally toothless at a university, can get the momentum to get outside forces involved and rail against the debts…”

“These are agreed-upon procedures that the whole NCAA has to follow. So, it’s got to be good enough at hiding some of Alabama’s profits…Wake Forest testified (on Sep. 25) in open court that they lose money on their athletics. If you want to hide Wake Forest’s profits, you’re going to end up making the University of New Mexico look really bad…If you lower the water level, someone is going to hit rock-bottom. And, the University of New Mexico really is suffering real, not fictional, problems in general…”

Schwarz unpacks the “bottom-feeder” strategy for Lobo football: So, I think there is definitely room within almost any sports league for a team to find the absolute minimum it can spend to avoid being kicked out of the league, and to free-ride on the efforts of the other teams in the league…This is a strategy not dissimilar from what the Tampa Bay Buccaneers did in the National Football League in the 1980s. In a period of time when the 49ers won four or five Super Bowls, the Buccaneers made more money…But the question is: Why does any school have a football team to begin with. Yes, you get the advertising benefit of being an FBS school, but if that sentence doesn’t end with a period, but ends with a comma and, ‘Yeah, but they’re the joke of FBS,’ that is not going to achieve what you want it to achieve…I don’t have the expertise to tell you whether that strategy is smart enough, but it is not ridiculous.”

Schwarz explains why UNM is likely to waste any additional money it spends on football: I think I agree with you that the dollar amount you’re talking about being funneled into the things that are generally done to improve a football program — like paying coaches more and gussying up locker rooms and things like that —  when you’re competing against the $100 million budgets and $10,000-per-player lockers, I think it is going to be difficult to have a wow factor…”

“I think the University of New Mexico could zag where everybody else zigs, sort of. Here’s an example: right now the University of Nebraska is very proud of a fact that they offer any…two-year football player, or more, who graduates and takes a special seminar…can receive $7500 towards doing their first job after college…”

“Just copying your competitors and doing a less good job is rarely a way to keep pace.

Schwarz explains why the UNM athletic department’s debt to main campus is an “accounting fiction” that could be solved in one fell swoop: There’s this British comedy troupe, pre-Monty Python, called Beyond the Fringe, and at one point they said, ‘The war’s not going well, what we need right now is a futile gesture.’…For the portion [of the athletic department debt] that goes to the university, there is a very easy solution: The university, every year, assigns an amount of money to the athletic department to spend. What the university should do next year is find out how much the debt is — not the annual deficit, but the actual debt — and it should grow the school’s budget by exactly that amount…At that point, the athletic department should hand all of the money that the university says it is owed to the university, paying the debt in full. Boom, problem solved. And the reason it sounds like it is a fairy tale, is because the debt is a fairy tale. There is no actual debt when your left pocket asks your right pocket for money. And as long as the athletic department is part of the university, that is just a fight among departments over which one gets credit for which money. External debt is a completely different story.”

Schwarz on why he’s behind the launch of the Historical Basketball League:  “Our premise is that what makes college sports, in general, and college basketball, in particular, great is that it is college students playing high-level basketball. And I can say that whole sentence without once using the word ‘amateurism’ because what we don’t think makes college basketball great — or popular, or in-demand, are generates ticket sales or TV viewing — is the forced underpayment of athletes…”

“The athletes are going to be paid a salary commensurate with what a high-end Silicon Valley summer job would pay. And they are going to be able to commercialize their own images on YouTube and reap the rewards from that. They are going to be able to be full participants in the American capitalistic economy, despite the fact that during the year, they are college students…”

“We are going to effectively test whether it is college basketball that is popular, or amateur basketball that is popular…”

Here are some additional reading material and useful links…