Is the College Sports Bubble About to Burst?

One of my favorite blogs is Tom Kirkendall's Houston's Clear Thinkers.  I got started reading it when I moved to Houston for law school, because he posts about some local topics that give an outsider insight into what was, at the time, a big, scary city.  Kirkendall covers a range of topics, and to say that his posts on sports have been an inspiration for the way I post about sports on BOTC would not be inaccurate.

Yesterday, he dropped this interesting post.  I'll copy the most relevant language:

So, to the surprise of absolutely no one who follows such things, Moody’s Investors Service lowered the ratings of the already junk bond debt of about a billion dollars that the Harris County-Houston Sports Authority issued to finance construction of Reliant Stadium, MinuteMaid Park and Toyota Center

That's right.  As most of you know, cities that have pro sports teams are so desperate to keep them that they will build lavish new stadiums, like those mentioned above, at taxpayer and/or private investor expense.  And they have to do so because a city with no current pro sports team will be happy to build a lavish new stadium, at taxpayer and/or private investor expense, for any team that is unhappy with its current situation.  Just ask Seattle.

Kirkendall goes on to observe that many, if not most, professional sports franchises are not doing well financially.  He ends with this interesting, and possibly scary, thought:

So, highly-leveraged debt, a high-priced product, increasingly unprofitable operations, and intense competition from a myriad of different (and substantially cheaper) forms of entertainment.

Does anyone else think that this pro sports bubble is about to burst?

Of course, none of that mentions college sports, which is primarily what we care about here at BOTC.  However, Kirkendall's post got me thinking.  Is the college sports bubble about to burst?

The obvious comparison is the housing market.  Without getting too political, as we are wont to do here at BOTC, the housing market experienced a bubble wherein the value of houses increased at an unsustainable rate and, when the bubble "burst," many people found themselves owing more on their home than it was worth or locked into a mortgage contract with a variable rate that they suddenly could not afford.  That's a gross oversimplification of an extremely complex problem, but it's good enough for our purposes.

Compare that with college sports.  Every BCS school around the country is in what has been aptly described as an arms race for the best coaches and best facilities.  At places with their own U.S. Mint printing press, such as Texas and Florida and Ohio State, coaches are paid obscene salaries and athletes are treated to facilities that would make successful plaintiff's lawyers envious.  At the merely successful programs, like Georgia and Oklahoma and Nebraska, millions are spent on facilities that, functionally, have nothing to do with helping their program win games.

At the bottom are schools like K-State and Iowa State and many, many others.  Small fanbases in rural areas at schools that don't churn out large numbers of alums with high earning potential (i.e., doctors, lawyers, businessmen, some engineers, etc.).  These schools are in a fight for mere survival, trying to keep their facilities just nice enough that they can attract the recruits that the elite schools don't want and hire coaches who are, if not proven winners, promising prospects to turn their program into a winner.

But there's a problem when the operating model creates a machine that requires money, money and more money in order to sustain itself.  At some point, for whatever reason, there is no more money.  That reason could be a severe downturn in the economy.  It could be that we reach a point where there aren't enough fans willing or able to donate or buy tickets or otherwise support major college athletics.  Or it could be sudden and severe fan disinterest.  Conference realignment threatened to produce a state of affairs in which the college sports landscape was so altered that many (most?) of the fans who supported it no longer cared.  It threatens it still, as the Big 10 may find out with its tweaking of the game between Michigan and Ohio State.

College sports exhibits some of the symptoms of a bubble about to burst that Kirkendall mentions in the context of pro sports.  While college sports tend to have less debt than the cities that support their professional counterparts, college programs often take on some level of debt to fund facility enhancements.  As anyone who wants to attend a game has found out, ticket prices are high and getting higher.  One newspaper, The Oregonian, noted that Big 12 football tickets are the nation's most expensive.  College athletic programs are almost universally unprofitable; only a handful of athletic departments operate in the black.  Finally, college sports are not immune from the competition of numerous other forms of entertainment, on every level.

At some point, the bubble is going to burst.  I don't know what the triggering mechanism will be, but it doesn't take much imagination to figure one out.  It could be a very direct burst, wherein a group of schools break away from the BCS and form their own football league, leaving other schools outside the money.  Or it could be a more subtle burst.  At some point, the American consumer just doesn't have any more disposable income.  When this happens, donations stagnate and fans can't afford increasingly expensive tickets.  As a result, coaches salaries can't grow and new facilities can't be built.  It could be a shift in interest away from college athletics.  Maybe realignment sours fans on college sports like the MLB strike of 1994 did to a generation of baseball fans.  Maybe people suddenly get much more interested in NASCAR, or MMA, or some other form of entertainment that is cheaper and they find more interesting.

When it does, what is going to happen?  I don't know if any of you have bought a house lately (I haven't), but I'm going to guess it was a lot more difficult than buying a house 5-10 years ago.  You're probably going to be required to put 20 percent down.  You're probably not going to get a $300,000 loan if you make $25,000 per year.  How does that translate to college athletics?  If a burst occurs, increases in TV rights fees will flatten out.  Ticket sales and donations will fall.  As a result, schools will have to live with the facilities they have in place.  We won't see new locker rooms with iPads or X-Boxes above every locker.  Coaches won't make $5 million per year.

Or maybe I'm dead wrong about this issue and college sports is bubble-proof.  But I wouldn't bet on it.

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