It’s Time For More Revenue Sharing And A Luxury Tax In College Football

College sports fans offer a lot of commentary on the College Football Playoffs, some calling it in recent years the “SEC Invitational”. Like many good one-liners, they land because there is some truth behind them. Alabama has appeared in the College Football Playoff seven times since 2014 (every year except 2019). And Georgia beat the Crimson Tide in the 2022 title game. Beneath the humor and if this trend continues, it does not bode well for the future of big-time football.

Readers may remember the multiple dynasties of baseball’s New York Yankees. A ‘big market’ team, they had media contracts and a metropolitan area to throw unlimited dollars at their entire ec0-system, often landing the biggest free agents available. This did not sit well with fans and owners in other markets. In 2011, MLB used a lockout to rewrite the economic structure of the game; since then, only the San Francisco Giants have won the World Series more than once.

In a podcast conversation last week with Jonathan Mariner, a former Chief Financial Officer of Major League Baseball, Mariner compared the 2011 efforts to change baseball’s economics to the opportunities in front of the current NCAA transformation committee, led by co-chairs Greg Sankey and Julie Cromer.  Leveraging a moment in time to change both the revenue-sharing and incentive structures across large and small market teams, baseball owners voted to change the landscape so that every franchise had a chance to make the post-season. 

Mariner is strongly advising the committee to deploy this opportunity. Along with his colleagues on the Knight Commission for Intercollegiate Athletics, they advise the following (Note: the author has done consulting work for the Commission in the past):

Concept #1-Revenue sharing

“The spending of one team can drive the cost that affects all teams—that’s what we’re seeing in college sports right now,” Mariner told me. 

FBS football needs a revenue sharing plan that allows for “larger clubs to transfer revenues to smaller market clubs under a formula”, explained Mariner. While the reality of revenue sharing in college football has been limited to the Power 5 and Notre Dame, he made clear the baseball owners realized they would lose fans and media dollars if there wasn’t an equal chance for more teams to be competitive year in and year out. Even within the Power 5 community, there are uneven competitive outcomes, as the SEC and the Big Ten are breaking away from the other conferences.

With the post season playoff jokingly sometimes referred to as the “Alabama Invitational”, college football has created a system that may crash if there are no revisions to the financial underpinnings. Despite the quest to generate more revenues by expanding from 4 to 12 teams, the foundation of the sport is cracked and needs to be restructured first.

Concept #2-hard and soft ‘salary’ caps, along with luxury taxes

College football should incentivize a spending and reward system that places a “luxury tax” on items like salaries, while not penalizing spending (or capping) areas that support athlete health, safety and wellness. As Mariner explained, “You can designate levels of spending where it may create either a penalty (or a disincentive) to receive revenue distribution from some of the national revenue.”

What could these recommendations look like? Examples might be:

• If your athletic department raises salaries of any personnel associated with the football program in order to gain a perceived competitive advantage, the new salary and benefit dollars (above a ceiling) would be taxed at an agreed-upon percentage and assigned to other programs in the athletics department (or with other institutions);
• More unpenalized (i.e. tax-free) could be spent on programs that specifically support college athletes;
• Longer-term coverage of health care benefits for athletes who are injured;
• Supporting broad-based athletic programs that provide more opportunities for athletes, not fewer;
• Investing in more opportunities for internships and co-ops for athletes, post-career.

Dynasties are not good for professional sports, and they may not be good for college sports either. Mariner emphasized that balance is essential for the health of the sport, which then translates to fan engagement and media revenues. “For it to be sustainable …. you really have to support some of the things we’re talking about, otherwise it could become a professionalized industry, which is not what I think most people would want.”

The moment to make change around the margins has passed. The NCAA’s Transformation Committee would be wise to look at substantive changes in their current CFP model that will demonstrate to the general public and Congress they are serious about reform.