Discussing Whether College Football Has Peaked

Dennis Dodd wrote an interesting article yesterday asking the question of whether college football has peaked. I encourage you to read it before continuing here, because it sets the ground work for what I'm going to discuss.

Consider this a supplemental addition to that piece with a few things I can add.

Falling Student Attendance

One of the big themes of that article is about falling student attendance at games. Michigan State and Alabama are two schools that are particularly concerned about it according to Dodd's piece. MSU's AD Mark Hollis noted that students are still buying tickets, but no-shows have picked up. It's a problem in a lot of places.

I don't know the specifics everywhere, but it's my understanding that most schools only sell season ticket packages rather than single game tickets to students. Some students may only want to attend the big games and couldn't care less about the blowout over Nowhere State. Such a preference would match that of the general population, as many schools have been having ever more sparse crowds at cupcake games.

It's not just a football problem, either. Duke's vaunted Cameron Crazies section hasn't been completely full of students for a while. That article right there goes a bit more into the issue of why student attendance may be falling beyond noting that you can't use your cell phone in the rain.

There also is the issue that rising costs of university attendance paired with the bad economy means that more students have to work while attending school. I've heard some anecdotes that the number of students who are at jobs instead of the stadium on weekends has gone up noticeably over the past several years. How big an issue that is I don't know, and it's not likely to explain the problem of no-shows. It is another data point to consider, however.

The Bad Economy

Let's expand the point regarding the bad economy. College football is entertainment, and entertainment spending falls during bad economic times. Therefore, we should expect attendance to fall in a period like what we've had the past five years.

This particular recession that we went through was driven by high debt loads. Americans have been doing a remarkable job of getting their debt loads down:

via research.stlouisfed.org

Look at the full chart range, and you'll see this is the first time since this stat was tracked (beginning in 1949) that American household debt has declined to any degree. Some of this is people paying off their debt, which cuts into entertainment spending. A lot of it is from banks writing off bad mortgages, which really cuts into entertainment spending for those foreclosed upon (to say the least).

Once the economy recovers, it would be reasonable to expect to see attendance begin to rise again.

The Secondary Ticket Market

This is a big theme you hear any time people talk about challenges to sports business models, that the existence of websites like StubHub suppresses revenue by offering fans cheap tickets. Such sites might also suppress attendance itself.

Consider the aforementioned season ticket holders who only want to attend the big games. In the past, they might end up attending the blowouts too because, if they live out of town, they can't find someone to take tickets to bad games without going to the stadium anyway. They could walk around holding up their tickets, sell them, and then go home, but in that scenario they're more likely to just attend the game since they're already there. In the present, they can put their seats on StubHub and sell them without leaving their easy chairs. If they take a loss, it doesn't matter. That loss is still likely less than the expense of attending the game (parking, concessions, time, gas, etc.) and it's certainly less than just throwing out the tickets.

Put succinctly, the ability for the sunk cost fallacy to drive people to attend games is dwindling.

To compete with that, schools are going to have to drop prices. I'll bet that most schools won't be willing to do that due to loss aversion. Let's go to an econ 101 chart.

The supply of tickets a school has is fixed. It can only sell up to what the fire marshall says it can.

Price 1 is a high price for tickets. With the demand for tickets as illustrated here, the school will not fill up its stadium. It will have to drop the price to something like Price 2 in order to fill every seat. The AD setting the ticket prices is going to be skittish about doing so, though. If he overshoots and goes down to something like Price 3, he'll be leaving money on the table. It's impossible to sell enough tickets to meet demand at Price 3, because supply is fixed. The gap marked in red on this chart doesn't tell you exactly how much money will be lost, but it's marked as it is to denote that the school is losing money when such a gap exists.

The AD, like most every other human, is going to be concerned about avoiding that loss of revenue at Price 3. The dynamic of blame matters too. Empty seats could be the cause of many different things besides the AD's ticket price policy (see Dodd's piece), so that loss of money might not be on his head. Charging too little is absolutely his fault, though, so that kind of loss is to be avoided as much as possible.

Now imagine that the team surprises to the upside and demand for tickets increases.

When demand rises to meet the supply of tickets, then the school makes a lot more money. If the AD had dropped the charge to Price 2, then he's leaving money on the table. If he had done Price 3, then he's leaving a lot of money on the table. ADs believe in their ability to build up their programs. Like the poor person who favors low taxes on the rich in case he wins the lottery, so too do ADs likely worry more about losing out on money in the good times (that they're sure are coming thanks to their great leadership) than packing the stadium as full as possible in the less good times.

The best solution to this problem is variable pricing, which Dodd notes that some schools have done. This past season, I noticed a number of schools offering tickets on Groupon. The catch is that if a school implements too much variable pricing, it might lose some price sensitive season ticket holders who aren't picky about where they sit. If the school discounts its season ticket packages in light of variable pricing, then it loses money from the price insensitive fans who like to keep their seats for decades.

Implementing a workable variable pricing scheme is very difficult. I wish all schools luck as they proceed.

Rights Fees

This was an interesting passage, mainly because it is a non-sequitur:

The majority of the game's power brokers will disagree that the game has peaked. TV rights fees are through the roof.

A huge reason why rights fees are up is because live sports keeps people in cable and satellite TV packages. If you don't care about live sports, you can have more TV shows and movies than you can possibly watch ready and available for much less than a TV subscription through Netflix, Hulu, Amazon Instant Video (if you have an Amazon Prime account), and so on.

Cable and satellite providers know that people only watch a handful of the multitudes of channels they offer. They want to offer broad ranges of channels to satisfy fans of niche content, but those niche channels wouldn't pay for themselves if they had to be unbundled from more popular networks. So, they stick those channels in tiers with ESPN, and suddenly everyone is paying for a channel that 1% of the subscriber base watches.

In other words, live sports compose one of the main pillars that hold up the pay TV business model as we know it. Much of the rise in TV rights fees is due to rising popularity of college football, but a lot of it is also due to the fact that live sports in general are a big component of the glue that's holding the television entertainment industry together. College football could decline in popularity some from where it is today and still command astronomical rights fees because of this situation.

Can college football continue to grow?

This article brings out the old saw that college football growth can't go on forever. Whether that is true depends on how far into "forever" you want to look.

Strictly speaking, no, it can't last forever. One day the Earth will not be able to hold more humans, and only so many of them will be college football fans. If we figure out how to get off this rock, the people on the extraterrestrial colonies will likely be more interested in the sports going on at their planets rather than the ones light years away on Earth. Plus, I'm confident that the growth of college football won't continue beyond the Second Coming, Ragnarök, the awakening of the Great Old Ones, or the heat death of the universe. I'm even iffy on its ability to survive the Singularity.

Cheekiness aside, college football can indeed continue to grow. The sport is popular generally only in the USA, but as long as the US population grows, then the pool of potential fans will grow too. I don't really see a scenario where the US population declines in the next century, so college football can continue to grow across any of our lifetimes. The potential seeds of the end of its growth might come, though, if US birth rates fall to those of Western European democracies and the population growth is entirely fueled by the immigration of people more interested in soccer, basketball, or baseball than in football.

More near-term existential crises may arise before we even get to that point, however. It's very possible that research into head injuries may cause football to have to change into something categorically different than it is today. After all, there is something fundamentally incongruous with an institution of higher learning sponsoring a student activity that destroys the brains of its participants.

Another flash point is the possible end of amateurism. A tide against it has been rising for many years, and Mark Emmert is trying to hold it off with proposals of stipends. I don't bring this up to rehash the arguments for and against amateurism. The point is that those arguing against it may win. If they do, how tenable is it for non-profit universities to sponsor and run leagues for professional athletes?

If none of these apocalypse scenarios come to pass, then yes, college football can keep growing as long as the US population does. It can't keep growing at the pace of the last decade, but slow growth is still growth.

The Game at a Crossroads

I've got one more chart for you. It's the S-curve, and no, this has nothing to do with the March Madness S-curve. The S-curve is also known as a sigmoid curve, if you're into fancy math. Here's a basic picture of one:

When a product is new, it doesn't take up a high percentage of the potential market for it. If it becomes a hit, it'll experience explosive, exponential growth. After a while, though, its growth will slow down as it saturates its market. Eventually the growth levels off, and all it can do is sustain. In reality few things follow this very smooth path; real life is a lot more disorderly. Still, it's a nice generalized reference point.

I think this sort of curve is a better way to think about the sport's popularity than to frame the issue on whether or not it has peaked. To say that college football has peaked is to imply a situation like, well, the peak of a mountain: that the sport has hit its high point and it's all downhill from here. I think a better question is whether it has plateaued or not. Has it reached that point about 80% of the way across the graph where growth becomes asymptotic?

I don't know the answer for sure. I think it's very likely to have passed the midpoint, though. The explosive growth phase is probably over, and it's approaching the point where it levels off. Is it only 60% of the way there? Is it all the way there? The real path along the curve is jagged, and what Dodd is reporting on could be a temporary jog off of the general trend line before a strengthening economy and the playoff send it shooting back upwards again.

I tend to be an optimist about the things I like, so I think the sport has some room to grow. I also think it still has some immense challenges to overcome, some of which I detailed above and some that I didn't. The only constant will be more change.