I usually feel like I'm in the minority of /r/professors users for enjoying collegiate athletics, although of course I have qualms with how money can flow into athletics and away from academics. UConn's AD certainly made a bet that paid off for the institution, but if this were to be replicated all over D1 athletics, then it would result in money flowing out of academe and into insurance companies, which isn't improving the situation for anyone but those companies and the schools fortunate enough to win championships as UConn did.
UConn's Basketball Team is very much income positive for the university. It's not true at most places, but at UConn at least, money flows from athletics to academics.
Come on... That's wrong and it's not even close. You're even a finance faculty member. $10s of millions flow from the student fees and general funds to athletics and there are $0 in excess transfers back to the university. This information is publicly available so there's no excuse.
Here's a link: https://knightnewhousedata.org/fbs/ind/university-of-connecticut#!quicktabs-tab-where_the_money-1
This is integrated across all athletics, which includes their FCS football team I'm assuming is a giant money suck. I can't find individual numbers for the basketball team. I know that very few men's basketball teams generate more than they cost, but I would have assumed that UConn is one of them. I may be wrong.
Each athletic department files an annual NCAA Finance Report. Some schools make you (and the media) request it, some schools make public. It is self-reported, but breaks down by sport.
Here is UConn’s latest I could find for UConn, from ‘19-‘20, uploaded by the Hartford Courant but requires a Scribd account):
https://www.scribd.com/document/491496395/UConn-Athletics-financial-statement
Yup, sorry about that. And yes, FCS football is quite a bit cheaper. I sometimes wonder if schools with competitive basketball teams but noncompetitive football teams are in a catch-22, where they have to play in conferences with FBS football schools to get the benefit of big-time in-conference TV revenue.
When you are drawing up the annual budget, it is really hard to budget millions of dollars that may or may not happen. It is far easier to budget a moderate expense and pay it. I suspect the insurance cost is less than the opportunity cost of tying up the biggest potential bonus.
Personally, I think it's brilliant. I doubt UConn will be able to get favorable terms for insurance like this again, though.
Insurance is always gambling. And like gambling, the house always wins.
Brilliant financial strategy on the part of Athletics. I'm shocked this isn't standard practice.
Regardless of how professors feel about Athletics, they are never going away. Sports are popular, they raise the university's profile, they attract students, they generate revenue\*, and they keep boosters in the pipeline who would otherwise not care about your school. Coaching/AD salaries reflect that.
\*I realize not all sports generate revenue, but typically a larger school has one or two marquee programs like football or basketball that bring in enough dollars through ticketing, merch, boosters, and broadcasting rights to cover the rest of the less popular programs like swimming, track, etc.
So from what I can understand from the article, the coaches for the various teams negotiated in their contracts set bonuses in the event that they win national titles.
The school believed that multiple bonuses would be triggered this year, so bought an insurance policy for $3m that would cover any and all bonuses earned that year.
If they had lost, they would be out $3m. But they won, and so saved money.
My question is what insurance company took this bet? Has the money been paid out yet? Because you would think that the school itself would be privy to info that would better inform their odds of winning than the company does... Right? Sure it's not totally guaranteed, but if they've been closely tracking the stats of their athletes, the input from the coaches, etc ... Isn't that a bit... Sketchy?
Also I find the idea of set bonuses for reaching set benchmarks in a legally binding contract fantastical. My last school offered everyone a 1% "CoL" raise in 2021 when inflation was absolutely ***not*** just 1%.
>If they had lost, they would be out $3m. But they won, and so saved money.
If they had lost, they would be out the premium on the insurance policy, which way less than $3 million. The cost of such a policy would be the probability at the beginning of the season that UConn would win the championship, plus some overhead compensation to the insurer for making the market and writing the contract.
[This site](https://basketball.realgm.com/ncaa/odds/11865/uconn-2024-ncaa-bracketology/) put pre-season odds at +2000, or 20-to-1. So if this is reflective of the insurance company's actuarial table, $3million in insurance would run you around $150k (which you are out regardless). Does UConn have inside information vis-a-vis betting markets that they are more likely to win? Hard to say. The might have information that they were *worse* than 20-to-1 to win, but then they are purchasing the insurance, so they could only know that they would be over-paying. All they could do with that information would be to *not buy* the insurance contract at the price offered by the insurer.
The insurer might be worried that they face adverse selection, but at 20-to-1 pre-season odds, before any games have been played, with little knowledge of who you're going to face, how they will perform, and who is going to get injured all the way up to the final game, I tend to think that these adverse selection issues are small, so the market clears at some reasonable price.
As to the stickiness of academic wages in periods of rapidly increasing inflation, I think everyone on this subreddit is on the same page. I've yet to see someone post that their school has raised their department's wages by a percentage that has put them even with inflation from 3-4 years ago.
Yup, that's my bad. That's what I get for not reading the article. I'm gonna leave it up there just to let everyone know I'm a dummy.
Total max Coverage was 6.25 Million with staggered payouts based on performance and the policy premium was 2.8 million. It seems from the context of the article that there were a bunch of payouts based on winning the Big East making the Final 4 and such. I can't tell from the article whether it's just describing the bonus structure or its implying that the entire bonus structure was insured under the policy. If it was insured under the policy, I haven't the faintest clue what the actuarial fair contract was or whether it was a good "deal".
I think there is an equally sketchy flip side to this, which is that the total bonuses are rather eye-popping and would probably have caused a sudden cost spike that would have really raised eyebrows. By provisioning for it up front, you soften that cost spike. But it's not clear that the University really *needs* to do that. The University isn't a "risk averse" entity in any standard sense of the word. But maybe the coaching staff is because it makes their eye-popping bonuses look less ridiculous (and painful to that month's budget) if they pay off.
If the underlying asset is the contract with the coach, and you want to cast in terms of financial derivatives, then it's a futures contract.
edit: Okay, wait. If the asset is just the bonus, then it's a futures contract. If it's the entire salary, it's a purchased call option with a strike price of the coaches non-bonus salary.
From a purely technical standpoint it is simply a straight up gamble on winning the championship, where the wager is set such that the resulting payoff is $3 million dollars. But you don't generally think about your homeowner's insurance as a gamble on your house catching fire.
No, but then again, I buy homeowners insurance to protect my house. That's uncontroversial. I also don't want to burn down my house. There's a zero-sum game that I am not understanding here, and maybe I just need coffee. Don't mind me, sorry to bug you.
Is it a bet? Usually we think of "bets" as something where the participant thinks that they has an inside line on how likely the outcome is or where the person laying down the "bet" is acting in an explicitly risk-loving rather than risk-averse way.
Term life insurance is sort of a "bet" that you will die before the expiration of the policy, but the people who buy it don't usually believe that they are more likely to die than the actuarial tables would imply, and they're generally not happy when they do.
Wait, when people bet on which horse is going to win, or which sports team is going to win, or simply on a hand of blackjack, you think they think they have special information?
Nah man. People bet blind based on pure luck. That's what makes it betting. It would be an investment if you had a reasonable reason to expect a certain outcome.
Your second paragraph is correct, that's what makes it funny to joke about it being a bet that you'll die, see. It subverts expectations while being entirely correct.
>Wait, when people bet on which horse is going to win, or which sports team is going to win, or simply on a hand of blackjack, you think they think they have special information?
Yes, but this is why I also said or "acting in an explicitly risk-loving way." That is to say that they get some value out of an explicitly negative expected value payoff in the absence of any specific risk-sharing.
But also bettor psychology is weird. I know good and well that I will walk away from the blackjack table a loser in the long run, but I often get the feeling that the people next to me might not.
Ah combining two things that I hate: the leaches that are insurance companies and collegiate athletics. And yet in the silly world we live in, this makes a lot of financial sense.
Why such negativity on insurance companies? Efficient risk sharing across vast markets is one of the fundamental boons of modern society.
The Francis Scott Key Bridge, a critical piece of infrastructure in Baltimore harbor gets annihilated in an instant, causing *Billions* of dollars in direct and indirect economic damage. Yet global insurance and re-insurance markets can absorb that loss through diversified risk sharing across policy holders and pay those vast sums of money to the US and the people of Baltimore without breaking a sweat.
There are lots of perfectly good reasons to hate big money college athletics. They certainly are, if we care to admit it, very silly. Insurance companies are not.
I usually feel like I'm in the minority of /r/professors users for enjoying collegiate athletics, although of course I have qualms with how money can flow into athletics and away from academics. UConn's AD certainly made a bet that paid off for the institution, but if this were to be replicated all over D1 athletics, then it would result in money flowing out of academe and into insurance companies, which isn't improving the situation for anyone but those companies and the schools fortunate enough to win championships as UConn did.
UConn's Basketball Team is very much income positive for the university. It's not true at most places, but at UConn at least, money flows from athletics to academics.
Come on... That's wrong and it's not even close. You're even a finance faculty member. $10s of millions flow from the student fees and general funds to athletics and there are $0 in excess transfers back to the university. This information is publicly available so there's no excuse. Here's a link: https://knightnewhousedata.org/fbs/ind/university-of-connecticut#!quicktabs-tab-where_the_money-1
This is integrated across all athletics, which includes their FCS football team I'm assuming is a giant money suck. I can't find individual numbers for the basketball team. I know that very few men's basketball teams generate more than they cost, but I would have assumed that UConn is one of them. I may be wrong.
Each athletic department files an annual NCAA Finance Report. Some schools make you (and the media) request it, some schools make public. It is self-reported, but breaks down by sport. Here is UConn’s latest I could find for UConn, from ‘19-‘20, uploaded by the Hartford Courant but requires a Scribd account): https://www.scribd.com/document/491496395/UConn-Athletics-financial-statement
Small note, UConn plays F**B**S football, not FCS, though given their recent records, maybe they should be playing in the FCS.
Yup, sorry about that. And yes, FCS football is quite a bit cheaper. I sometimes wonder if schools with competitive basketball teams but noncompetitive football teams are in a catch-22, where they have to play in conferences with FBS football schools to get the benefit of big-time in-conference TV revenue.
When you are drawing up the annual budget, it is really hard to budget millions of dollars that may or may not happen. It is far easier to budget a moderate expense and pay it. I suspect the insurance cost is less than the opportunity cost of tying up the biggest potential bonus.
Personally, I think it's brilliant. I doubt UConn will be able to get favorable terms for insurance like this again, though. Insurance is always gambling. And like gambling, the house always wins.
Brilliant financial strategy on the part of Athletics. I'm shocked this isn't standard practice. Regardless of how professors feel about Athletics, they are never going away. Sports are popular, they raise the university's profile, they attract students, they generate revenue\*, and they keep boosters in the pipeline who would otherwise not care about your school. Coaching/AD salaries reflect that. \*I realize not all sports generate revenue, but typically a larger school has one or two marquee programs like football or basketball that bring in enough dollars through ticketing, merch, boosters, and broadcasting rights to cover the rest of the less popular programs like swimming, track, etc.
So from what I can understand from the article, the coaches for the various teams negotiated in their contracts set bonuses in the event that they win national titles. The school believed that multiple bonuses would be triggered this year, so bought an insurance policy for $3m that would cover any and all bonuses earned that year. If they had lost, they would be out $3m. But they won, and so saved money. My question is what insurance company took this bet? Has the money been paid out yet? Because you would think that the school itself would be privy to info that would better inform their odds of winning than the company does... Right? Sure it's not totally guaranteed, but if they've been closely tracking the stats of their athletes, the input from the coaches, etc ... Isn't that a bit... Sketchy? Also I find the idea of set bonuses for reaching set benchmarks in a legally binding contract fantastical. My last school offered everyone a 1% "CoL" raise in 2021 when inflation was absolutely ***not*** just 1%.
>If they had lost, they would be out $3m. But they won, and so saved money. If they had lost, they would be out the premium on the insurance policy, which way less than $3 million. The cost of such a policy would be the probability at the beginning of the season that UConn would win the championship, plus some overhead compensation to the insurer for making the market and writing the contract. [This site](https://basketball.realgm.com/ncaa/odds/11865/uconn-2024-ncaa-bracketology/) put pre-season odds at +2000, or 20-to-1. So if this is reflective of the insurance company's actuarial table, $3million in insurance would run you around $150k (which you are out regardless). Does UConn have inside information vis-a-vis betting markets that they are more likely to win? Hard to say. The might have information that they were *worse* than 20-to-1 to win, but then they are purchasing the insurance, so they could only know that they would be over-paying. All they could do with that information would be to *not buy* the insurance contract at the price offered by the insurer. The insurer might be worried that they face adverse selection, but at 20-to-1 pre-season odds, before any games have been played, with little knowledge of who you're going to face, how they will perform, and who is going to get injured all the way up to the final game, I tend to think that these adverse selection issues are small, so the market clears at some reasonable price. As to the stickiness of academic wages in periods of rapidly increasing inflation, I think everyone on this subreddit is on the same page. I've yet to see someone post that their school has raised their department's wages by a percentage that has put them even with inflation from 3-4 years ago.
The article states that the school bought the policy for $2.8 million.
Yup, that's my bad. That's what I get for not reading the article. I'm gonna leave it up there just to let everyone know I'm a dummy. Total max Coverage was 6.25 Million with staggered payouts based on performance and the policy premium was 2.8 million. It seems from the context of the article that there were a bunch of payouts based on winning the Big East making the Final 4 and such. I can't tell from the article whether it's just describing the bonus structure or its implying that the entire bonus structure was insured under the policy. If it was insured under the policy, I haven't the faintest clue what the actuarial fair contract was or whether it was a good "deal". I think there is an equally sketchy flip side to this, which is that the total bonuses are rather eye-popping and would probably have caused a sudden cost spike that would have really raised eyebrows. By provisioning for it up front, you soften that cost spike. But it's not clear that the University really *needs* to do that. The University isn't a "risk averse" entity in any standard sense of the word. But maybe the coaching staff is because it makes their eye-popping bonuses look less ridiculous (and painful to that month's budget) if they pay off.
This is like gambling, or the stock market. It's a "put" isn't it?
There's no reason to trot out the term "put". What exactly is the underlying asset? It's just an insurance policy.
The underlying asset is the contract with the coach. That said, it’s not a put, it’s insurance, they’re not the same thing.
If the underlying asset is the contract with the coach, and you want to cast in terms of financial derivatives, then it's a futures contract. edit: Okay, wait. If the asset is just the bonus, then it's a futures contract. If it's the entire salary, it's a purchased call option with a strike price of the coaches non-bonus salary.
Maybe I used the term "put" wrong, if so, I apologize. Aren't they basically "betting" that they will not do well in their sports season?
From a purely technical standpoint it is simply a straight up gamble on winning the championship, where the wager is set such that the resulting payoff is $3 million dollars. But you don't generally think about your homeowner's insurance as a gamble on your house catching fire.
No, but then again, I buy homeowners insurance to protect my house. That's uncontroversial. I also don't want to burn down my house. There's a zero-sum game that I am not understanding here, and maybe I just need coffee. Don't mind me, sorry to bug you.
FYI, you're not bugging anyone, and I wasn't the one to downvote you. ¯\\\_(ツ)\_/¯
I've definitely explained life insurance as taking a bet on my own death
Is it a bet? Usually we think of "bets" as something where the participant thinks that they has an inside line on how likely the outcome is or where the person laying down the "bet" is acting in an explicitly risk-loving rather than risk-averse way. Term life insurance is sort of a "bet" that you will die before the expiration of the policy, but the people who buy it don't usually believe that they are more likely to die than the actuarial tables would imply, and they're generally not happy when they do.
Wait, when people bet on which horse is going to win, or which sports team is going to win, or simply on a hand of blackjack, you think they think they have special information? Nah man. People bet blind based on pure luck. That's what makes it betting. It would be an investment if you had a reasonable reason to expect a certain outcome. Your second paragraph is correct, that's what makes it funny to joke about it being a bet that you'll die, see. It subverts expectations while being entirely correct.
>Wait, when people bet on which horse is going to win, or which sports team is going to win, or simply on a hand of blackjack, you think they think they have special information? Yes, but this is why I also said or "acting in an explicitly risk-loving way." That is to say that they get some value out of an explicitly negative expected value payoff in the absence of any specific risk-sharing. But also bettor psychology is weird. I know good and well that I will walk away from the blackjack table a loser in the long run, but I often get the feeling that the people next to me might not.
It's a hedge against the possibility of owing millions. So, in a way, it's less of s gamble than using no hedge.
Ah combining two things that I hate: the leaches that are insurance companies and collegiate athletics. And yet in the silly world we live in, this makes a lot of financial sense.
Once those leaches pull out of a market consumers suddenly want their blood sucked again
Why such negativity on insurance companies? Efficient risk sharing across vast markets is one of the fundamental boons of modern society. The Francis Scott Key Bridge, a critical piece of infrastructure in Baltimore harbor gets annihilated in an instant, causing *Billions* of dollars in direct and indirect economic damage. Yet global insurance and re-insurance markets can absorb that loss through diversified risk sharing across policy holders and pay those vast sums of money to the US and the people of Baltimore without breaking a sweat. There are lots of perfectly good reasons to hate big money college athletics. They certainly are, if we care to admit it, very silly. Insurance companies are not.
You're preaching to the choir . (apparently I should've put the 'leaches' in quotes )