Trends in NCAA Athletic Spending: Arms Race or Rising Tide?

We develop and empirically test a model of intercollegiate athletic department expenditure decisions. The model extends general dynamic models of nonprice competition and includes the idea that nonprofit athletic departments may simply set expenditure equal to revenues. Own and rival prestige are included in the athletic departments’ utility functions, generating rivalrous interaction. The model predicts that current own and rival investment has multi-period effects on prestige since investment is durable. We test the model using data from National Collegiate Athletic Association (NCAA) Division I athletic programs from 2006-2011, and the models incorporate spatial autocorrelation that captures dynamic rivalrous interaction. Results support the predictions of both models—NCAA Division I athletic programs appear to engage in dynamic nonprice competition in terms of expenditure and spend all revenues generated.