Reason Magazine - Staff

Don't Blame Barry

info@reason.com (Aaron Steinberg) — Mon, 06 Aug 2007 14:02:00 EDT

Sports talk radio is fond of throwing out the argument that steroid use among pro athletes translates into use among the high school athletes who emulate them. Rep. Henry Waxman (D-Calif.) was so convinced of the simple, causal connection that he wrote it into his committee's steroid testing bill, The Clean Sports Act of 2005, and then cited it as the primary motivation behind the law.

Wrote Waxman:

"There is an absolute correlation between the culture of steroids in the major league clubhouse and the culture of steroids in high school gyms. If we can remove steroids from the clubhouse, we will fix the problems in school locker rooms."

Waxman's bill may still be floating around Capitol Hill, but baseball isn't waiting around. In response to the steroid hearings and the threat of regulation, last year Major League Baseball Commissioner Bud Selig appointed former Senate Majority Leader George Mitchell to investigate the sport. In June, more than a year after its formation, Mitchell's team announced its first confirmed interview with an active player, the hapless and hobbled Yankee designated hitter, Jason Giambi.

Waxman likes to grandstand, and employing the tried and true "for the children" argument rarely backfires. But is he right? Is there an "absolute correlation" between pro and teen steroid use?

Data on steroid use in teens is ambiguous, but can give some indication of its prevalence in teen populations. There are two large-scale studies that track drug use, including steroids, in teens nationally: the Monitoring the Future study conducted by the University of Michigan, and a study run by the CDC called the Youth Risk Behavior Survey. The YRBS notes higher incidences of steroid use among different teen populations across the board (a discrepancy which may have something to do with the wording on the questionnaire), but the YRBS and the MTF studies each found rising incidences of steroid use among teens in the 90's, then relatively constant rates from the late 90's through 2005. The MTF actually finds slight decreases, in year-to-year lifetime and annual use over this period, while the YRBS finds a slight rise through 2003, with a subsequent dropoff.

Steroids have been something of an afterthought in the NFL, and, at least to date, not much of an issue in pro hockey and basketball. But baseball fans might recognize these ranges of dates. Alleged juicers Sammy Sosa and Mark McGuire chased each other past the single-season home run record in 1998, when steroid use hit a recent peak, but media interest in steroids at the time was just a blip. The press did stumble upon a container of androstenedione—then a legal supplement—in McGuire's open locker. That raised some eyebrows, but the media deluge wouldn't come until after 2001, when Barry Bonds broke the single-season home run record again, and 2002, when former MVP Ken Caminiti admitted to steroid use. Jose Canseco's pro-steroid tell-all, Juiced, arrived in 2005, and Mark Fainaru-Wada and Lance Williams published their Balco/Bonds expose, Game of Shadows, in 2006.

So how does all this timeline of exposed and speculated upon steroid use relate to teenage juicers? Steroid hysterics in Congress would say it goes something like this: The press reports on pros using steroids; teens learn about steroids in the pros, but the coverage is negative; Congress sends kids a clear signal that steroids won't be tolerated in the pros; and what would have been a rising tide of steroid users is abated.

But then again, it could go like this: The media exposes the use of steroids in the pros; thanks to the coverage, more kids try steroids than would do so otherwise; and a downward turn in teen steroid use instead trends up to flat. Maybe both scenarios influence use and cancel each other out. Maybe neither factor in at all. It's fun to play speculative games, but at the end of the day, despite Waxman's assertions, there's no proven correlation.

While the MTF and the YRBS have been helpful in tracking steroid use in teens over time, very few studies have attempted to identify the factors that contribute to steroid use. One recent study that has finds, not surprisingly, that teenage steroid use has more to do with incentives than with hero worship.

The study, Steroid Use Among Adolescents: Longitudinal Findings From Project EAT (Pediatrics, Vol. 119 No. 3 March 2007, pp. 476-486), tracked middle and high school students in the Minneapolis/St. Paul area. It's one of the few that tracked steroid use in a set population of teens over a set period of time—in this case, a five-year period. The study is only a preliminary attempt to understand the factors behind teen steroid use, but it does reinforce common sense thinking on this subject: Kids who use steroids have body image concerns (they are kids who consider themselves too scrawny or heavy); participate in power sports like football; or are involved in sports that demand precise control over body weight, such as ballet or wrestling.

In other words, kids may undervalue long term risk and overvalue short term gain, but they aren't morons. Those who use steroids seem to care most about what steroids can do for them, not about emulating the figures on baseball cards. Steroid use in teen populations may indeed be something to be concerned about, but there is no reason to think that regulating the pros will help.

Aaron Steinberg is a freelance writer in Washington, D.C.

Mr. Brand Goes to Washington

info@reason.com (Aaron Steinberg) — Thu, 04 Jan 2007 07:38:00 EST

The head of the National Collegiate Athletic Association, Myles Brand, made an unscheduled trip to Washington this fall, reminding us once again what a singularly weird situation we have in American sports. Two of the most popular sports leagues in the country—Division 1 men's basketball and football—just happen to come attached to non-profit institutions.

Most Americans who care seem happy to throw money at D-1 men's basketball and football, but the NCAA can't exactly embrace popularity and profit. These leagues have supposedly committed themselves to the virtues of modesty, competition, amateurism, and, as hard as it may be to believe, academics. Their unpaid athletes have to pretend to be students even if they have no interest in a degree, and their athletic departments have to pretend to forward the academic mission of their respective institutions even if they're only interested in getting the best players and capitalizing on their efforts. The leagues do this not only to justify their place on campus, but also to justify the huge tax breaks the NCAA and its member schools get for their amateurism.

This was the setting for Brand's bizarre Washington trip this fall, when the House Ways and Means Committee essentially asked Brand the kind of questions any pro league would love to answer: how had his organization had become so out-of-control successful -- and what, by the way, did he intend to do about it?

When it comes to D-1 football and basketball, Congress is right about commercial success. The evidence is all over the papers. As USA Today pointed out recently, Division 1 head football coaches now regularly earn salaries of $1 million or more. By the time the current contract runs its course, the NCAA will have received over $6 billion from CBS for the broadcast rights to the March Madness basketball tournament. None of this money is taxed, and that fact hasn't escaped the notice of Congress.

Before coming out to Washington, Brand received a long letter full of pointed questions from Congressman Bill Thomas (R-California). Thomas asked how an organization apparently dedicated to the amateur collegiate athlete ends up with such a commercial, and commercially successful, product. Furthermore, Thomas wondered, why exactly does a rich organization like the NCAA deserve tax free status year after year? In response to the inquiry, NCAA spokesman Erik Christianson told the Indianapolis Star that when it comes to non-profits, it doesn't matter how much money you take in; it only matters how you spend it.

Who's right depends on how you interpret tax law. Congress seems to be skeptical of the notion that bigger, more commercial NCAA productions like March Madness fit within the NCAA's academic mission. If they conclude that it doesn't, the profits could be taxed as unrelated business income. There is a three-part test to determine what is and is not unrelated business income and a case, however strained, can be made for both sides.

More pertinently, it doesn't matter who's right. Americans like their collegiate football and basketball the way it is, which is probably why Congress and the IRS have dropped this subject every time they brought it up.

What's been largely overlooked in this NCAA/Congress showdown is how little of a showdown it actually is. Many of the issues Thomas brought up in his letter have already been addressed by Brand. The NCAA had already been working to improve student-athlete graduation rates and grade point averages. He has also been trying to slow down rapidly escalating men's D-I football and basketball coaching salaries. In other words, he's trying to make NCAA athletes seem more like actual students, and he's trying to make collegiate athletic departments seem more like other college departments.

This is the sort of whitewash act the NCAA will need to keep up as their marquee sports grow in popularity and as their second tier sports, like soccer, women's basketball, or lacrosse, begin to catch on. That may be enough for Congress, which decided that amateur sports deserved the non-profit exemption in the first place. Forty years of precedent suggests that the NCAA will keep its non-profit exemption as long as what it does appears to be what Washington thinks of when it thinks of amateur sports.

So long as the big teams take the field every fall, most people won't care too much about the NCAA and its balancing act (beyond a small number of angry professors), but the basic economic lesson in all this bears repeating. It may sound like a good idea to try to force the market to serve a virtue like amateur athletics rather than profit, but you'll never take the profit out of the NCAA. Skilled recruits will still seek off-the-ledger compensation for their letters of intent; coaches and athletic directors will compete for recruits in unsanctioned ways; schools will still get subsidies for their stadiums and practice facilities; and the market for top-notch coaches will continue to push salaries skyward.

Meanwhile, fans will continue to write off contributions to the team as charity. And the NCAA will make regular pilgrimages to Washington for another game of charades.

Aaron Steinberg is a freelance writer in Washington, D.C.

Greed is Good (for Philanthropy)

info@reason.com (Aaron Steinberg) — Thu, 26 Oct 2006 15:30:00 EDT

Before Google went public, founders Sergey Brin and Larry Page informed potential investors that they wouldn't be seeing all of the company profits. A small percentage of it would be set aside for a charity project to be determined later. Last month, Brin and Page finally revealed what they planned to do with those company funds when they announced the founding of Google.org, a charity operation designed—modestly, humbly—to solve all the world's problems and provide us all with awesome electric cars besides. That rich internet entrepreneurs would want to start a charitable organization is about as surprising as Bill Gates' wardrobe. The corporate form Brin and Page chose for their new charity, however—that was something completely different.

Brin and Page are doing something almost no one else does. They made Google.org a for-profit charity. The company already had a reputation for creative, counter-conventional thinking. This is, after all, the same company that took as its motto "don't be evil," and includes a button on its main page reading: "I feel lucky." But pairing profit and charity? Isn't that a bit like pairing gasoline and fire, cookie monster and cookies?

The popular idea that profit and charity are mutually exclusive goes beyond general sentiment. It's inscribed in our tax law. Anyone can send money to a charity and deduct it from their taxes. This is how our government encourages support for charitable organizations. But the catch is, you can only contribute and deduct if said charity is defined as such by section 501(c)(3) of the tax code. That same section defines a charity as a nonprofit. In other words, you can only contribute to a charity and deduct the contribution if the charity follows all the restrictions of a non-profit. This gives not-for-profit charities (e.g., practically every charitable organization but Google.org) a big advantage. A donor is much less likely to donate to a for-profit outfit when he or she can deduct a donation to a not-for-profit charity and get more value out of it.

As far as the government is concerned, that is how it is supposed to be. Profit doesn't belong in charity, and Uncle Sam doesn't plan to use tax breaks to support that sort of thing. The American public is about as interested in changing section 501(c)(3) as in free limb amputation. But there are reasons to believe chanign the code might make some charities better at what they do. It might also encourage more talented people to start them.

Brin and Page at Google.org really don't care about any of this. They aren't angling for tax-free donations because they don't need them. They can operate without any non-profit restrictions since they get all the funding they need from the mothership. At the same time, however, they demonstrate that a for-profit can do charity just fine, even if they don't have the typical non-profit's view of profit. Few entrepreneurs can rely on a bank the size of Google's, though, which may explain why experiments like Google.org are so rare.

University of Chicago Law Professors Eric Posner and Anup Malani have been wondering about the role of profit in charity since before the Google.org announcement. They noticed that where non-profits entered the for-profit arena—as in when, for example, a museum opens a gift shop—tax law allows them to act as a for-profit. But when a for-profit operates as a charity, the tax code offers no symmetrical arrangement. "At Starbucks, for example, when I buy a coffee, I have to pay an extra 5 cents for free trade," explains Posner. "I don't get a tax deduction. But if I give the 5 cents to a charity that gives aid to Central American farmers, I do. That's odd because Starbucks may do a much better job [helping Central American farmers]. So I buy less free trade than I would. The tax code causes a distortion and the people hurt are the farmers."

In their paper "The Case for For-Profit Charity" Posner and Malani ask if there is a good reason to keep tax-free donations from for-profits (if you agree that the government should be subsidizing charity at all). They consider the common arguments in favor of the tax code discrimination and find them seriously lacking. A few of the assumptions Posner and Malani address:

Non-profit charities are for creating public goods. Actually, a for-profit charity can create public goods just as well as a not-for-profit. As Posner and Malani point out, the Feds directly subsidize for-profits such as ethanol producers for precisely this reason.

Tax code restrictions admit the altruistic and keep out the greedy. As a matter of incentives, this tax code restriction may also admit the lazy and dissuade the driven. Non-profits can't give out performance bonuses or independently set their own raises. In that environment, a less conscientious operator might choose to put in less work at their charity and go home early. In other words, the 501(c)(3) does not guarantee virtuous behavior.

A for-profit charity can scoop up donations, call them profits, and take them home. Sure, the profit incentive would encourage unscrupulous entrepreneurs to do just that. Nevertheless, the private sector does provide ways a foundation could ensure a donation would be a good charitable investment. One way is through legal contract. An entrepreneur could hire a manager to run a for-profit charity and promise to pay him or her only a fixed wage—no profits, no shares. Or, an entrepreneur could hire a private auditor to oversee the workings of the foundation—a role the IRS performs (at no bargain rate) for non-profits.

In other words, if we care about results over intentions, there's no reason to limit tax advantages to non-profit charities. "We shouldn't discriminate," concludes Posner. "If you think it's a good idea to give tax breaks to charities, they should go to all charities, for-profit or not. If you think it's a bad idea, you shouldn't give tax breaks at all."

If the tax code changed, we could have a lot more Google.orgs. These new firms could rely on donations and remain free to experiment with corporate form, to attract more talent (through higher salaries and bonuses), and to partner with venture capitalists. They would also have the incentive to streamline administrative costs, which could result in leaner, meaner charities. Profit wouldn't necessarily make sense for any and all charitable firms. (For a charity organization that does very little but pass donations on to recipients, for example, the profit incentive wouldn't make very much sense; an entrepreneur could only take bigger profits by offering fewer services.) But other areas of the charitable world may find that experimenting with for-profit models suits them just fine. We could find ourselves flooded with new, innovative charitable firms.

Or it could all amount to nothing. We won't know unless we try.

Aaron Steinberg is a freelance writer in Washington, DC.

In Defense of Steroids

info@reason.com (Aaron Steinberg) — Wed, 01 Jun 2005 00:00:00 EDT