Intercollegiate Sports in America, 1900-2017

Spring 2017

Monday 4 pm and online

The Organization and Structure of Intercollegiate Sports Finance

The financial structure and operation of college sports programs at all levels is a subject of great interest. Newspapers, reports, surveys, and regulatory agencies focus attention on the cost of college sports and on the universities' sources of funds to pay those costs. Although the size and scale of the college sports enterprise has grown dramatically over the last century, since the earliest days, critics and observers identified excessive cost and the potential corruption involved in generating sufficient revenue as challenges for college athletics.

The financial implications of college sports prompted the inclusion of a section on Fiscal Integrity in the first round of the NCAA certification process required of each institution. However, in 2004, the NCAA discontinued the requirement that universities provide a study of fiscal integrity within the accreditation process. This relieved the institutions of an obligation to discuss the impact of athletic expenses on the operation of their institutional budgets.

College sports has always required money. At the beginning, the money involved buying minimal equipment and refreshments, with the players providing their own apparel. Soon, the finances of college sports became more complex as colleges began to pay coaches, finance the cost of operating teams, and provide for the spectators. A review of college sports at the end of the 1920s, highlights the importance of money in the successful development of programs and teams. By 1929, the emphasis on the acquisition and expenditure of funds to support competitive athletics challenged the integrity and operation of the college-sponsored games. A decade later, observers began arguing for reforms that they hoped would change the commercial tone of college athletics.

The increasing popularity of college football in particular created a demand for stadiums capable of seating large and enthusiastic crowds. As early as 1903, Harvard's new stadium elicited enthusiastic reviews from observers taking great pride in the stadium's capacity approaching 40,000 spectators, for a school with about 5,000 students. The initiative that built Soldiers Field showed the early importance of college football at the beginning of the 20th century and set a pattern focused on private gifts and alumni support to finance major capital projects.

Stadium expansion and improvement has remained a central issue for college sports programs throughout the century. Most major football powers have a website that describes in glowing terms the evolution of their stadiums, and a review of these shows the importance of funding these facilities within the economic structure of college sports. Princeton's stadium traditions, displayed on their websites, illustrate this point. Public universities throughout the country also participated in this construction boom, visible on the West Coast by reviewing the University of California's Berkeley campus stadium website, in the Mid-West through the University of Michigan's stadium web display, and in the South on the University of Florida's equivalent Internet site. Indeed, a glance at any football power's athletic web pages will produce virtually identical displays of continuously enhanced stadiums, basketball arenas, and other sports facilities, bearing testimony to the importance of major venues for programs that aspire to high levels of performance.

From time to time the media notice the significant capital requirements of these stadiums and other athletic facilities and remark on the debt obligations they impose on their parent universities. The continuing demand for expansion and improvement of college football stadiums (as well as other competitive athletic facilities) remains an apparently permanent requirement for university athletic success. The quality and size of these venues provides both a recruiting advantage in impressing prospective student-athletes of the institution's commitment to their sport and a source of revenue and enthusiasm for ever greater numbers of fans and boosters.

These facilities require significant and creative financing arrangements. Typically, the institutions pre-sell premium seat rights to fans, pre-sell short or long term rental agreements for luxury suites, seek large donor commitments, and borrow money in anticipation of sell-out crowds to pay the debt service. Many institutions identify donors for whom the sports program is central to their loyalties and who are willing to offer specific and often generous gifts to build facilities and name athletic venues. The media in recent years has followed this process for many institutions, both those that succeed and those that struggle.

College sports has been a significant business since the earliest years. Over time, the size and scale of the enterprise has only grown. While the conversations about money in college sports often focus on the high cost of competition, it is useful to put the expenses in perspective. If operating an average big time athletic program costs perhaps $60 million dollars to run, that is surely a significant sum. The universities that host these programs, however, may well have budgets on the order of $1.5 billion or more. Relative to the cost of instruction and research, and the maintenance and operation of residence halls and student life, the cost of college sports is significant but in most cases not overwhelming, running on the order of 5% of an institution's total budget.

The opposition to paying for college sports comes primarily from a different perspective. Many observers object to the cost because big time intercollegiate sports, in their view, are not an appropriate university activity. Sports, being extracurricular games and not academic study or research, should not use university resources that would otherwise be available for instruction or research. If the university wants to have sports, some say, it should find the money from other sources not available for the support of teaching and research and not derived from the fees charged students.

This perspective creates another dilemma. If a big time college sports program needs to pay its own way, that creates an obligation to generate revenue from sports, and that makes sports an even more significant business. Some take the position that sports in college it should be treated like any other campus activity and be managed for the value it contributes to the institution, not as a revenue-generating enterprise. This later view underlies the operation of Division III sports, although the cost of intercollegiate competition at this level, which is always funded by the institution through a subsidy, can be a significant part of a smaller college's budget.

Throughout the years, commentators in the press and through scholarly books and articles have followed the financial operation of college sports, recognizing that from the very beginning winning programs required significant revenue if they expected to sustain a high level of success. This has not changed over the years, although the scale of some of the financial commitments, especially those driven by major national television contracts, has expanded dramatically.

The financial structure of college sports significantly influences its governance and organization. Some have seen the NCAA as a cartel, not a franchise, organized to control a significant economic activity. This view sees the virtual monopoly that the NCAA has on the rules of college athletics and its efforts to control many aspects of the costs of these programs, as indications of cartel behavior. However, while the NCAA franchise rules do indeed control some aspects of the finances of college sports (especially the cost of student talent and the operation and revenue from the NCAA basketball tournament), the organization failed to control television revenue and arrangements and financing for football. This is a very large part of intercollegiate revenue. The NCAA tried to ration TV appearances early in the television era, but the big football institutions rebelled and in a famous case in 1984 the courts decided that in this instance the NCAA was operating in constraint of trade.

As a consequence, the universities took ownership of television contracts and the post-season activities of the top division of football, and through their conferences and sometimes independently, negotiated the most favorable deals possible with television networks for sports broadcasts. This process has dominated the operation of football, driving the conferences to develop highly valuable television properties based on their football programs. One result has been the expansion of membership in the various conferences, focused primarily on television markets rather than on geographic cohesion, the original purpose of conferences. Money to support facilities and other costs of competition at the top level of collegiate sports drives this process and the competition among networks and universities for favorable deals clearly indicates that the NCAA is not close to having cartel-like control over the college sports enterprise.

There are many other aspects of college sports that do not fit the cartel definition. The NCAA does not control salaries of staff, it does not control equipment and capital costs, and it does not control institutional payments in support of student-athletes. This last item is often confusing. The NCAA stipulates full scholarships or partial scholarships rather precisely, but it does not control the amount of the scholarship. If a student-athlete attends Stanford the value of a full scholarship is at least twice as large as the value of a full scholarship for an in-state public university student-athlete. As a result, the payment amount in the form of scholarship support is not controlled by the NCAA although the nominal net cost of student-athlete attendance is presented as if it were of equal monetary value whatever an institution's tuition and fees might be.