Intercollegiate Sports in America, 1900-2017
 

Spring 2017

Monday 4 pm and online

The Income and Expenses of College Athletics

The effort to understand the finances of intercollegiate athletics suffers from a host of interesting difficulties. Universities have not always reported income and expenses for college athletics in a consistent way, and over the years the numbers collected and published by the NCAA and others have frequently been far from the actual balance between income and expenses. In recent years, requirements by the federal government for reporting income and expenses of athletic programs has allowed the NCAA to significantly improved the reliability of college sports financial reporting and analysis. Specific information about individual colleges and universities is better for public universities who are required in most cases under freedom of information laws to provide their data to the public. Private college and university data are rarely available except in aggregated form through the NCAA.

From time to time, institutions find themselves in financial trouble as the expenses for sports rise faster than sports-generated income or other institutional resources. Some of these financial challenges find their way into the media, with exposes, analyses, and data that highlight the challenges of balancing income and expenses for these programs. Because a large majority of athletic programs in the high profile Bowl Championship Division run persistent operating deficits, and all athletic programs in the rest of NCAA division lose money, finance is a key issue. For public universities, under stress from declining state budget appropriations, the ongoing deficits cause considerable comment and criticism in the media and from other interested observers.

When these controversies occur, faculty become engaged in writing reports and providing analyses of institutional finance, trustees require accounting, and university athletic programs explain the drivers of college sports expenses and the challenges of generating significant income.  Although this generates much heat and sometimes considerable light, these controversies rarely result in major restructuring of programs or the elimination of the source of the deficits. 

Partly this reflects the importance of intercollegiate sports to the institutions many constituencies but it also reflects the long range obligations created by investments in facilities built with borrowed funds where the debt service will run on for many years. Unless the institution's sports program is successful, it cannot sell tickets, rent luxury suites, or capture concession revenue required to pay the debts. Facilities serve as an anchor that holds the institution fixed to the enterprise of intercollegiate sports and to continued investment in hopes of significant competitive success and related revenue.

Some imagine that this cycle of expense and commitment is new, driven by television, but the pattern of high expenses and significant institutional commitment to athletic facilities and programs goes back to the beginning of the 20th century. Commentators then as now challenged the impact of deficit funding in the operation of this extracurricular student-based activity. Then as now, the critics, while highlighting important issues, had virtually no impact on the operation of NCAA sports franchises.

The NCAA collects a great deal of statistical information on the cost of athletic programs and on the financial balance related to individual sports within those programs. These data, which have improved significantly in recent years, provide a reasonably clear picture of financial circumstances in college athletic programs. However, the NCAA data are presented in the form of averages, medians, quartiles, and deciles so that no individual institution is identified. This permits the inclusion of private institutions but produces somewhat less specific information than many observers would like. Journalists using freedom of information requests often acquire the reports of individual public institutions and produce university by university data displays for various journalistic purposes, but these suffer from the absence of private institutional data.

The big cost items are the same in every major athletic program: scholarships and academic and sports specific support for student-athletes, facilities for games and training, expenses for operating the events and for participating in bowl games and championships, salaries and bonuses of coaches and athletic staff, advertising, and fees to conferences and the NCAA. The size of each of these items depends on the division level of the institution (Division I and especially the football programs in the Championship Bowl Subdivision cost more than Divisions II and III), on the size of the athletic program (Ohio State is more expensive than the University at Buffalo), and the quality and range of physical facilities available (large new stadiums of 100,000 seats vs. small old stadiums of 50,000 seats or fewer).

Income items are also quite similar within the various programs, although the importance of income types varies by level of program. In the major Bowl Championship Subdivision football programs, tickets, television revenue, conference revenue, conference championship income, and bowl proceeds are all major items. In addition, sponsorships from corporations, gifts from donors and boosters, and student fees contribute significantly to the income stream. 

In successful programs, with a waiting list for tickets for football, basketball, hockey, or baseball, seat premiums (the donation required before a fan can purchase tickets for good seats) generate considerable revenue, and in some institutions skyboxes or luxury suites for football, basketball, and sometimes baseball and hockey also help cover the costs of the program. The NCAA financial reporting provides detailed information on the sources and uses of funds by different institutional types. While the NCAA data do not identify individual institutions, these data do show clearly the wide range of revenue and expenses for groups of institutions in all divisions.

When income is less than expenses, as is the case with all but a few athletic programs at the highest level, the difference comes from the institution's general funds. This subsidy causes the most concern among many observers who rightly recognize that the university's general budget subsidy for athletics could just as easily be used to pay for technology, additional faculty, instructional laboratories, general student financial aid, or other academic expenses.

Because sports are such high profile activities, the sources of revenue can provoke controversy. An example was the contentious fight over shoe and apparel contracts. Most major college sports programs have contracts with shoe and apparel companies that pay the university large sums of money to use a company's sports products and serve as advertisers for that company's goods. Since most of the shoes and apparel are made overseas, activists who believe that these companies exploit local workers produced a major controversy over the university's profiting from low wage rate foreign labor. The media followed this controversy, and over the years, most universities established fair labor practice requirements for licensing items for their athletic programs. The heat on this issue, significant around the end of the 20th century, faded by the first decades of the 21st as most universities included anti-sweatshop clauses in their contracts.

In the conversation about the cost of college sports, most of the attention focuses on the major Bowl Championship Subdivision football programs. These programs, about 128 in all, receive the most coverage in the media, generally have the largest budgets, and suffer the greatest risk. Much of that is a result of football, which is the primary driver for the financial operations of these programs. Football and men's basketball are the major revenue earners in college sports. Football however is much more significant as a revenue earner than basketball even though men's basketball is quite profitable.

It is important to recognize that not all football or basketball programs generate a surplus of revenue over expenses. Generally, it is important to win, and if a winning program is not possible, then it is important to be in a conference with institutions that win often. College sports is an entertainment business that sells a competition that leads to winning. If a program does not win consistently, it will cease to be a good entertainment product, its games will not be televised, its shoe contracts will decline in value, and its ability to earn revenue from tickets and donations will diminish.

Basketball is also a financial enterprise of considerable significance especially through the NCAA tournament. Whatever the theory behind the popularity of big time basketball, the public's enthusiasm as reflected in the willingness of the television networks to pay large sums for these games remains high as is clearly evident in the data provided by the NCAA and reports in the media. Basketball is the NCAA's primary source of revenue because football revenue is distributed through the conferences directly to participating institutions while the large revenue from the national basketball tournament flows through the NCAA which then distributes it widely among franchise institutions.

The high salaries and perks that go along with successful football and men's basketball coaching careers occasion constant comment, not only for the amounts, which are impressive, but the disparity between what these coaches earn and the compensation of other coaches who manage less fiscally significant programs or who operate women's sports. The competition for successful coaches is fierce for two reasons. Winning coaches bring prestige and success to programs and winning is required to sustain not only football and basketball but also provide surpluses that cover some of the deficit generated by the other sports. Winning coaches also can attract the best student-athletes, especially in football and basketball where the players anticipate that participation on a winning team will enhance their prospects for a professional career. Winning is hard, not all coaches prove successful, and those that do command a premium in the marketplace.

While most attention focuses on big ticket items in the public discussion of college sports finance, in general, intercollegiate athletics is a money losing business. Of the almost thousand programs participating in the NCAA franchising system at all levels, perhaps two dozen at the highest level break even or produce a surplus. In part this is because, like the universities that sponsor the sports, athletic programs spend all the money they earn to be better and more competitive. However, they incur deficits because it is extraordinarily difficult to support the costs of an NCAA franchise from the revenue generated by tickets and other activities. The NCAA franchise requires that institutions support a minimum number of men's and women's sports within their programs. Almost all of these lose money, and even when football or basketball generate a surplus, it rarely is large enough to cover the loses in the other programs.

This tells us that for all the colleges and universities that participate in the NCAA franchising system, a sports franchise is sufficiently valuable for institutional image, reputation, and constituencies that the institution will subsidize any deficits much as it pays for other deficit activities such as research or a wide range of student services. The controversy arises not so much because sports lose money, but because the enterprise itself, especially at the high visibility celebrity level, appears to have so little to do with regular students and the institutions' primary academic activities.

© 2017