Intercollegiate Sports in America, 1900-2021

Spring 2021



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, electronic media, think-tank 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 although the federal government statistics on college sports provide extensive information.

Intercollegiate athletics 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 venues 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 these college-sponsored games. A decade later, observers began arguing for reforms that they hoped would change the commercial tone of college athletics.

The Stadiums

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 and expansion and improvement of other competition venues 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 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 with the institution's commitment to their sport and a source of revenue and enthusiasm for an expected greater number 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, sell corporate sponsorships and naming rights, 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 major 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% to 6% of an institution's total budget.

The Problem of High Cost

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 or derived from the fees charged students.

This perspective creates another dilemma. Because a big time college sports program is pressured to pay its own way, it has an obligation to generate revenue from sports activities which in turn makes sports an even more significant business. Some take the position that sports in college 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.

The NCAA as a Monopoly or Cartel

Throughout the years, commentators in the press and through scholarly books and articles have followed the financial operation of college sports closely, recognizing that from the very beginning, winning programs required significant revenue 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 enabled by the revenue from 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 institutions have 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 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 and the institutions, usually through their conferences, could compete in the open market.

As a consequence, the universities and their conferences 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, motivating 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 largest sources of college sports revenue.

There are many other aspects of college sports that do not fit the cartel definition. The NCAA does not control salaries of university sports 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 value of the scholarship. If a student-athlete attends Stanford the value of a full scholarship is many times 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.

Compensating Student-Athletes

With the likely development of pay to play patterns for high level student-athletes, the financial structure of college sports is likely to change significantly over the next few years. As illustrated in the slides for this week, the possible compensation arragnements to reflect student-athlete contributions to college sports success offer a number of complications. Some reflect the true monetary value of college tuition/room and board and other college expenses. Others will need to reflect the payments made for professional athletes below the level of the major pro sports franchises. If the payments for student-athlete performance reaches levels higher than minor leagues for example, universities could encourage them to go professional rather than work as athletes for universities that pay less. Or it is possible that the college games at the top levels are so valuable that universities will be willing to pay more than professional league salaries to capture the skills of student-athletes. And finally, it may be that there will be parts of the college athletic enterprise that become disconnected from the academic requirements of college attendance.

© 2021