Storyline: NCAA Power 5 schools operate with unbounded spending. Most mid-majors balance the books with subsidies. It’s time to recalibrate financial models in college sports.
USA Today Sports reports annually on athletic revenue and spending at America’s major public universities.* Results for the most recent year (2015) were filed a few days ago. The headline read:
“Can College Athletics Continue to Spend Like This?” (digital version) and
“College Spending Looks Unsustainable” (print version).
Co-authors Erik Brady, Steve Berkowitz, and Jodi Upton used the word, “bubble,” to interpret the financial state of major college sports. What prompted the word choice?
–Money for college sports is pouring into some schools, but not others.
–Subsidies to athletics are major income sources at many schools.
–While there’s some internal concern about the situation, “overwrought” is how Kirk Schulz, Kansas State president and chair of the NCAA Board of Governors, interprets bubble talk.
Does a financial crisis await college sports? It’s anybody’s guess.
Let’s take a look at the circumstances that give rise to concern. Then we’ll draw conclusions about the financial state of college sports.
Plenty of Money Coming In and Going Out
America’s Division 1 public universities spend tons of money on athletics—nearly $9 billion dollars in 2015 and an estimated $175 billion dollars (public and private schools combined) over the last 11 years.
They’re taking in lots of money, too (over $9 billion in 2015). And growth prospects are bright. Revenue at NCAA’s top 25 sports programs is expected to grow by nearly 120% over the next decade. That’s according to a sports industry analysis cited by USA Today. Revenue growth for big-time college sports is estimated to be two to three times higher than for the pro leagues, including juggernaut NFL.
College coaches are the highest paid public official in 40 states (photo, ctbythenumbers.info)
That’s good news because universities are engaged in a money-fueled “arms race” with competitors. That includes, among many things, investing in coaching salaries and expanding athletic facilities. The Washington Post reported that the top 48 programs spent over three-quarters of a billion dollars on athletic facilities in 2014, up nearly 100% from spending recorded a decade earlier.
The bad news is that athletic costs often exceed athletic revenues. USA Today estimated the money gap in 2015 at $30 million dollars for public schools playing in the “Power 5 conferences”– the Big Ten, ACC, Big12, SEC, and Pac12. In an investigative report, “Playing in the Red,” WaPost reporters Will Hobson and Steven Rich found that 28 major programs operated at a loss in 2014, including brand name schools, like Auburn.
The money gap extends beyond The Power 5. USA Today estimated losses at about $20 million in 2015 for major public schools playing outside of the top tier.
Supplements to Athletic Income–Subsidies–Are Vital at Many Schools
A $50 million aggregate negative may not seem like a lot—especially when spread over roughly 230 public institutions—but the figure would be much larger if it were not for the inflow of athletic subsidies. Subsidies are allocations to athletics from two non-athletic sources–university general funds and student fees. Hobson and Rich report that students enrolled at 48 big-time schools paid $114 million in student athletic fees in 2014, up about 20% from a decade earlier.
Courtesy: changemag.org
But, as a percent of the athletics budget, subsidies are much higher at lesser-positioned schools. Consider this example. At Florida Gulf Coast University—of “Dunk City” fame from the ’13 NCAA men’s basketball tournament—the 2015 athletic budget is about $15 million dollars. What are money sources?
Subsidies at FGCU are the top revenue items in the school’s athletic budget. That’s according to a news report written by Seth Soffian and published last week in the Fort Myers News-Press. Student fees brought in $6.2 million and university allocations totaled $3.6 million. That means nearly $10 million dollars of a $15 million dollar budget–$2 of $3 available for athletics–come from subsidies.
Perhaps more telling is this: the subsidy percent at FGCU is the lowest among public schools in FGCU’s athletic conference, The Atlantic Sun. Subsidies represent over 90% of athletic revenues at one member school, New Jersey Institute of Technology.
NJIT’s situation is at the extreme, but the stark reality is that only a handful of major public universities—12 of 228 schools (5%)—operate without athletic subsidies. Those institutions are Texas A&M, South Carolina, Arkansas, Kentucky, LSU, and Tennessee in the SEC; Texas and Oklahoma in the Big 12; and Penn St., Nebraska, Purdue, and Ohio State in the Big Ten.
All other public universities reported subsidies in 2015. Some amounts are large, other amounts are small, but the aggregate amount nationally is mind-boggling: $2,600,000,000 dollars in 2015. That’s right: $2.6 billion dollars or about $1 of every $3 dollars of athletic revenues nationally. That’s an increase of $100 million dollars in just one year.
The proportion of subsidies to total revenue would be much higher were it not for a simple fact: big-time schools have large athletic budgets with (generally) lower subsidies. The opposite is true for schools that play out of the national limelight.
Let’s look at two big-school examples. At the University of Michigan in 2015 subsidies amounted to about $265,000 (.17%) of a roughly $155 million dollar budget. Subsidies were 1.1% of a $75 million dollar budget at Schultz’s Kansas State.
Courtesy: projects.huffingtonpost.com
Other schools—mostly lower-profile schools playing in regional conferences—rely heavily on subsidies to balance the books. Here are three examples:
–California, Riverside (Big West Conference), 90% of a $16 million dollar budget
–Morehead State (Ohio Valley Conference), 84% of a $12 million dollars budget, and
–Massachusetts, Amherst (Atlantic 10 Conference in basketball, independent in football), 79% of a $37 million dollar budget.
Over 40 public universities have subsidies that account for 80%+ of athletic revenues. Subsidies account for two-thirds of athletic budgets at nearly 125 schools. Subsidies make up 50% of the athletics budget at around 150 public universities.
And, in real dollar terms, the size of the subsidies at some schools is notable. Consider the numbers at five schools: $36 million at James Madison, $34 million at Air Force, $28 million at UConn and Old Dominion, and $23 million at Cincinnati.
Gap Between Have’s and Have Not’s
To balance the books, all athletic departments need to keep revenue flowing from multiple sources, including ticket sales, merchandising, media revenues, and conference revenue-sharing. And, of course, big money flows more significantly to high-profile schools. Significant fan interest and media coverage are there for the UCLA’s of America, less so for the Indiana State’s of the country.
East Tennessee St., Kennesaw St. (GA), Finlandia U. (MI), and Lyon College (Ark.) reinstated or initiated football programs in 2015 (photo, footballfoundation.org)
A major divider is big-time football, the revenue engine of college sports. But even though more schools are playing football today than any time in history it’s a myth to believe that “football always pays the bills for non-revenue sports.” It does at some places, but not at many other places.
Many newcomers and lower-profile schools don’t support football programs completely from athletic sources, such as gate receipts, media income, and conference shares. They rely heavily on subsidies.
Take as an example football-playing Eastern Michigan of the Mid-America Conference. Subsidies accounted for 80% of EMU’s $34 million dollar athletic budget in 2015. And, in an attempt to generate more revenue, EMU tried selling beer at home football games. The outcome? EMU lost money on the venture.
That money gap between big and the rest is about to get wider, too, thanks to The Big Ten. The much anticipated renegotiation of Big Ten’s TV deal is at hand. Reports are that the conference will sell half of those rights to Fox for $250,000,000 per annum. That leaves the other half up for grabs–to ESPN or another network (e.g., Turner). The deal, when complete, will generate millions in annual payouts to each conference school–just from TV.
That deal, when consummated, will sustain B1G as the leading Power 5 conference when it comes to generating revenue. And, if there’s a gap between B1G and, say, other Power 5 conferences, like the ACC, just consider the magnitude of the gap when it comes to comparing the financial clout of B1G with non-peers, like say, The Mountain West Conference. It’s huge.
Monumental Rise of Athletic Philanthropy
To level the playing field, and to fill in revenue gaps, one income source is being pursued aggressively by all schools–athletic boosters. The Journal of Philanthropy reported that athletic philanthropy generated about $1 billion dollars in FY ’10, up about 25% from FY ’07. One of the biggest sources (for high-profile programs, at last) comes via seat-license fees. Paying those fees is required to purchase season’s tickets in football and men’s basketball. It’s not unusual for a major, two-sport school to generate $30 million a year from seat license fees.
Pat And Jana Eilers’ $3 million dollar gift endowed a defensive backs coaching position at the Univ. of Notre Dame (photo, und.com)
Another major source of philanthropy available to all schools, irrespective of size, is the athletic endowment. Endowments are sustainable funding sources because they last into perpetuity. And endowments make it possible to extend athletic budgets because endowment money can supplement or replace base funding, stretching base funding.
It’s probably fair to say that “athletic endowment mania” has hit college campuses. Alumni are the primary targets. Here are examples
–Every head football coach in the Ivy League, save one, is endowed by donors.
–Michigan’s head football coach, Jim Harbaugh, holds an endowed position.
–Notre Dame’s head women’s basketball coach holds an endowed position.
–Administrative positions are endowed (e.g., the Northwestern AD position).
Endowments are interpreted by insiders as a fiscal ‘game changer’ in funding college sports.
Just how important is booster support? Consider the situation (again) at smaller-scale FGCU. Funding from athletic boosters brought in $2.7 million in 2015. Now, let’s compare that number at FGCU to revenue that was generated by historic income staples–ticket sales ($830,000) and licensing ($840,000). What differences, huh?
Schools know that growth in ticket sales is limited without facility reconfiguration and/or expansion. But research has shown that schools can increase booster support and licensing income by the quality of play on the field. Athletic success is the key: win championships, go to “The Big Dance,” play in a bowl game … do things like that … and boosters respond by giving more and fans buy more athletic paraphernalia.
Managing College Sports Finances — Addressing Multiple Issues
So, with all that as background, are financial storm clouds looming in college sports? The answer is yes, but a multi-tiered landscape means not all schools face the same problems.
Power 5 schools have become America’s “5th major league” as measured by fan interest, media attention, and financial size. And college sports has a built-in advantage vis-à-vis any of the pro leagues: college play spans multiple sports and seasons–football and basketball–with each sport and season culminating with a collegiate-type “Super Bowl,” The Football Playoffs and, later, March Madness.
Courtesy: helenair.com
The big challenge for Power 5 schools is figuring out a way to manage spending. There aren’t any controls in place as the pros have (e.g., salary caps). Financial sustainability is likely connected to figuring out a way–substantively and politically–to manage outflows so that all schools across the five conferences can remain reasonably competitive. Otherwise it’s unlikely that the Mississippi State’s of America will be able to complete with the Alabama’s of college sports.
The primary means to date–conference switching to gain better financial footing (with best examples, Rutgers and Maryland to the Big 10)–has likely run its course. It’s time to get serious about managing “the arms race.”
The situation is much different, and onerous, for the 178 schools outside of the Power 5. Most schools are living beyond their athletic means–using state money and student fees to prop up financially fragile athletic programs. Far too many schools have jumped to Division 1, seeking to play “with the big boys,” when, in fact, they are not.
Their financial plight comes at a time when college costs have skyrocketed. At issue is how long the public and government officials will tolerate spending enormous sums–money that could be spend on academics–on college athletics.
Public Policy Intervention May Be Needed
That’s just one of many reasons why the U.S. Congress is starting to pay attention. Several Congresspersons have introduced a bill that would establish a Presidential Commission on Intercollegiate Athletics. The Commission would oversee a number of matters, including Title IX compliance and graduation rates. It would also enhance transparency in financial matters.
Courtesy: citybeat.com
State legislatures won’t be far behind. Why? Consider the numbers in the table to the right. Subsidies in 2014 totaled about $135 million for seven Ohio public universities. That’s $135 mill for just for one year.
Subsidies at Michigan’s three MAC schools (the aforementioned EMU together with partners Central Michigan and Western Michigan) totaled $72 million dollars in 2015 (the median institutional subsidy was 70%). And that number isn’t a one-year anomaly: the total subsidy was over $67 million in 2014. That means total subsidies increased $5 million dollars in one year.
Ohio and Michigan don’t stand alone. The aggregate subsidy last year was $68 million at three Florida schools (Florida International, Florida Atlantic, Central Florida) and $86 million at three Virginia universities (James Madison, Old Dominion, and George Mason).
I can’t think of one reasonable argument to justify numbers like these. The NCAA and conferences need to develop a game plan so that schools like these can continue participating in athletics in an economically feasible way. The current situation is not only unsustainable, it will eventually require public policy remediation.
Conclusion: Act Now
What’s my take-away message from our review of finances in college sports?
College sports in America is big business, an industry, which requires oversight. Because we — as fans — get so caught up in the games, championships, and all the other things that go along with athletic competition, we’ve failed to ask important questions–and to seek reasonable answers–about how college sports are being financed. And university administrators and trustees are mesmerized by athletics in terms of what sports can do for university profile and brand. The result–reasonableness turns into excess.
I. for one, hope those days end … and end soon.
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*Note: USA Today’s analysis focuses on America’s major, public, sports-playing institutions. By law, public institutions are required to file annual financial reports. Private schools are not. For reference, private institutions in the NCAA’s Power 5 conferences are Boston College, Duke, Wake Forest, Syracuse, Miami, and Notre Dame in the ACC; Northwestern in the Big Ten; Texas Christian and Baylor in the Big 12; Vanderbilt in the SEC; and Stanford and Southern Cal in the Pac12.
