May 16

A (Money) Losing Proposition

The patterns have been clear for some time, to anyone spending even a modicum of time examining the numbers. But a recently released financial survey from the National Collegiate Athletic Association — modified from earlier versions of the report that sometimes obscured the reality — makes abundantly plain that playing big-time college sports is, on balance, a money-losing enterprise. And it is growing increasingly so with each passing year, as expenses accelerate faster than revenues.

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The report, “2004-06 NCAA Revenues and Expenses of Division I Intercollegiate Athletics Programs Report,” represents a long-planned major upgrade in the NCAA’s reporting of financial information about its member colleges, designed to provide a more realistic and clear picture of the financial status of athletics programs and to “significantly improve the transparency of college sports finances,” as Myles Brand, the NCAA’s president, described it in 2006.

The most significant change, apart from the fact that the association now requires each institution’s figures to be reviewed by an independent third party using common procedures, is that the report separates out those revenues that athletics departments themselves have earned ("generated revenues"), such as ticket sales and television proceeds, from those provided by the institution ("allocated revenues"), such as direct institutional aid, student fees, and other subsidies. The report then computes a program’s net revenue or deficit based on the “generated revenue” figure, providing a more accurate look at whether the programs support themselves or not and how much institutions spend to subsidize them.

College leaders and sports officials often argue that it is a mistake to require sports programs to be self-supporting, as that can only increase the pressure on them to cut corners to win if they believe winning teams will be more profitable. But it is also true that in tougher economic times, as higher education is surely entering, questions of what colleges spend on sports — particularly out of funds that could conceivably go to other institutional purposes — are likely only to grow louder.

The new report suggests that sports program budgets are growing quickly, as are institutional subsidies. For the 119 universities that compete in the NCAA’s top competitive level, the Football Bowl Subdivision (formerly known as Division I-A), total revenues grew by 25.5 percent from 2004 to 2006, slightly faster than the 23 percent growth in expenses. But in the more important category — generated revenues, those actually earned by athletics departments, excluding other institutional support — rose by only 16 percent over the two-year period.

In the 2006 fiscal year, the latest of three examined in the study, only 19 of the 119 Football Bowl Subdivision institutions had positive net revenue, while for the rest, expenses exceeded generated revenues. (For the entire three-year period, only 16 athletics department turned a net profit.)

The median net loss for all 119 I-A programs in 2006 was $7.265 million. But for the 16 programs that generated more than they spent, the average new revenue was $4.3 million, while the average loss of those with negative net revenue was $8.9 million. That $13 million difference suggests a widening gap between the “haves” and “have-nots” in big-time college football, as the equivalent gap in 2004 was about $11.3 million.

One particular outlier, which goes unidentified as all institutions are in the report, generated revenues of $236 million in 2006, more than 10 times the media average of $26 million. It is almost certainly Oklahoma State University, which received a $165 million donation from the oilman T. Boone Pickens that year, dedicated to athletics. The NCAA report also reveals what is almost certainly the first sports program to spend $100 million in a year; the institution, again unidentified, spent $101,804,000 in fiscal 2006.

While football and men’s basketball programs are generally seen as supporting other sports teams in Division, fewer than 60 percent of those programs reported net “generated” revenues for all three years in the 2004-6 period, the NCAA report finds.

In the Football Championship Subdivision (the competitive level previously known as Division I-AA), there was a less visible gap between haves and have-nots, because not a single athletics program had positive net revenues in 2006. The median net loss for the 118 programs at that level was $7.1 million, although programs generated as much as $15.2 million in revenues and spent as much as $34.9 million, far above the medians of $2.3 million and $11.4 million, respectively.

Among the remaining programs in Division I — those that don’t play football at all — all 94 had expenses that exceeded their generated revenues, and the median net loss was about $5.8 million.

2006 Median Revenues and Expenditures by Division I Subdivisions

	Median Total Revenues	Median Generated Revenues	Median Total Expenses	Median Net Revenue (or Deficit)
Football Bowl Subdivision	$35,400,000	$26,342,000	$35,756,000	-$7,265,000
Football Championship Subdivision	$9,642,000	$2,345,000	$9,485,000	-$7,121,000
Division I — no football	$8,771,000	$1,828,000	$8,918,000	-$6,607,000

While the NCAA’s new financial reporting mechanism is generally seen as a major improvement, sports finance experts say it still has significant limitations. Andrew Zimbalist, Robert A. Woods Professor of Economics at Smith College, who writes frequently about sports finances, argued that the new system overstates the amount of generated revenues by including all donations that sports programs receive from alumni. At least some contributions that alumni make to athletics displace gifts that they might have made to academic or other programs, Zimbalist said, so “to count all this as net income to athletics ... ignores the fact that some cannibalization is going on here.” (Note: This article has been updated to correct an error from a previous version.)

“In terms of accounting and reporting, [the new system] is better than it’s been,” he said. “It does come closer to portraying the actual situation, which is that these programs on balance generate a huge deficit, and it’s getting worse.”

— Doug Lederman

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Comments

The real surprise

The really surprising finding here, it seems to me, is that football is more or less a wash financially. You’re going to lose seven million bucks a year on athletics whether or not you have football, and whatever level it’s at.

Mr Punch, at 7:10 am EDT on May 16, 2008

Let’s Focus and Be Transparent

And the taxpayer, in many instances, subsidize these programs. Add that fundamental academic programming is being under-funded, one has to ask “what is our core business,” in academia, and should we begin to discipline ourselves before the public says, “enough?” Academia has to begin to learn what accountability means and stop asking everyone else to fund our initiatives. What ever happened to the entrepreneurial spirit and “pay as you go” mentality?

Harry Lasher, at 8:20 am EDT on May 16, 2008

Don’t forget...

Mr Punch,

Don’t ignore the comments of Zimbalist about capital expenditures. Football stadiums cost a lot and it’s not clear what they would do to the net revenue figure.

Jack, at 8:20 am EDT on May 16, 2008

Thank God For The New Zealand Tuatahi Racing Ax

Earlier today I read the NCAA report and sent a copy of Doug Lederman’s article to friends. I included the following note ...

As per the attached article, I am unalterably opposed to “big time” intercollegiate athletic programs. If the NFL and NBA want to use intercollegiate athletics as their farm programs, let them do so ... and let them underwrite them 100%. But let’s remove the pretense of those programs being, in any sense, part and parcel of an academic, let alone an intellectual, process (this is not your grandfather’s college football team).

I often wonder what impact a reinvestment of our athletic departments’ resources into exceptional intramural programs (expanded to include life-long health, nutrition, exercise, and competitive activities) would have on the American experience.

“Small time” intercollegiate athletics are great fun, but they should never be of greater consequence – or of greater expense to the taxpayer – than the 62nd annual Woodmen’s Competition (see below ... and be sure to view the slide show).

http://www.fosters.com/apps/pbcs....GJSPORTS_01/760247898/-1/FOSSPORTS04

http://spider.flcc.edu/wordpress/?p=921

http://chronicle.com/media/flash/v54/i36/springmeet/

http://chronicle.com/weekly/v54/i....htm?utm_source=at&utm_medium=en

Frankly, you’ve got to love it (at least I do) when teams from the Universities of New Hampshire, Connecticut, Maine, Vermont, Penn State University, SUNY Cobleskill, Dartmouth College, Colby College and Unity College all get together for a competition. And the winner? Well, after two-days of spirited competition Finger Lakes Community College barely beat out its “hated” rival, Paul Smith’s, that beautiful little liberal arts college in the middle of the Adirondacks.

By the way, on Friday, May 30, at 8 p.m. EST, the Paul Smith’s squad will be featured on “Modern Marvels” (the History Channel).

Frankly, nothing would make me happier than circumstances that made the NCAA completely irrelevant ... and led to their being purchased (preferably a hostile takeover) by U.S. News & World Report.

P.S. I played intercollegiate basketball and tennis (small college).

Frizbane Manley, at 9:50 am EDT on May 16, 2008

“One particular outlier, which goes unidentified as all institutions are in the report, generated revenues of $236 million in 2006, more than 10 times the media average of $26 million.”

Am I the only one who caught that $236 million is *not* more than 10 times $26 million? Having tutored football players at a Big 10 school, I found something appropriate in seeing a math error in an article about college sports.

Stephen Haptonstahl, at 11:20 am EDT on May 16, 2008

An amusing memory

The findings reported here reminded me of an amusing moment some 40 years ago. I was a fresh assistant professor at The University of Texas when Darryl Royal was, indeed, coaching royalty there.

I was teaching an American Government course and, in that capacity, thinking and lecturing about budgets, how much things cost, etc. I tended then to view with an appraising eye new buildings, road projects, etc.—what does X million dollars buy?

Strolling across campus one day, I glanced up at the football stadium expansion project and had an epiphany. The cost factors of that enormous UT program cascaded through my mind, and I suddenly saw that the unchallenged apology for the football program there—"It subsidizes the other sports programs"—was preposterous. Hell, it couldn’t possibly even pay for itself!

Not long after that, I accompanied a senior professor of legendary standing to lunch at the Faculty Dining Hall. Knowing his devotion to Texas football and his high professional reputation as an expert on governmental spending and budgeting, I rather wickedly outlined my case that UT football must lose money, not generate surpluses.

Obviously confident, not to say condescending, this worthy professor said, “Well, here’s the man who can tell us; let’s ask him.” For, right behind him, stood the High Faculty Pooh-Bah of UT Sports (okay, I forget his exact title, but he was the chief doorkeeper between the Faculty/Adminstration of UT and the sports programs—the legitimator, if you will). My Iconic Professor colleague repeated the question, “Does the football program lose money?”

The High Faculty Pooh-Bah finished taking a puff on his cigar and replied, “Not as much as you might think.”

Rod Bell, Adjunct Professor at College of DuPage, at 12:30 pm EDT on May 16, 2008

Strange Paradox

I’m totally on board with the comments posted by “Friz” above. Does it strike anyone else as bizarre that at the same time money is being thrown at college athletics, our country has more obese teens than ever before in its history?

We need more intramurals and fewer covert professional sports teams on campuses, but (alas) it has to begin sooner than that. Kids who aren’t budding pro material find little encouragement the older they get, and we end up with a whole lot of unhealthy kids.

Let’s get more sports teams on campuses and put the focus where it belongs — healthy bodies to support thinking brains.

Susan, at 12:30 pm EDT on May 16, 2008

Presidential cowardice

University presidents love to tut-tut about the disgraceful US News Rankings and declare their own moral superiority in refusing to participate; they love to tut-tut about divesting their endowment of companies that do business with corrupt governments; they love to tut-tut about military recruiters who don’t have a proper appreciation of diversity; and on and on.

But where is the university president with the integrity to repudiate root-and-branch the corrupt enterprise of the NCAA. Just drop out of it. Start a movement. You know, show some integrity and be a leader for once in your life.

Reader, at 2:35 pm EDT on May 16, 2008

Picky, Picky Stephen Haptonstahl

First, I readily agree that 236 is not greater than (10)(26) ... so Stephen Haptonstahl’s point stands

Nevertheless, I think Doug must have been a bit hurried while digesting all of the NCAA numbers (and there are many) and then writing this article late last night.

Here are a couple of “corrections” ...

C-1: If you look at Doug’s table, “2006 Median Revenues,” the Median Generated Revenues for FBS should have been $26,432,000, not $26,342,000. No big deal.

Q-1: I’m not sure where Doug found the Oklahoma State generated revenue figure, but, while reading the NCAA’s 113 page Executive Summary I didn’t find reference to the magnitude of the outlier and I didn’t get a sense of how they treated it (I assume they ignored it completely).

Trying to follow the NCAA’s promise that more data could be found at www.NCAA.org, while probably true, was not at all helpful (they have a lot to learn about web design).

C-2: Clearly Doug did not mean “... 10 times the media average;” he meant “... 10 times the median average.” Even so, I don’t think there are any averages of medians in the NCAA report – and thank goodness for that – so let me “clean up” Doug’s paragraph as follows (and I hope I’m saying what he intended to say):

“One FBS outlier, which is not identified by name in the report, generated revenues of $236 million in 2006, almost 10 times the median generated revenue of $26.4 million. The outlier is almost certainly Oklahoma State University, whose athletic department received a $165 million donation from the oilman T. Boone Pickens that year.”

P.S. I can’t help adding – and I know you’ll forgive me – that I think I’ll skip having lunch or even going out for a beer with any jackass who, in this day and age, is willing to invest $165 million in his alma mater’s athletic department.

Frizbane Manley, at 3:25 pm EDT on May 16, 2008

An alternate view

IMHO —

If all the “money-losing” activities in academia were eliminated — e.g., victim-studies programs, “diversity,” affirmative action, women’s sports, “non-revenue men’s sports,” arts & humanities departments, “student affairs,” et al. — academia would look like a ghost town and a lot of well-meaning, over-educated folks would be unemployed.

Facts hurt.

These calculations also remind me of the old joke about Harvard Business School:

Boss: what’s our profit margin?

MBA: what do you want it to be?

Are the bottom 60% of D-1 colleges losing money? Yeah, probably.

Anyone responsible? Sure — just like Congress and the President.

C’mon — game’s on. Let’s chill.

Frank, Non-ticket holder at MegaState U, at 6:55 pm EDT on May 17, 2008

In Response To Frank

“Are the bottom 60% of D-1 colleges losing money? Yeah, probably.

Anyone responsible? Sure — just like Congress and the President.

C’mon — game’s on. Let’s chill.”

Are the “bottom” 60% of political despots in this world murderous ethnic cleansers? Yeah, probably.

Anyone responsible? Sure — just like Congress and the President.

C’mon — slaughter’s on. Let’s chill.

I’m not claiming that the University of Michigan’s losing money on its football program (don’t forget student fees, capital expenses, and loss of tax base) is comparable to the excesses of the likes of Pol Pot and Slobodan Milosevic. I’m merely arguing that the logic of my argument is identical to the logic of Frank’s. Neither argument “proves” a damned thing.

Frizbane Manley, at 9:30 am EDT on May 18, 2008

Proof

Neither argument “proves” a damned thing.

Welcome to academia. Where they only thing “provable” are the enormous student loan burdens being dumped on young people. Makes one think about being “penniless and free.”

Does U of Mich. make money on sports? Well ..

http://www.finops.umich.edu/FormsReports/Reports/2007/cfo/index.html

Yup, IMHO. Directly and indirectly.

Can administrations “fumble” (pun intended) and over-spend?

Sure — look at all the weird, bizarre deadwood among the “truth-seekers.”

If over-spending happens — anyone penalized?

Of course — many only get five years of pension-vesting, instead of 10. Like the end of the world, y’know.

Frank, at 12:15 pm EDT on May 18, 2008

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A (Money) Losing Proposition

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Comments

The real surprise

Let’s Focus and Be Transparent

Don’t forget...

Thank God For The New Zealand Tuatahi Racing Ax

An amusing memory

Strange Paradox

Presidential cowardice

Picky, Picky Stephen Haptonstahl

An alternate view

In Response To Frank

Proof

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Director of Finance and Administration, College of Business and Public Administration Governors State University

Senior Consultant, Small Business Development Center Lone Star College System

Senior Vice President of Finance & Operations Mount Wachusett Community College

Associate Vice President, Business Intelligence 002711 University of Maryland University College

Manager of Operations and Data Analysis Drexel University

Assistant Vice President of Enrollment Management University of Maryland University College

Professor & Director
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Assistant Professor/Associate Professor
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Community College of Philadelphia

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