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.

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

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."