The Problem -
posted by: Josh

NCAA President Myles Brand makes his first appearance on the Double-A Zone with a guest blog about some of the financial issues surrounding intercollegiate athletics.

Critics of college sports never tire of saying that big money distorts the enterprise. Universities have sold their souls in order to make profits from big-time athletics. Their conduct, it is asserted, is unbecoming of institutions of higher learning.

I am not an apologist for intercollegiate athletics. There are things about it that need fixing, and I am willing to say so, loudly. But there is far more that is good about college sports, and its benefits are lost in the din of aggressive commentators and ill-informed critics.

In particular, there is a financial problem with the funding for college sports, but it is not what the critics allege – too much money. The problem is that there is not enough money!

Those who claim that colleges and universities are making money hand-over-fist on college sports are dead wrong. There are more than a thousand universities and colleges in the NCAA in three divisions. Perhaps there is an exception or two, but the only ones who have an opportunity to conduct their athletics programs in the black are in Division I. Of those approximately 350 schools, about a quarter of them say that they are at least breaking even. However, if you do full accounting, and include all the subsidies, for example, from student fees, and all the costs assumed by the universities, for example physical plant maintenance and debt service, my educated guess is that less than 25, and maybe less than a dozen, universities are actually operating in the black and even those are not clearing very much!

Actually, the fact that intercollegiate athletics on almost every campus is losing money is not the real problem! Intercollegiate athletics adds value to the educational experience of those who participate. College is about lectures, textbooks and tests, but it is also about learning how to pursue excellence, to persist in the face of adversity, and to work in teams. College sports teaches these life skills as well as any other university activity, and probably better than the large majority. Even students who are not athletes gain from an athletics program. We know, from long-term research, that success in college is highly dependent on the identification of the student with his or her environment – that feeling part of something larger, not feeling alienated– increases persistence and graduation. A university should financially support those activities, including athletics, that have these types of education value.

The real financial problem facing intercollegiate athletics on most campuses, most especially in Division I, is that the rate of expenditures is growing considerably faster than growth in the rate of revenues. During the past half dozen years, the rate of growth of expenditures in athletics has been approximately three times the rate of growth of the general university budget. And while revenues for athletics are somewhat higher than the general university, it is not nearly high enough to balance the rate of growth of expenditures in athletics.

In Division I, a good part of these increased expenditures are the result of large investments in facilities. The bonded indebtedness – the mortgage – for these facilities will require 20 to 30 years to pay off. In the past, increased revenue from media rights contracts, especially network television, could be used to balance the athletics department budgets. But now, the rate of increase in expenditures, plus the leveling of media rights contracts, mean that student fees and subsidies will have to increase substantially.

Intercollegiate athletics does not have a sustainable business model. Universities are under considerable pressure to control costs and to keep tuition reasonable. As more money is required for athletics departments, that funding will have to come from the academic side of the house. While support for athletics is a good thing, there is a realistic limit on the amount that a university should or would expend on it.

We are not in a crisis in athletics funding. But the problem is serious, and intercollegiate athletics is under stress. We do not need to cut back in athletics, or even stop growth. But we do need to moderate the rate of growth.

Can we do that? Can universities moderate the rate of athletics department budgetary growth when winning is thought to depend on paying coaches more and building new and better facilities? Can the competitive attitudes characteristic of athletics be made consistent with moderating the growth of expenditures?

That’s the problem. In the near future on this site, I will outline an approach that will give rise to a solution.

Comments

As a huge fan of intercollegiate athletics I was moderately disappointed to read Dr. Brand's remarks disparaging the current state of affairs. That said, many of the things he said came as no surprise to me given the present legislation and policies governing intercollegiate sports.

While I have no specialized knowledge, what immediately came to my mind was the effect Title IX has probably had on the financial situation of college sports. I hope that my comments are not read to be disrespectful towards women's athletics, but it does seem to me that Title IX has put undue stress and pressure on collegiate sports. Anyone who watches ESPN, or even picks up a newspaper realizes that certain sports are far more popular than others. Whether this is right or wrong is irrelevant. The fact remains that men's collegiate sports such as football and basketball generate tremendous revenue for the schools, conferences and NCAA. I imagine that much of those revenues are reinvested into those programs and the universities themselves, but my question becomes why even a single cent of the money raised by those teams should be shared with other teams.

If a university decides that it wants to have a diverse athletic program and fund sports that do not generate revenue (and I am referring to both men's sports and women's sports), the money to do so should come from its own pockets. Every sport has its own expenses from facilities, to coaches, to travel. A Division I football team, for example, generates enough revenue to cover those costs. A collegiate volleyball team, on the other hand, may not. If this is the case across the board, the solution seems simple: terminate those sports that are not cost feasible. If there is not enough money to have certain teams, get rid of them rather than spend the surplus money generated by high publicity sports like football and basketball.

posted by: Cal | 01/19/06

Dr. Brand,

You point out that the important benefits of intercollegiate athletics arise from the life lessions that participation imparts on student-athletes, and from the identification that the student body derives from watching and rooting for teams. But at the end of your post, you argue that the primary cost drivers in intercollegiate athletics are facility investment and coaches' salaries. You also imply that higher salaries and more lavish facilities are needed for on-field success - that a quest for winning drives costs higher.

What is the relationship between winning and persistence in the face of adversity and teamwork? Do only those student-athletes on winning teams learn how to persevere and work in teams? Do only winning athletes pursue excellence? And what is the relationship between student identification and winning? Do students only identify with winning athletic teams? If a never-ending cycle of chasing on-field success drives expenditure on athletics, perhaps the NCAA should explore ways to discourage this pursuit of on-field success, and instead focus on policies that encourage personal development of student-athletes and promote greater student identification with all of the athletic teams at a university, not just the winning programs.

posted by: Brad Humphreys | 01/19/06

Wow, I certainly hope that Cal did not expect that his suggestion was the best for college athletics as a whole. The comment was borderline absurd and seems to stem from the money is the only thing that matters philosophy. Yes, football and basketball are huge money-making sports for their Universities, the NCAA, and conferences in general, but why should they keep that money? Collegiate athletics is not about the individual team, but rather about furthering the college experience. As Dr. Brand pointed out in the post, it's about allowing not only student-athletes, but also students to be able to feel like they are part of something bigger, part of the whole. Low-budget sports like wrestling, volleyball, and many others would have to be cut if they had to raise all the money themselves. This, by no means, would actually help the University as a whole, nor help any individual student-athlete. Sorry Cal, but I think you're way off on this one.

posted by: Joshua | 01/19/06

Fair enough. I too agree that it would be a shame for universities to have to cut those sports. They certainly add a lot to the college experience and the universities as a whole. And while I understand that these sports simply cannot sustain themselves through revenue they generate, I am still not willing to completely back off my stance that the money-making sports shouldn't keep most, if not all, of the revenue they generate.

Let's take football for example. I concede that the football team at school X certainly owes a certain percentage of its revenue to the school. The school provides free tuition for the scholarship athletes, provides housing, etc. That money is certainly deserving and the school should be free to invest that sum however it sees fit. If that includes giving some of it to the athletic department to fund minor sports which do not make money but add something intangible to the school that is fine. However, the football team at school x should certainly be entitled to the remaining sum for themselves. The coaches, the players, the trainers, the managers, those are the people who earned that money.

John Locke said that all people are born with is their body and their mind, and that they should be entitled to the products of said body and mind. Though primitive, this philosophy is now one of the major tenets of capitalist economies. It seems completely unjustifiable to argue that the football team at school x should subsidize other programs that lose money. That responsibility should fall on the university. The football team does not derive any benefit from school x having a fencing team (for example). If the football team (in conjunction with the university) decides it is in their interest to fund these programs more power to them. But the responsibility is that of the university and not the money-making sports.

Such a paradigm does not seem to exist anywhere else. In the business world, a corporation which makes money would not be expected to share those profits with one that does not, regardless of the benefit the non-moneymaking corporation provides to society. That, my friend, is called communism.

I want to emphasize that I do agree that minor sports that don't make money provide essential elements to a university that cannot be replaced. I do still, though, have a problem with the NCAA crying that they don't have enough money or a feasible business model while carrying around these deadweight programs.

posted by: Cal | 01/19/06

I thought Dr. Brand's comments offered a fascinating contrast to Josh's post earlier about his experiences at Brandeis. I wrote a piece about my take on those two posts on my blog, comparing each end of the spectrum in college sports.

http://thecourtmaster.blogspot.com/2006/01/both-ends-of-spectrum-in-college.html

posted by: Jim Johnson | 01/19/06

Cal,

I'm sorry, but I don't think that your analogy holds water. The fencing team and the football team are not equivalent to two competing corporations. Rather, they are both units of the same organization, the university.

Every corporation has its profit centers and its cost centers. The cost centers exist because they benefit the corporation as a whole, even though they do not bring in revenue. The profit from the profit centers funds the cost centers, and whatever is left over benefits the corporation as a whole. If an individual profit center does particularly well, its members may earn a bonus, but only after all of the company's expenses are paid.

I think that analogy works much better when looking at different athletic teams within a university, and at the university as a whole. Most universities do not operate in the black. Any "profit" earned by high-profile Division I sports teams is owed back to the university to help support its overall mission. The teams would not exist without the university.

posted by: Marni | 01/19/06

It is naive to suggest that individual sports retain the bulk of the revenue they generate. Most sports, even at Division I schools, generate no revenue, or no significant revenue.

Football and basketball, and perhaps lacrosse at a few schools, are revenue generators. That's why coaches in those sports sometimes command multi-million dollar salary packages.

And perhaps that's one of the areas member institutions should consider when they review their bottom lines. A realistic cap on coaching salaries might help reduce the amount of red ink.

And it might make the most sought after coaches think more in terms of, "How well can my family live?" than in, "How much money can I accumulate?"

posted by: Larry | 01/19/06

Well it is clear that my position is wildly unpopular, and I completely understand and accept that. However, nobody has addressed my primary point. Perhaps I did not make myself clear and I take responsibility for that. The reason that I even brought up the economic argument in favor of disipating non-moneymaking sports was to illustrate the incongruity of the competing interests that Dr. Brand raised in his posting.

The NCAA seems to believe that collegiate athletics is more about creating a positive experience for the school as a whole and the individual athletes than making money. However, I find this position hard to reconcile with Dr. Brand's complaint that there is not enough money to go around. In my view the NCAA has two distinct options:

Option A - If these small, non-moneymaking sports (basically everything except football and men's basketball) provide some modicum of value to the NCAA and the individual schools then those institutions are responsible for bearing the brunt of those costs. Essentially, by operating in the red, the NCAA and school athletic departments are paying consideration for the value that these sports provide. Inasmuch, they cannot complain that there is not enough money to go around.

Option B - If the bottom line and the business model is the primary interest of the schools and the NCAA, every sport except football and men's basketball should be cut. True, without the other sports the facilities of the schools may not be as spectacular, but they would not have to be. If the schools and the NCAA were able to do away with all the expenses wrought by the minor sports, there would be plenty of money to go around. Basically, this position would be an acknowledgment that the money the NCAA and the schools are spending (the amount they are operating in the red) on minor sports is more than they are willing to spend on the value those sports provide to the university.

The schools and the NCAA cannot have their cake and eat it too. They cannot defend losing money on these minor sports because of the value they provide to the schools and NCAA as a whole, while on the other hand complaining that there is not enough money to go around. If you want the value these sports provide (and I do agree they provide this value) you have to pay for it.

posted by: Cal | 01/20/06

We are looking at economics of collegiate athletics here. Let's look at some of the "why" behind those operations.

To be in Division I you must have 14 sports. Why? Because some group arbitrarily came up with that number and the Association's DI members voted on it. Why? Because they thought it'd keep like minded and abled schools together.

What's happened in the mean time is the television revenue from football and basketball exploded for DI. And now many "wanna be" schools want a piece of that. Thus, they'll take on the burden of supporting 14 "DI" programs, most being nowhere near DI caliber, or revenue positive (or even neutral), in minor sports just for a cut of the media pie. What they don't want to admit is that those minor sports negate any positive revenue effects of basketball and football.

Putting that another way, the NCAA system hasn't moved and adapted to the changing landscape caused by media and money in college sports and thus teams are left to try to survive at a level that is truly above their means in mostly futile attempts to be part of the media and money and to be perceived as "big time".

The NCAA divisional system is dictating sport sponsorships and thus takes away a level of institutional control. And this system fails to evolve as quickly as the sport landscape.

I believe the NCAA must eliminate the division system.

I propose an NCAA system that eliminates "divisions" and is more of a "cafeteria" type of plan:

- 5 levels of football (no more than 80, 60, 40, 20, 0 scholarships, and stepped student-athlete eligibility requirements by level)
- 3 levels of basketball (no more than 15, 10, 0, and stepped student-athlete eligibility requirements by level)
- 2 levels in about everything else ("about" because there may be exceptions I am unfamiliar with;
scholarships levels set sport-by-sport by sport governance bodies, and stepped student-athlete eligibility requirements)

I'd set student-athlete eligibility standards based on "level of play" with the catch that your whole athletic department, all sports sponsored, must meet the eligibility requirements of the most stringent level you are playing at.

Plus, I'd eliminate all "minimum total number of sports" requirements. Play what makes sense to your particular demographics and fan interests. Under my proposal, a school can fit their programs to their unique situation. So what if School X would choose to only play mens and womens basketball? And so what if School Y would choose to only play mens and womens hockey and mens and womens soccer? How does that benefit or harm what another school chooses or chooses not to do? Pick a few things that you can do and do them exceptionally well. If "few" is 2 for one school and 36 for another school, again, so what?

However, each school must still must be compliant to Title IX. The NCAA should eliminate their gender sport requirements rules and just let the law of the land, Federal Title IX, take care of the mens/womens sports issue.

Remove the extraneous by-laws (let Title IX govern), get rid of the arbitrary minimum sport numbers requirements, and let the schools really have institutional control over what they choose to compete in, and ultimately over their budgets.

posted by: The Sicatoka | 01/20/06

The suggestion that, "If you can't pay for it, don't offer it!" suggests that high school athletes who love their sport -- swimming, field hockey, wrestling, whatever -- should pack in their gear following graduation.

Athletics has to mean more than generating money for your school. It has to be about participation, enjoying competition and being part of a team -- even if you're not among the elite on your team.

Winning doesn't only count on the scoreboard. It counts in the moments you share with your teammates -- on and off the field.

From that perspective, can an educational institution look at the bottom line, and say, "Uh-uh!"

It might add cents to the bottom line, but it would subtract sense from the academic experience.

posted by: Larry | 01/20/06

College athletics isn't only about money. But when it becomes a burden to the mission of the university, yes, money becomes an issue.

I'm a two-sport season ticket holder at my alma mater so understand that I'm not an academic making this statement: The fundamental mission of a university is education. When athletics are draining tight university funds away from the academic mission there is a problem.

I'm not saying a HS athlete should pack in their gear at graduation. I'm saying (see my notion above) the athlete may need to look harder to find a school that finds it makes sense in their (that school's) demographic and economic model to offer and sponsor a particular sport.

posted by: The Sicatoka | 01/21/06

Good comments all around on my posting, including those from Cal. That does not mean I agree with them all.

What seems to be missing in the comments is a good appreciation of how athletics departments are to be funded within a university setting.

Professional teams and leagues are for-profit businesses. As such, they focus on one sport, and they direct the profits to the owners, including in some cases shareholders. College sports follow a very different not-for-profit model.

The central point of intercollegiate athletics departments is that they are embedded within an institution of higher education. There is nothing similar in the case of professional sports.

The business plan for an intercollegiate athletics department is really the same as the business plan of the university as a whole. The university raises revenues from a number of sources, including state and federal funds, tuition, philanthropy and sale of services (primarily room and board fees). Some programs provide a positive revenue flow through instruction, primarily undergraduate lower-division programs, such as Psych 101, and freshman English and math courses. Other programs are cost centers, such as philosophy, music and physics, not to mention graduate programs. A university redistributes its revenues to those cost centers in order to best create an educational environment for its students. Universities don’t drop offerings in physics simply because it can’t break even. Universities are not-for-profit, in that they have no owners or shareholders who receive monetary profits from their operations.

Similarly, athletics departments obtain revenue from two or three sports, but then redistribute them to cover other sports. They do not drop those sports, women’s and men’s, that fail to be revenue generators. Rather, they try to maximize the number of student-athlete participation opportunities while sustaining competitiveness. They do so because participation in intercollegiate athletics is conceived as part of the educational mission of the university. That is why the NCAA requires a minimum number of sports, well beyond the revenue generators, for membership.

By being embedded in an educational institution, departments of athletics commit themselves to the same values of the institution, namely, to advance the educational mission of the institution and to maximize the benefits for the maximum number of students of which they are capable.

Before proceeding with the solution to the problem I posed of financing intercollegiate athletics, it is critical to appreciate the nature of the problem, in particular to be clear about the context in which it occurs.

posted by: Myles Brand | 01/23/06

As a fan, I've been critical of Dr. Brand about some NCAA issues in the past - and I'm still critical about how the NCAA will not sponsor a Division I-A playoff. In part because the arguments proferred by the current university presidents and athletics directors do not hold water in my opinion.

With that long rant being said, I do agree wholeheartedly with Dr. Brand. It is hard to shake the perception that one is flush with money. That is simply not the case.

It is dangerous, in my opinion, to put a traditional business model on an institution of higher education and the units that operate within. The idea is that college sports is a big time business. Perhaps it is, but it is certainly a business like no other.

The goal for pro sports teams (besides winning a title) is to make money - generate dollars.

The goal (from my view) of intercollegiate athletics is to provide the student athlete with leadership opportunities and the chance to grow, develop and mature as well-rounded, well-balanced individuals.

I love collegiate sports precisely because it isn't a major revenue generating enterprise. I shudder to think what would become of intercollegiate athletics if it ever decided to become like professional sports.

posted by: Dave | 01/26/06

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