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 Athletics Departments Face Financial Issues - Jul 10, 2008
posted by: Howard
Many college sports fans share a common misconception that all athletics departments make millions of dollars in profits each year. In reality, only a handful of institutions are self-sufficient or generate revenues over expenses - most athletics departments are actually in the red on an annual basis and rely on subsidies from the university to balance their athletics budgets. Duke is the latest athletics department to speak publically about its financial struggles. Yes, that's right, Duke University, home of one of college basketball's most successful and well-known programs. New Duke Director of Athletics Kevin White recently said that the athletics department is "financially challenged." In fact, the school has doubled its annual subsidy to the athletics program to $15 million a year to help fund the department's operations. Duke isn't the only high-profile school in this situation. In 2006 only 19 Division I FBS schools had greater revenues than expenses in their athletics departments. Additionally, only 16 of these schools had net positive cash flows over the three-year aggregate from 2005-07. Financial matters in large part prompted the formation of an NCAA presidential task force two years ago to discuss a disturbing trend in which the rate of growth in Division I athletics spending was tripling the rate for university spending overall. While athletics budgets on average represent only about 5 percent of a university's budget, presidents agreed that current trends could not be sustained over time. Big-time athletics is not in a fiscal crisis, they said, but the growth in spending is adding pressure on institutions already strapped for cash. On this week's Monday's with Myles NCAA President Myles Brand said "the cost of doing business...in intercollegiate athletics is going up." Not only is the high price of gas affecting the finances of athletics departments, but as Dr. Brand suggests, the rising cost of other factors like market conditions, salaries and facilities play a major role in this struggle. The situation at Duke should be a wake-up call to those who think college sports is awash in money. Athletics departments are going to need to find creative ways to increase revenues or reduce expenses, and I hope that the answer doesn't manifest itself in the cutting of athletics teams. What is your opinion on this issue? How should athletics departments deal with this difficult financial landscape? 
CommentsIt is a well needed wake-up call. Sports, including college athletics, has had a great run over the past 15 years with a strong economy. The true test of a good/great business model is the ability to survive/thrive even in a bad economy. While the economy is hurting everyone, if our sport model really works then business (including athletic departments) will be able to respond and do well. Otherwise, the result can show that the model is broken and needs to be fixed. Thus, trying times can also be beneficial times for sport businesses to see who they really are and what value they provide customers. Gil Fried It’s a bit misleading to suggest that only a handful of athletic departments generate revenue over expenses –– when there is no regard to expenses. With no shareholders and no individual allowed to receive distributions of net income – the money gets distributed before the bottom line is realized. The athletic department, as an entity, is not realizing a profit –but the phantom shareholders (top coaches and administrators) - receive hefty dividends – then cry foul over an operating loss. It’s like an entrepreneur forming their own corporation – paying themselves a million dollar salary as “an employee of the company” – then reporting a net loss on the corporation – the “owner” still got rich and still made a profit – but chose to report it as salary – not income. It’s a game – of the 300+ schools that did not realize revenue over expense – you would be surprised at the number of wealthy people those schools have created.
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