Intercollegiate
athletics is almost unique to American higher education. Few programs at most universities,
particularly those in NCAA Division I, are as visible as our athletic programs. At a personal level, my decision to move the
University of Idaho football team from the Football Bowl Subdivision (FBS) to
Football Championship Subdivision (FCS) was one of the most visible decisions
that I made as president. This move has
been interpreted by many as a downgrade to our program due to my lack of
interest in sport; in fact, I feel that intercollegiate sports has an important
role at our University and that expanding our programs selectively could confer
considerable benefit.
Although the value of intercollegiate athletics to the mission of universities is passionately debated, and universities face decisions about whether to invest in athletics, decrease expenditures, add or discontinue sports, change conference affiliation, or invest in facilities, few general principles have been described to guide decisions for boards and presidents. A complete accounting of revenues and costs, as well as a consideration of intangible benefits would at least form a basis for this discussion. The major point that I wish to make in this article is that while discussion of Athletics often focuses on operating expenses and revenues, these are only part of the discussion.
Athletics
programs vary greatly in terms of size, costs, and benefits. The NCAA oversees 1102 athletic programs,
spread fairly evenly among Divisions I, II, and III. The greatest contrast is
between Division 1 and Division III.
Division I programs, on which I will focus, represent 32% of all
programs. Median undergraduate enrollment
is just under 10,000 and about 1 in 25 students is a student athlete in
Division I. The median Division III
school enrolls just over 1700 undergraduates, but 1 in 6 students is an
athlete. Revenues and costs vary
greatly, even within Division I. In
2016-17, for example, USA Today reported that for public schools in Division I
that must report such data, the University of Texas topped the revenue list at
$215 million and the expense list at $207 million. The lowest expenditure reported was
Mississippi Valley State just over $4 million.
In this article, I will focus on the bulk of programs in which generated
revenues from athletics are lower than operating expenses, with some general
comments applicable to all athletics programs.
Student athletes may enjoy both tangible and intangible benefits from participation. A very small minority of student athletes will go professional (1.2% in Men’s basketball and 1.6% in football) and enjoy large salaries. Many student athletes in Division I benefit from athletic scholarships-over 3000 athletes in FBS football each year, about 4000 in each men’s and women’s basketball, for example. Athletes, particularly in Division I, have Federal graduation rates 2% higher than the general student body. Black student athlete graduation rates are 15 percentage points higher for males; 19 percentage points higher for females. These rates may reflect academic and other support that athletes receive, but certainly constitute a tangible academic benefit. Student athletes also belong to a team, a multi-age cohort. And, athletes benefit from close adult supervision by coaches, as well as training and nutrition advice. Student athletes may also benefit from publicity or notoriety on campus, though they are also more subject to public scrutiny than most other members of the student body.
Universities also enjoy intangible benefits from their athletic programs. Most obvious is the publicity accruing to a successful program. The “Flutie Effect” describes the rise in applications and gifts that can accrue to a school with a successful athletic program. Named for the rise in applications seen by Boston College after Doug Flutie’s “Hail Mary” pass defeated the national champion University of Miami, this effect is more generally seen by schools that place a team in March Madness. Gonzaga University is the classic, moving from struggling with enrollment prior to their 1998 success in the NCAA tournament to record enrollments with new facilities paid for by donations after their run of entries in the NCAA tournament. An article by Silverthorne in Forbes indicates that either basketball or football success may benefit a school; but that sustained effects in football are more likely in Power 5 conferences than in lesser football conferences. Participants in the NCAA men’s basketball tournament, according to a 2009 study, typically saw a 1% increase in applications the following year. Even modest Division I programs, like the University of Idaho, enjoy routine mention in the local sports papers. Athletics is often a key to alumni engagement, which is difficult to value. Though donations directly in support of Athletics may only be a small part of university advancement (about 5% at the University of Idaho), many alumni and donors are aware of the athletics program. Another benefit often overlooked is that Athletic Departments are typically among the most diverse parts of campus; if these programs were viewed as diversity programs, they would often be the most successful on campus in terms of student retention and graduation.
Intangible benefits or those difficult to value should not be ignored as we shift attention to revenues and expenses that can be calculated more clearly. Athletics program revenues are usually classified into generated revenues and institutional support (or allocated revenues in NCAA parlance). A component of institutional revenue that is often ignored in value calculations is the tuition revenue from student athletes who attend a particular university in order to compete and who do not receive full scholarships. After examining the major revenue and expense categories, we will return to a more detailed examination of institutional tuition revenue.
Generated revenues include TV contracts, game guarantees, conference revenue, NCAA payments, direct donations and ticket sales. Usually these categories are easy to allocate to Athletics, and even to specific sports-such as a TV contract for football. These revenues vary tremendously within Division I. The most comprehensive data on revenues and expenses is that in the NCAA report (http://www.ncaapublications.com/productdownloads/D1REVEXP2015.pdf) , though these are not listed by individual university. The USA Today report cited previously indicates that only about 20 programs generate revenues greater than reported operating expenses. Typical Division I programs like Idaho supplement their generated revenues with institutional support, called allocated revenues. Although allocated revenues represented only 28% of the overall total funding in Division I, for non-Power 5 teams this jumps to over 62% (University of Idaho is fairly typical at 55.99%).
Operating expenses include sport-specific items like coach salaries or travel as well as more general expenses like the Athletics Director and staff salaries. In the university world, these might often be called direct and indirect costs. I have not been able to find detailed information, but it is likely that indirect expenses are a larger portion of expense in more modest programs; the high salaries of prominent football or basketball coaching staffs can swamp almost all other expenses in very prominent programs. Often, facilities expenses themselves are not included in these calculations unless they are directly attributable. For example, at our university, there is no charge for the use of the swimming pool or the basketball court, though there are charges for moving bleachers for specific game setups. There is little standardization in how facility expenses are calculated, but in most cases it is likely that expenses are underestimated. A 2003 NCAA report concluded that the primary expense of capital stock in Athletics programs was facility replacement. The major driver of this cost in Division I was the capacity of the football stadium. In larger universities, this cost was, at that time, nearly the same as all other operating costs in toto. A part of this cost is often borne by donors during capital campaigns, but usually some of the cost is shared by the University. For example, the University of Washington recently completed a $280 million football stadium renovation for which UW hoped donors would provide $50M. The roughly $250M loan needed to undertake projects like this probably adds about $10 million yearly to athletics expenditures that is sometimes only indirectly accounted for.
For most
of the 351 Division I programs and the hundreds of other NCAA and NAIA
athletics programs, the gap between generated revenues and allocated expenses
is filled with institutional support.
This institutional support can be in the form of student fees, tuition,
or government appropriation in the case of public universities. And, for the non-Power 5 conferences, that
institutional support averages over 60% of all revenue.
The sensitivity of using student
funds to support Athletics motivates concern about overexpenditure on
Athletics. Faculty most often see this
as an emotional issue, “wasting” money on Athletics. Boards and the taxpaying public should be
primarily concerned about how Athletic costs are borne by the overall student
body, and whether there is a way to optimize tangible and intangible benefits
while minimizing the costs that might increase tuition, for example.
At several universities, including
all public universities in Idaho, institutional support is limited by an
athletics cap. Other universities, such
as Eastern Michigan University and the University of New Mexico, have proposed
to cut sports programs to reduce Athletics budgets. The most common Athletic budget strategy
seems to be small incremental increases, often while observing conference norms
in expenditures. And, a few
universities, primarily in the Power 5 football conferences, have opted for an
“All-in” strategy. How can presidents
and boards overseeing the bulk of Division I programs guide their programs to
optimize benefit and minimize institutional cost?
The general philosophy of setting
an athletics cap is to set the cost of athletics that is borne by all students
at an appropriate level. Caps are set in
a variety of ways, and caps are inflated or adjusted in quite a variety of
ways. For example, in Idaho caps were
set more than 20 years ago, apparently at the institutional support level then
in place. Caps in Idaho were adjusted
first to ensure gender equity in spending, and have been inflated by the
percentage that state employee salaries have grown. Of course, defining an appropriate cap and
inflator is the core of the difficulty.
Due to our expenditure patterns and
our athletics caps, the University of Idaho found itself in violation of the
cap, which we refer to as being in an athletic deficit situation. Though we have been striving to increase
Athletics revenue, primarily in the form of increasing donations, we have found
our generated revenue quite stagnant.
Therefore, to eliminate our deficit and conform to our cap, our only
viable alternative appeared to be to cut expenditures. This motivated us to examine several
strategies, including sports elimination.
To inform our consideration of our Athletics caps and possible sports elimination, the University of Idaho undertook a detailed examination of our overall Athletics revenues and expenses. We calculated the sport-specific expenses and revenues for each of the 16 sports we offer (consolidating track and cross country programs as these programs share coaches and athletes at our university.) We also calculated general expenses and revenues, and allocated them by a simple athlete headcount method. The detailed results are available below.
In each sport, we ignored the cost
of scholarships as this was an internal cost transfer. We did, however, also calculate the tuition
revenue that students receiving partial scholarships or who walked on to the
team paid to the University. Though a
small number of student athletes might attend the UI even if we did not offer
their sport, we believe that more than 90% of our student athletes selected UI
in a competitive academic/athletic recruiting situation because they
could participate in their sport here.
We make the simplifying assumption that the tuition revenue from all
non-scholarship or partial scholarship athletes has been brought to the
university by participation in athletics.
In this light, universities can
view “nonrevenue” sports as strategic enrollment management programs. In fact, this is clearly the way that most
Division III programs view their athletics programs. And, perhaps surprisingly,” nonrevenue”
sports, for less prominent sports programs like UI, are actually those that
generate the greatest revenue. Although
from this perspective, football is essentially break-even at UI; headcount
sports like MBB, WBB, and WVB are major loss leaders, required for
participation in Division I and our Big Sky Conference.
We did examine cutting sports. Given a network of intersecting requirements including Title IX, NCAA regulations and Big Sky Conference rules, our options were very restricted. The scenario we presented to our Board was the elimination of women’s soccer, women’s swimming, and men’s golf with the addition of sand volleyball. Sports elimination was extremely unpopular and our Board ultimately granted us the financial flexibility to re-examine the situation.
These sport eliminations would have decreased our tuition revenue and actually increased the average cost of education for non student athletes by decreasing total available resources. We suspect that cutting non-headcount sports at other universities may actually lead to similar issues. Eastern Illinois University, after examining sports elimination, decided not to do so; the University of New Mexico recently made a different decision and plans to eliminate 4 sports generating a good deal of negative publicity.
How, then, can a university determine the overall cost of its sports programs and choose an appropriate program level that aligns with its mission? First, one must recognize that universities approach these decisions from a historical context. In general, if a university has a stable conference affiliation with a presence in its traditional media and student markets, it is likely that the university should maintain that presence, which will also maintain the bulk of the intangible benefits the university receives from publicity as well as the benefits that the student athletes receive. The university should calculate the full costs and benefits of at least generated revenues, institutional support, direct and indirect costs, as well as non-scholarship student-athlete generated revenues. We advocate that the university simply calculate whether it has more or less general education funds per student under any proposed program than it currently has. . Another means of monitoring this is in terms of overall per capita cost to non-student athletes: the Athletics institutional support/student. If changing the sports program in a significant way would alter these financial attributes, one must be sure that the intangible benefits to the university will be significant.
Can universities optimize costs and revenues within existing Athletics programs to achieve a better result? In general, for institutions like the University of Idaho with a presence in an established regional conference, I believe that the key is to invest sufficiently in revenue sports to ensure a winning program. The university goal should be to appear regularly in FCS football championships and in NCAA basketball tournaments by competing successfully in the Big Sky. In other sports, the objective should be winning programs but with a hybrid philosophy of competitiveness in the most visible sports and optimal enrollment management strategy in nonrevenue sports, with cost containment including minimizing athletic scholarships. Coaches can be incentivized to recruit more academically-qualified athletes by encouraging athletes with the academic scholarships that any student would receive. This holistic revenue approach can actually incentivize the addition of sports, though this would be limited under a cap policy. This is the primary reason that I think cap policies are unsophisticated ways of managing athletics budgets.
And, while considering Title IX considerations, the University has many opportunities to recruit students in additional sports with minimal scholarships and little marginal facility or coaching costs. For example, Northwest athletes would flock to a men’s swimming team at the University of Idaho (the only Division I program in the Northwest currently is Seattle University), with the addition of modest coaching and no new facilities. Youth teams are typically coeducational, as are many college teams. Of course, one would have to add women’s sports under this scenario to ensure equitable opportunities. Increasing Athletic programming can help sustain sports like swimming, provide wholesome opportunities for athletes to continue their careers in college, and attract students to our universities, though such an approach might pose competitive challenges to some Division III programs.
Athletics-funding-and-spending