Revenues and Expenses in College Athletics

Kyle Newman

Florida State University

Introduction

College sports have been a part of the collegiate experience since the beginning of American higher education. From its humble beginning as club sports to the billion-dollar industry it is now, it has not been without controversy. In order to grasp a better understand of college athletic finances, this paper will examine the different types of expenses and revenues. Additionally, the paper will look at current issues in financing throughout the paper, mostly at the National College Athletics Association (NCAA)’s “Power Five” conferences. These are the Atlantic Coast Conference (ACC), the Big 10, the Big 12, and the Southeastern Conference (SEC) and generate the most TV revenue and highest win percentages in Division I football. Through an examination of college finances, it appears that college sports is a big generator of revenues for athletic departments among the NCAA’s “Power Five” conferences in the Football Bowl Subdivision (FBS).

A need for regulated college athletics dates back to the 19th century with games between Yale and Harvard Universities that included non-collegiate athletes competing in the sports and the sponsorship of commercial companies (Smith, 2000). With the growing number of colleges as a result of the Morrill Land Grant Act of 1862, collegiate athletic contests expanded as more universities were founded and students sought more extracurricular activities (Lemons, 2014). This significant development eventually led to the need for regulation of intercollegiate athletics. The Intercollegiate Athletic Association (IAA) was created in 1906 as a need for regulation that sparked from the death of 18 athletes and 100 injuries that year (Smith, 2000).

The IAA changed its name to the NCAA in 1910. Despite the beginnings of regulation, this did not solve the problems associated with college athletics. These included unfair compensation of athletes, cheating, recruiting violations, and commercialization (Smith, 2000; Thelin & Edwards, n.d.). After World War II and the GI Bill, college enrollments soared. This only increased the amount of students participating in college athletics (Lemon, 2014; Smith, 2000). With further advances in media, college athletics became more popular and a money generating industry.

In the 1950s the first college football games were televised. In the 1980s, the U.S. Supreme Court ruled that the NCAA violated anti-trust laws in regards to media and allowed for bowl games to offer money to schools, expanding the amount of revenues that colleges received (NCAA vs. Board of Regents of the University of Oklahoma, 1984; Smith, 2000). Sports also expanded with the growth of women’s athletics. As a result of Title IX, universities were required to offer sports for women. However, these sports largely do not generate revenue, therefore causing a loss for athletic departments (Smith, 2000; Thelin & Edwards, n.d.). As time has passed and through more demand for live events, contracts for sporting events have grown and this leads us to our current examination of revenues and expenditures for athletic departments at NCAA institutions.

There are a variety of expenses for college athletic programs. The main expenses that will be discussed are: guarantees (which can also be a revenue for some programs), traveling, recruiting, and coaches’ salaries. In order to stay consistent, this will look at definitions and data reported by universities to the NCAA. To see more and full definitions, please see the Fulks’ Revenues & expenses: NCAA Division I intercollegiate athletics programs report (2014).

A first expense to examine is guarantees. Guarantees are money that is paid to visiting institutions to play at the home team institution (NCAA, 2015). Some schools tend to pay more for guarantees than others. It is often that schools with better records and higher revenues will schedule lower opponents for “guaranteed” wins and the lower schools get guaranteed payout from playing in large stadiums (Barnhart, 2013). Sometimes, the lesser opponents will win and collect the money and prestige.

A second expense is team travel. Team travel includes things like: the cost for transportation (whatever method chosen), lodging, food, and incidentals for competitive play (NCAA, 2015,). A fourth expense is recruiting, which an important function for universities. Recruiting functions are costs associated with visiting potential recruits and costs associated when/if the potential recruits visit the institution (NCAA, 2015). Fundraising and marketing services are the final mainly expense. These are costs to solicit donations and costs associated with marketing materials (NCAA, 2015).

Other expenses are directly related to students. The two main categories are scholarships and medical expenses. Scholarships or athletic student aid is “The total amount of athletically related student aid awarded, including summer school and tuition discounts and waivers (including aid given to student athletes who have exhausted their eligibility or who are inactive due to medical reasons” (NCAA, 2015). Medical expenses are things like medical insurance and related medical expenses for student athletes (NCAA, 2015).

The final and most controversial expenses are coaching expenses, which are what it sounds like. It is money paid to coaches and staff for their services by the university. However, the coaching/staff expenses also include money received from third parties (NCAA, 2015). Related to this are severance payments to coaching staff. Severance payments can be high when coaches are let go before their contract ends. In 2012-2013, the University of Tennessee spent the most on severance payments. These totaled eight million dollars, mostly from firing its previous head football coach and his assistants (Lavigne, 2014).

The coaching and staff expense has come under increased scrutiny as of late. Because private schools are not required to disclose coach salaries, only public institutions’ coach salaries can be examined. According to ESPN’s Where Does The Money In Sports Go database (2014), Ohio State University spent $28.4 million on coaching staff salaries and benefits in 2013. Looking at individual public coaches’ salaries, the University of Alabama’s football coach, Nick Saban averages around seven million dollars a year and is guaranteed 55 million dollars, if he completes his contract (Baumbach, 2014). The other football subdivision schools average 1.1 million dollars, which is a 75% increase from 2007 (Baumbach, 2014).

This calls into question the total amount of revenues schools are making, if they can afford exuberant salaries for coaches. Sports economists completely disagree that colleges cannot afford to pay players because the schools spend their revenues on other things (i.e. high coach salaries) and do not need to report profits (Lavigne, 2014; Strachan, 2015; Suggs, 2009).  Recently, there is an effort for college athletes to be paid by institutions for their services. The Ed O’Bannon vs. NCAA (2014) decision and Northwestern’s football players being allowed to unionized decision has set the groundwork for this to occur in some fashion (Connolly, 2015; Strachan, 2015; Zillman, 2015). This will certainly change the expense portion of university budgets by adding a new expenditure category and could mean a redirecting of funds.

There are many sources of revenues for college athletic programs. As mentioned previously, the NCAA contains categories and full definitions for expenses and revenues. In this section, types of revenues that will be examined are: royalties, tickets, student fees, institutional support, guarantees, and media deals. These are the most important to examine and the highest revenue sources.

The first type of revenue that will be discussed is the category money received from royalties, licensing agreements, advertisements, and sponsorships. The description from the NCAA (2015) is almost verbatim from the title. Some types of sponsorships and advertisements can be from companies for the right to provide products like athletic apparel, soft drink companies, and other types of products. This is similar to professional leagues, the only difference being the players cannot benefit from the revenues. For example, the University of Florida and Florida State University signed a deal with Bi-Lo Holdings’ Winn Dixie to be the official grocery store for the universities (Dixon, 2014). Tickets are also another type of revenue schools receive from ticket sales (NCAA, 2015).

Other revenues can be grouped together because of their similar purposes. One category is student fees. Student fees are fees charged by institutions by specifically for athletic purposes (NCAA, 2015). The other expense is institutional support or university subsidies. Direct institutional support is money directly assigned to the athletics department by the institution (NCAA, 2015, 2014). Depending upon the institution, these can make up either a large or small source of revenues. This can be a cause of contention at some institutions.

The fees and institutional support may vary among many different types of FBS institutions. Unfortunately, many students are unaware of how much they are being charged (Dodd, 2014; Hightower, 2014). Many schools with extremely high revenues still collect student fees, although it is dubious to whether they need the money (ESPN, 2014; USA Today, 2015; Vedder, 2013). On another note, schools with high numbers of students with low socioeconomic status and generally that are smaller in size charge a larger amount for athletics than other schools (Dodd, 2014; Vedder, 2013). Overall, 24 Division I FBS publics schools do not charge any student fees and only seven do not receive any money from the institution and student fees (ESPN, 2014; USA Today, 2015). The University of Central Florida (UCF) collected the most from student fees, accounting for $20 million in revenues with Florida International University (FIU) just below that amount (ESPN, 2014). This is something that should be examined as higher revenues come in and the rising cost of college tuition for regular students.

As mentioned in the previous section, schools receive revenues from guarantees. The U.S. Naval Academy received the most money from 2007-2013 at $28 million (Lavigne, 2014). A second revenue category that brings in a lot of money is from contributions and in-kind donations. Contributions are money from individuals and organizations for operations and debt and lease payments for athletic facilities (NCAA, 2015). In-kind donations are products from donors like cars, equipment, and nutritional supplements (NCAA, 2015). These two categories also can be controversial, but can fund provide a great deal of revenue to athletic departments.

An increasingly growing source of revenue is revenue from media deals. This category is “...all revenue received for radio, television, internet, digital and e-commerce rights, including the portion of conference distributions related to media rights – if applicable” (NCAA, 2015). By 2020, the NCAA and the “Power Five” conferences (ACC, Big 10, Big 12, and the SEC) are projected to take in $2.34 billion from TV deals, which is an increase of 148% from 2012 (Sports Business Journal, 2013). This money ends up being distributed to the NCAA, conferences, and schools depending on the specific sport, how much they win, and any specific conference deals that conferences have with cable/broadcast networks. Recently, this has come under fire. The NCAA

Justifications for Increased Expenses

A major issue with college athletics is about the programs’ impact and purpose. A common belief is that athletic programs can justify the fees and high revenues by saying it contributes to donations to the university’s general funds, prestige, and publicity to attract the best students. However, research generally shows that these assertions are not true or mixed at best (Cohen, Whisenant, & Walsh, 2011; Frank, 2004; Humphreys & Mondello, 2007). Humphreys & Mondello (2007) found that athletic success does not contribute to unrestricted donations and only to restricted to donations, which probably go back to the athletic department. Additionally, football success decreases academic donations (Koo & Ditmore, 2014). Overall, it seems that athletic success generally seems to be self-serving and does not contribute in any tangible way to academic performance or if it does, it is minimal at best.

There are various problems with collecting financial data for college finances, especially for athletics departments. Of importance on this topic is determining whether athletic departments actually make money. The media and researchers have long debated about this topic (Lavigne, 2014; Suggs, 2009). This is because the problem with collecting accurate and whole data sets. The first widespread reporting data began in the 1990s. As Suggs (2009) explains:

The significant expansion to making data publically available was in the 1990s with the passage of the Equity in Athletics Disclosure Act (EADA) of 1994. Specifically, colleges had to report the number of students on each men’s and women’s team, the amount of money spent on athletics scholarships for male and female student athletes, the numbers of male and female coaches for men’s and women’s teams, and the total revenues and expenses (including an itemization that outlines the revenues and expenses from football, men’s basketball, women’s basketball, all other men’s sports combined, and all other women’s sports combined) derived from the institution’s intercollegiate athletics activities. (p. 25)

Even with these new reporting methods, it is difficult to discern the accuracy of this information.

One reason that it is difficult to get accurate numbers is the difference in universities. Universities and colleges each use different accounting methods. This leads to a problem of comparison between universities and whether it is even possible to verify the information reported by the NCAA, U.S. Department of Education, and various media outlets (Suggs, 2009). Additionally, universities are nonprofit organizations and do not have motivation to show a profit and private universities do not disclose information for the most part (Lavigne, 2014; Suggs, 2009). Because of this, institutions will increase expenses to close as possible to revenues (Lavigne, 2014). Chad McEvoy, a professor in sports management at Syracuse University, commented that:

We've definitely seen growth in salaries and personnel, but I think a lot of that is by choice...I think these athletic programs have added staff both on the sports side and the administrative side because they have the money to spend and needed to spend it on something [emphasis added] (Lavigne, 2014).

Conclusion

Overall, this illustrates the various sources of revenue and expenses at four-year universities’ athletic programs. It was shown that college athletics have a long and storied history in American higher education. Furthermore, revenues and expenses are complicated topics in regards to athletic departments. The various source of funds, the different reporting requirements, and the controversies make it a struggle to grasp and full and transparent picture of collegiate athletic financing.

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