Last month, the NCAA came out with a report on revenues and expenses of its member institutions. The report is usually published every two years, but this time there was a year’s delay due to the introduction of a new and improved accounting system.
One of the changes in the accounting system is that the report now distinguishes between “generated” and “allocated” revenues. The former includes revenues that presumably come from the games themselves, whereas the latter includes student fees allocated to athletics, direct and indirect institutional support and direct governmental support.
If generated revenues exceed expenses at a particular school, then it would appear that its athletics program stands on its own feet. Not only does it not require subsidies, but it may even be able to kick back some monies into the general budget of the university.
According to the report (which covers the three fiscal years 2004-06), during the 2005-06 academic year, 19 of 119 institutions in Division I-A experienced a net surplus of generated revenues in their athletic programs.
The average net surplus for these 19 programs was $4.29 million in 2005-06. The average net deficit for the remaining 100 programs was $8.92 million — an average gap between the two groups of $13.21 million (which was double the gap in 2003-04.)
Not a pretty picture
Considering all Division I-A programs together, the median net deficit in generated revenues was $5.9 million in 2003-04 and $7.3 million in 2005-06. Not a pretty picture, yet reality was worse:
1. Included among “generated” revenues are contributions from alums and others to athletics. In 2005-06, these contributions amounted to approximately $6 million to the average Division I-A school and 31 percent of generated revenues.
Although these contributions may be inspired by athletics, there is also some evidence that donations to athletics are replacing donations to the general fund.
In 1998, athletics accounted for 14.7 percent of overall gifts to universities; in 2003, it accounted for 26 percent of all gifts.
There are some schools where the increase in athletics donations appears to directly offset a decrease in donations to the general fund. To the extent that athletics giving diminishes general fund giving, then athletics becomes a deeper burden on an institution’s finances.
2. The new NCAA accounting system does include a broader array of indirect expenses than before, but it is still not comprehensive. For instance, one expense that is still left out is allocating a share of the compensation to university administrators as an athletics expense.
If a university president allocates, say, 15 percent of his or her time to athletics and receives a compensation package worth $600,000, then $90,000 of the payment should be charged to athletics. It is not.
3. Most significant in quantitative terms, the NCAA report considers only operating expenses. It does not include capital expenditures.
The NCAA commissioned a study on capital expenditure in university athletics by economists Jonathan and Peter Orszag. The study was completed in April 2005 and is on the NCAA Web site.
The Orszags carefully estimate the replacement cost of athletics buildings at Division I-A institutions and conclude that the average annual capital cost for athletics facilities is $24 million. That number is based on pre-2005 data and, thus, is likely 10 percent or more below what the cost would be today.
If we add $24 million of capital costs to the aforementioned median deficit of $7.3 million, there is an annual financial drain of over $30 million a year for the typical Division I-A school!
In another study by the Orszags, also on the NCAA Web site, the authors conclude that the often-cited benefits of intercollegiate athletics — that it improves the quality of the student body via the advertising effect or that it increases giving to the university — do not find empirical support in the record.
4. The trend line is not favorable. According to the NCAA report, between 2004 and 2006, in Division I-A median revenues grew by 16 percent and median costs increased by 23 percent.
Realistic picture
The foregoing is not meant to suggest that there are no benefits to college sports. Clearly there are. It is, however, to argue that we need to have a realistic picture of the finances of athletics programs to properly plan for their future.
At the very least, the discouraging financial portrait painted here places a responsibility on athletics programs to attack the waste and excess in their operations.
There are some obvious areas to start, for instance:
• Astronomical compensation packages for head basketball and football coaches
• Bloated coaching staffs and rosters (115 players on the average Division I-A football team)
• Staying in hotels before home games
College presidents have put off confronting this financial imbalance for a number of reasons. Prominent among them is that the average Division I-A athletics budget in 2005-06 was just 5 percent of the average university budget. Yet in 2003-04, the average was 3.5 percent.
The day of reckoning is coming. It is time for college sports to sober up.
Andrew Zimbalist is Robert A. Woods Professor of Economics at Smith College. His latest book (with Nancy Hogshead-Makar) is “Equal Play: Title IX and Social Change.”
