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Volume 21 No. 2
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A pivotal year on campus?

Rules changes, pay-for-play, gambling among the issues facing college sports

College sports could look very different by the end of the new year. Just think about what’s in play in 2018.

The NCAA is expected to pass sweeping rules changes to college basketball recruiting, while the Jenkins v. NCAA (pay-for-play) antitrust lawsuit will develop clarity — a hearing is set for Jan. 16.

Legalized sports betting is under consideration in several states, and the new tax bill going into effect this year will challenge the way athletic departments fundraise.

Those specific issues are in addition to the broader topics of increased spending in facilities, salaries and buyouts, athletic department debt, and the health and well-being of student athletes.

Indeed, the table is set for a volatile and potentially pivotal year in college athletics that could dictate the way the college game is managed for years to come.

“The amount of uncertainty or turbulence is probably more than I can recall at any other time,” said Bubba Cunningham, North Carolina’s athletic director and president of NACDA, an AD trade association. “The media coverage and the amount of money in sport has created more tension on our campuses than at any other time in our history.”

In a recent survey of college insiders, ranging from athletic directors to former ADs, consultants and search-firm executives, SportsBusiness Journal asked what are the biggest challenges facing college athletics in 2018.

What follows, based on feedback from the insiders, is the consensus on why 2018 will be a year to remember in college athletics:

Jenkins v. NCAA: This is the antitrust case that could vault college sports from the amateur model to a free-market system. The case was quiet in 2017, but that’s about to change.

An important hearing on Jan. 16 in federal court in Oakland could dismiss the case or move it forward. U.S. District Judge Claudia Wilken, who ruled in the O’Bannon case, will preside.

The student-athlete plaintiffs, Martin Jenkins and Shawne Alston, are asking for an injunction prohibiting the NCAA from setting a limit on compensation, which is currently a scholarship plus cost of attendance. The plaintiffs, represented by Winston & Strawn and Hagens Berman Sobol Shapiro, argue that schools don’t have to pay athletes, but they cannot conspire to cap compensation, either.

The NCAA, represented by the law firm of Skadden, Arps, Slate, Meagher & Flom, is arguing the issue was already decided in the O’Bannon case and will seek dismissal.

Tax man cometh: At a time when ADs lament the ever-growing cost to do business, they got hit with a new tax bill that in 2018 will increase expenses and take away an important deduction. For more than 30 years, donors have been able to write off 80 percent of a contribution that went toward securing season tickets, like a seat license, but this tax bill eliminates that deduction.

Schools now wonder to what extent donations, which pay for athletic scholarships, might take a hit. And will schools raise ticket prices and lower the required donation for a seat as an adjustment?

“There are some huge debt service obligations out there that rely on a steady stream of revenue from premium seating,” said Todd Turner, a former AD whose Collegiate Sports Associates conducts searches and consults with universities. “You wonder how the new tax bill will impact the marketability of those seats.”

Athletic departments, which operate as nonprofit businesses, also will face a new 21 percent excise tax on up to five salaries that exceed $1 million annually. An analysis from Spencer Fane LLP found that 188 coaches and ADs at the 65 power five schools are guaranteed at least $1 million, so any dollar amount above that would be taxed at 21 percent.

Spencer Fane, in a report for AthleticDirectorU.com, specifically examined the University of Kentucky, where its salaries for men’s and women’s basketball coaches and football coach go well over $1 million each. The excise tax on the amount beyond $1 million will cost UK $1.9 million in unbudgeted tax expenses this year.

Some insiders suggested that schools will look at routing compensation to their coaches through third parties, like shoe companies or multimedia rights holders, but it’s uncertain if that would be considered institutional income or outside income.

College basketball changes: NCAA President Mark Emmert and conference commissioners are confident that basketball recruiting can be better regulated. When an FBI sting led to 10 arrests last September for bribery and fraud charges, Emmert formed a commission, chaired by Condoleezza Rice, to reform the recruiting scene. The committee’s recommendations are expected in April and implementation could be in place by the start of next season.

“I think there is a bias for action,” Pac-12 Commissioner Larry Scott said. “What’s different is the fact that these are federal crimes and that’s a wake-up call for anyone who cares about college basketball. What stronger signal do you need?”

The one-and-done rule, summer basketball and the role of agents and shoe companies are among the issues being examined by Rice’s commission.

Athletic director longevity: As John Currie found out at Tennessee and Jeff Long discovered at Arkansas, the shelf life of an AD is shrinking by the year. Both highly respected ADs lost their jobs after an unexpected turn of events.

The unpredictability of the job has led to a record number of changes — 54 ADs have been hired in the last 12 months at 350 Division I schools, including a robust 15 since Oct. 1.

Based on the pace of change since he was hired in 2015 as LEAD1’s CEO, Tom McMillen said the 130 FBS schools will see 100 percent turnover by 2020. LEAD1 is the AD trade association for schools in FBS.

“The pressures to win and succeed financially are increasing and job security is fleeting,” said McMillen, who sees the industry getting more volatile.

That’s especially true at the highest levels where ADs are tethered to the football coach they hired. Currie was run out of Rocky Top for trying to hire Greg Schiano; Long was dismissed as the football program under Bret Bielema struggled.

“The job has changed dramatically in the face of conference expansion, finding and managing the right student athletes and coaches, and the pressure to win and generate revenue,” said IMG College President Tim Pernetti, the former Rutgers AD. “It’s by far the hardest job in college sports and it’s never before been subject to more scrutiny.”

While these four issues stood out, they’re not the only ones that merit watching. The Learfield-IMG College merger should close in the first quarter of the year, sports betting could be legalized and declining attendance has schools trying to create a more enticing fan experience, all of which set up 2018 to be a pivotal year in college sports.

“There are a number of things at work in 2018 that we’ll look back on and say, ‘That was a very, very decisive year in intercollegiate athletics,’” Long said.

Staff writer Liz Mullen and Research Director David Broughton contributed to this report.