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The Dismal Economics of Big-Time College Sports

- May 21, 2008

Every year the NCAA publishes a financial analysis of intercollegiate sports programs. Every year there is much bad news. The newly released NCAA report contains even more bad news than usual. Unprecedentedly bad news, even.

Is this because 2006 (the year on which the new report focuses) was an unprecedentedly bad year for intercollegiate sports? Not really. What happened is that this time around the NCAA tightened up on the reporting criteria and definitions. For example, in reporting gross revenues, many programs had previously thrown in what they received from within the institution (aka “internal revenue”), in addition to the revenues they received from outside via ticket sales, TV contracts, etc. (aka “generated revenue”). Thus, if you were losing big bucks and the school had to bail you out, the bail-out funds would show up simply as revenue. Via such accounting legerdemain, many schools looked like they were balancing their books or even turning a profit, when in fact they were living on subventions from central administration.

Now, though, athletic programs have to distinguish between internal and generated revenue. And guess what? Yup: The dismal economics of big-time college sports just got even more dismal, which is very dismal indeed.

Here are the core findings of the report, as summarized in Inside Higher Ed:

bq. Sports program budgets are growing quickly, as are institutional subsidies. For the 119 universities that compete in the NCAA’s top competitive level, the Football Bowl Subdivision (formerly known as Division I-A), total revenues grew by 25.5 percent from 2004 to 2006, slightly faster than the 23 percent growth in expenses. But in the more important category — generated revenues, those actually earned by athletics departments, excluding other institutional support — rose by only 16 percent over the two-year period.

bq. In the 2006 fiscal year, the latest of three examined in the study, only 19 of the 119 Football Bowl Subdivision institutions had positive net revenue, while for the rest, expenses exceeded generated revenues. (For the entire three-year period, only 16 athletics department turned a net profit.)

bq. The median net loss for all 119 I-A programs in 2006 was $7.265 million. But for the 16 programs that generated more than they spent, the average new revenue was $4.3 million, while the average loss of those with negative net revenue was $8.9 million. That $13 million difference suggests a widening gap between the “haves” and “have-nots” in big-time college football, as the equivalent gap in 2004 was about $11.3 million.

At this point, somebody’s going to pipe up and say, “Okay, but sports programs generate big bucks for their school because of all those alums who relate to the it by following their teams.” That sounds good, but I’ve been following (and occasionally contributing to) the research literature on such issues for many years, and there’s just not much evidence that it’s true and there’s lots of evidence that it’s not. Sports teams — almost invariably men’s teams, and almost invariably football and basketball teams, and especially the ones with the best records year in and year out — do generate big bucks, but the main recipient of those bucks isn’t the school’s general operating fund or the French club or (sigh) the political science department. Rather, it’s the intercollegiate athletics program itself. Which, in a perverse sort of way, is sort of okay, because it saves the school the trouble of sending even more bail-out money over to the athletics folks.

For the full Inside Higher Ed story, click here. If you’re really interested, you can link to the full NCAA report via that story.