ED 323 823

AUTHORTITLE

INSTITUTIONSPONS AGENCY

PUB DATENOTEAVULABLE FROM

PUB TYPEJOURNAL CLT

EDRS PRICEDESCRIPTORS

IDENTIFIERS

ABSTRACT

DOCUMENT RESUME

HE 023 477

Thelin, John R.; Wiseman, Lawrence L.Fiscal Fitness? The Peculiar Economics of .Intercollegiate Athletics.Forum for College Financing.Office of Educational Research and Improvement (EQ),Washington, DC.Feb 9016p.Teachers College, Columbia University, Box 38, 525West 120th Street, New York, NY 10027.Collected Works - Serials (022)Capital Ideas; v4 n7 Feb 1990

MF01/PC01 Plus Postage.Attendance; Budgets; *College Athletics; Costs;Financial Needs; *Financial Problems; *FiscalCapacity; Higher Education; Income; Private FinancialSupport; Programing (Broadcast)*National Collegiate Athletic Association

An examination is made into the eroding financialhealth of intercollegiate athletic programs, especially at theDivision I level of the National Collegiate Athletic Association(NCAA), that was determined to have come about as a product ofstandard practices and policies. The question posed is, if Division I:-0)lege sports have become a large commercial enterprise, what theniE the condition of these programs as measured '11, standards ofbusiness practice? It is found that university varsity programs,instead of being net revenue producers, were net revenue users andnot self-supporting. Traditional revenue sources (ticket sales,television, donations) are chronically short in generating enoughincome to support costly intercollegiate programs. During periods ofrising costs, Division I athletic directors want to increase theserevenues instead of decieasing costs; since revenues are alreadydifficult to increase appreciably, there is quickly created arevenue/cost gap. These same problems found in Division I-AA are alsogrowing in Division I-A programs. The most popular method of closingthe revenue/cost gap is to increase donor solicitation. A need foruniversities to rethink the incorporated "athletic associations"within their institutions is due. (GLR)

Reproductions supplied by EDRS are the best that can be madefrom the original document.

MIC1

GO

VDC9

CYZ

4:W

NN1

t(oLuz.

Vol. 4, No. 4.Feb., 1990

CAPITAL IDEASa publication of the

FORUM FOR COLLEGE FINANCING

"PERMISSION TO REPRODUCE THISMATERIAL HAS BEEN GRANTED BY

TO THE EDUCATIONAL RESOURCESINFORMATION CENTER (ERIC)"

U II DEPARTMENT OF EDUCATIONMc. of Educatonal Reemmt end improvement

EDUC ONAL RESOURCES INFORMATIONCENTER (ERIC)

his document hes been reproduced asreceived trom the person or aganaelmnoncenstmo a

0 Mono, changes have been made to improvereproduCtion outday

Points ot v Am co opmions Stated in this docu-ment 6o not neCeStianly represent officialOECD position or policy

A Project ofthe National

Center forPostsecondary

Governanceand Finance

FISCAL FITNESS? THE PECULIAR ECONOMICSOF INTERCOLLEGIATE ATHLETICS

By John R. Than and Lawrence L. WisemanScandal and shame are themes that

have dominated popular press coverageof intercollegiate athletics in recent years,with exposés of altered transcripts, slushfunds, and recruiting abuses. This sensa-tionalism leads one to assume that theseepisodes are exceptions in an essentiallyhealthy system; i.e., that a university can"solve" its athletic problems and restoreproper balance by thing an errant coach orby expelling student-athletes who violaterules. One unintended consequence ofdramatic media coverage is that it masksattention to a less-spectacular yet a morefundamental problem: intercollegiate ath-letic programs, especially at the Division Ilevel of the National Collegiate AthleticAssociation (NCAA), show signs of pre-carious fiscal fitness.

Most troubling is that this eroding finan-cial health has not been a result of illegarbehavior, but 'Is a product of standardpractices and poficies. The peculiar eco-nomics of intercollegiate athletic programsare symptomatic of weak financial con-trols that have only marginal connectionwith academic accountability and soundeducational policy.

What has caused this situation? Onepredictable answer is the complaint that

college sports have become a "business,"characterized by "commercialism" and"professionalism," and indelibly linked toscandals and excesses. Our approach isdifferent. We start with a more straightfor-ward, less normative question: If univer-sity presidents and trustees accept thatDivision I college sports programs are abig business, what is the condition of theseprograms as measured by standards ofbusiness practice?

We rejected moral outrage as a start-ing point for critical analysis of the eco-nomics and finances of college sponsmainly because no one denies that Divi-sion I college sports have becorn i largecommercial enterprise. For example, in1986 the athletic director at Florida StateUniversity commented, "I'm not afraid tosay it: It's a business." During a 1975congressional hearing the athletic directorat the University of Maryland told.a sub-committee that his department opposedgiving equal opportunity to women's var-sity sports because doing so would be"poor business and poor management."He also said the university was "in compe-tition with professional sports and otherentertainment for the consumers money"and "did not want a lesser product to

2

Division I College SportsAn Athletic DirectorsView: "rm not afraid tosay that irs a business."

Deficit-Wen college athleticprograms clash wftn thepopular knage of lucrative

i television contracts andsell-out crowds at largestadiums

. one finds within DMsion Iranks a clear knbeiance be-tween big winners and biglosers In what an Ac.E. reportcaltd, The Money Game."

market Similarly, a football coach atanother large state university explained toreporters that a losing season and badpubficity hurl his program because, "We're

in the entertainment business and areel .encknfikla fps fha uuhirne nf fnne tajhn n-inu

get upset with our performance

THE BUSINESS OF UNIVERSITY ATHLETICS:

NATIONAL SURVEY DATA

Our first concern about the businesspractices of major college sports programsis that they are becoming a world turnedupside down Varsity programs that aresupposed to be net revenue producersare often net revenue consumers. Astorm warning about intercollegiate ath-letic finances comes from a number of na-tionwide institutional surveys, including 1)the periodic reports Mitchell Raiborn hasprepared for the NCAA since 1974, 2) a1988 survey of intercollegiate athleticfunding conducted by the State HigherEducation Executive Officers, and 3) a1986 survey by the American Associationof State Colleges and Universities(AASCU) on the revenues and expensesof athletic programs The various studiesagree on one trend as a whole and withinprogram categories, Intercollegiate ath-letic programs are u nable to support them-selves, most run deficits. To illustrate thefinancial condition of intercollegiate ath-letics, we have included Iwo representa-tive annual budgets The first summarizesthe $15 million budget of a typical DivisionI-A (See box on facing page.) Thesecond represents the $5 million budgetof a representative Division I-AA program(See box on the following page.)

Certainly the finding that athletic pro-grams are usually not self-supporting isnot surprising at wileges that designatetheir activities as a part of the educationalprogram and make no claim that varsitysports should be self-supporting via gatereceipts, or broadcast revenues. It doeswarrant concern for NCAA Division I insti-tutions, at which, by NCAA definition, an"athletics program strives for regional andnational exn9lIence and prominence andthe program serves both Ethel collegecommunity and Ethel general public Auniversity that opts for Division I standing"may award financial aid based on [a

2

student's] athletic ability," irrespective offinancial need Above all, the Division Iinstitution tries "to finance its athletic pro-grams with revenues of the program a-setf 114 'ithin this group of schools thereare signs of severe financial strain, not tomention outright failure For example, in1986 the AASCU survey indicated thatamong 67 Division I institutions, only ninegenerated surplus revenue; 31 programsran a deficit and 25 were "self-supporting"(but, as we shall discuss later, in manycases this was dependent on monies frommandatory student fees)

One fascinating, unexpected findingfrom the AASCU report is that despite theDivision I instituhons self imposed em-phasis on gpalviktipg revenues via ticketsales, televitiat4m1 donations, thesesources are OhltieicatOadequate Ticketsales accodlakti04115 percent of all pro-gram revenult letsvision and radio, 1

percent, and '4ahd other contnbu-bons, 13 percefe

Deficit ridden college athletic programsclash with the popular image of lucrativetelevision contracts and sellout crowds atlarge stadiums In November 1989, forexample, the NCAA and CBS announceda $1 billion contract for exclusive broad-cast rights to seven years of NCAA bas-ketball games. How does one reconcilesuch affluence with so many institutionalprogram deficits? On closer inspectionone finds within Division I ranks a clearimbalance between big winners and b-losers in what an American Council onEducation report called "The MoneyGame To understand the paradoxicalcoexistence of college sports affluencewith program deficits, one needs to disag-gregate nationwide survey data An im-portant, partial answer is the ois'inctionbetween Division I-A and I-AA institutionsamong the allegedly self-supporting andrevenue-producing intercollegiate athlet-ics programs

11111111=11114.11111111

T

This 1988 and 89 operating budget of $15 million is for i large flegahip Me univer-sity that fields nationakaliber teams kw WWI, basketball, and le other sports formen and women.

CILMIALIMAIII AP thUFWEif "WIC MI V IOWA' VIM ILITAWArlkiraiUSW AU4S144.1"

FootballTicket salesSeason ticket surchangeTV bowl game rebatesLocal Broadcast RightsOther SCUMS

Total Foetball

BasketballTicket saeTournaments andpreseason gamesLocal broadcast rightsConferenceCOw sources

Total Basketball

Oda spatsSpats capslamest IncasGlia and gallsOthx IncomePrior yar balmStudent activity teem

IMALIICOME

footballGrants-in-aidStales other

Total Football

BasketballGrants-In-AidSalaries other

Total Bookstall

Other spasOrents-imak,Slates other

Total Oar Sports

CaplaI Impoovements equipmentAcademic wren) loPPOltAdministrative general evangel

TELtoU1228101111

WO*

$5,200,000300,000800,000310,000390,000

$7.00,N000

$2,100,00C

400,000950,000250,000300,000

glialM11111

$950,000 _

4,350,000

150,0002,050,000

900,0001,850,000

1

op--i

SAMPLE BUDGET FOR Di VisioN ii.AA INTERCOLLEGIATE ATHLETIcs

This 1988 and 89 operating budget of $5 million is for a medium-size university(erwollment about 10,000) that Is Divta ion I-AA in football and I-A in basketball, andfields teams in an additional 20 spats for men and women.

imams

Football _ $600,000Basketball 200,000Ms end mils 850,000TV and broadcasts 60,000Rearm aims ackenleements 120,000Other sources 170,000Student activity Ws 3,000,000

=ALIO= $5,000,000

DORMFootball

Grants-in-aid $ 600,000Salaries 340,000Other 610,000

Total Football $ 1,550,000

BasketballGrants-in-aid $150,000Salaries 140,000Other 210,000

Total BaaketbaN $ 500,000

Other sportsGrants-In aid $450,000Salaries 380.000Other 420,000

Total Other Sports $1,250.000Administrative and general expenses $1 ,700.000

TOTAL EvENSE4 $5,000,000

asassemEmor 4

Within Division I, the NCAA distin-guishes two categories Of institutionalprograms. Division I-A represents "MountOlympus" such conferences as the BigTen, the Big Eight, the Southeastern, thePacific Ten, the Southwestern, and theAtlantic Coast, plus such prominent inde-pendent institutions as Notre Dame, PennState, Syracuse, and Miami Further-more, these conferences overwhelminglydominate the national television networkbroadcasts. Often overlooked is thatDivis:on I also includes a large number ofI-AA programs which-subcnbe to the reve-nue-producing ethos and are allowed toprovide athletic grants-in-aid, yet do nothave a football stadiums with 30,000 seatsor average home football attendance of17,000

DIVISION I-AA PROGRAMS: LIFEWITHOUT TELEVISION

A closer look at Divisio AA is impor-tant for understanding the increasingstrains and dilemmas for colleges anduniversities that wish to offer highly com-petitive varsity sports The Yankee Con-ference provides good examples of Divi-sion I-AA teams: rr est are flagship stateuniversities (e.g., the Universities of M as-sachusetts , ConnectiLut, Delaware, Maine,New Hampshire, Vermont, and RhodeIsland) along wiih two private universities(Richmond and Villanova) A good foot-ball game attendance is between 10,000and 15,000 but attendance sometimesgoes as high as 25,000.

Without television broadcast revenuesand with such relatively modest crowds(compared with those attending Division I-A games), the Division I-AA teams face anincreasingly difficult, almost impossible,task in trying to be self-supporting. Forexample, ;:i one survey 15 prominentDivision I-M football programs reportedsubstantial deficits in 1987 (a 16th institu-tion did not respond to the survey). AmongVirginia's state institutions, the Division I-AA football programs at James MadisonUniversity, William and Mary, and VirginiaMilitary Institute displayed similar patternsover the 1985-87 football seasons: eachprogram showed an annual deficit of about$700,000 and a three-year deficit of about$2 million. Such data offer two particularcauses for alarm: first, since these three

programs are considered quite successfuland have relatively high football ydmeattendance for Division I AA, it is reason-able to project greater deficits for manyother Division I-AA programs. Second, thedeficits are for these institutions' footballprograms only, not for the so-called minoror nonrevenue varsity sports. Division I-AA football programs are hard-pressed toreduce expenses because they are corn-

rtted to athletic grants-in-aid and mustcontinually spend on marketing and pub-licity to promote ticket sales. At the sametime, they cannot tap into the bonanza of1980s college sports revenues becauseseldom, if ever, w°I they command broad-cast television coverage by a major net-work or appearance in a major bowl gameTo use the argot of bookmakers and loansharks, Division I-AA programs have andwill continue to have a "case of the shorts

TROUBLE IN PARADISE:FINANCIAL STRAINS IN

DIVISION I-A

All this might be acceptable if deficits(whether for football or for a total varsitysports program) were confined to theDivision I-AA teams. Unfortunately, thesame problems can be found percolatingupward; i.e., within each major confer-ence of DMs;on I-A, one can identify "poorcousins" whose big-time varsity programsare losing money. For example, in No-vember 1989 within the Big Ten Confer-ence, the University of Wisconsin reporteda substantial deficit ($1.9 million, accord-ing to one press report) for its intercolle-giate athletic program. The anatomy ofathletics budgets from selected majoruniversities suggests how such problemsevolve and persist.

Financial problems are neither new norunexpected. Data from a decade ago forthe University of Missouri at Columbiaillustrate characteristic strains. Missouri's1979-80 intercollegiate athletic budget wasrelatively large ($6.9 million). Althoughnot as successful in winning or in gatereceipts as, for example, the University ofOklahoma or the University of SouthernCalifornia, "Mizzou" is significant becauseit is admittedly 'big time," it belongs to theformidable Big Eight Confetence, it oftenis among the top 10 nationally in terms offootball game attendance, it has an in-

5

6

To use the argot of book-makers and loan sharks,

DWIsion MA programshave and will continue to

have a "case of theshorts."

Unfortunately, the sameproblems facing Division I-AA programs can be found

mock:ling upward toMvisloti I-A.

.11111I

For all these alvantages,the progtams at manyDivision I-A universitiesIllustrate how the allegedrevenue-producing sportscan become revPnue con-suming.

creasingly successful basketball program,n..I it hne th .. marketing levernge of be:ivthe only Division I football team in its stateThe university expected football to fundabout 80 percent oi the entire varsity sportspmginm a prenlise that led it to exp3ndthe stadium's seating capacity from 55,000to 65,000 A decade ago the Missouri foot-ball program brought in $5.7 million; butoperating the i.,rogram cost $3.2 million,leaving a net revenue of $2.5 million. In

subsequent years that surplus hasdwindled because of rising costs. A causefor concern is that Missouri represents asuccessful program in terms of atten-dance and gate receipts; i.e., it is operat-ing at about optimal level. Its athleticofficials believe they ought not raise ticketprices much beyond annual inflation. If

home football games were not selling out,the athletic department could at least plan.on more aggressive marketing to increaseticket sales. The university does gainsome athletic income via Big Eight Conter-ence revenue snaring; however, since thefootball team usually finishes in the bot-tom half of the conference, it :ias fewopportunities to be on national televisionor in national bowl games. The best optionfor raising additional income is throughbooster clubs and alumni donations.

How do seemingly strong athletic pro-grams go from being merely financiallystretched to being overextended? Theexample of the University of Marylandillustrates this problem. Since 1985Maryland's athletic department has beenstruggling to maintain national-caliber playfor rts nonrevenue varsity men's sportsalong with its primary commitment to foot-ball and to men's and women's basketballReduction in resources and in grants-in-aid are cited as reasons for declining won-loss records in track, lacrosse, wrestling,baseball, and Swimming The most inter-esting data, however, are those showingthat the sports which are expected tcproduce revenues have a long record offalling short. From 1978 to 1981 footballlost $300,0004400,000 each year. By1987 the athletic department had a deficitof over $1 million; that shorlfall eventuallyled the athletic director to fire 17 employ-ees in the ticket office, marketing, publicrelations, training, and maintenance.

Why did Maryland's athletic depart-ment fail to balance rts 1988 budget of

'ammimmenimm 6 wr

$8 3 million? First, football gate receiptsfell tA00,^0A 1,°!Ow proje,r"PrIs qn,-,Inft,football lost an anticipated $350,000 whenthe Cherry Bowl could not pay its "guaran-teed" money after Maryland appeared inthat 1985 postseason game Third, men' ivarsity basketball showed a deficit of$150,000. Finally, the athletic departmenthad to honor substantial salary obligationsto staff who resigned or who riere reas-signed. An athletic director who resignedwas paid $77,000 for one year as a specialconsuttant. One former basketball coachwas guaranteed $136,000 per year whenhe was reassigned to be assistant athleticdirector. Department expenses increasedonce again Ly summer 1989, when Mary-land carried yet another former men'sbasketball coach on rts payroll (at an esti-mated $80,000 annual salary) along withthe base annual salary of $100,000 for thenewly hired basketball coach. By 1989 theUniversity of Marylai Id's athletic directorprojected an annual deficit of about$200,000 and was proposing to ask thestate legislature to consider a direct sub-sidy to the school's intercollegiate athlet-ics program.

The cases of the universities ofsouri and Maryland are disconcertir gbecause both represent large public flag-ship universities with teams that enjoystrong support from administration andalumni, and that h.ve the blessings orgood location, affiliation with prestigiousconferences, and excellent media cover-age. For all these advantages, they illus-trate how the alleged revenue-producingsports can become revenue-consumingAmong the 64 members of the high-pow-ered College Football Association, oneestimate is that about 40% have varsitysports programs that run a deficit.

Perhaps the most surprising news aboutthe finances of intercollegiate athleticscame in September 1988 when the Uni-versity of Michigan announced projectedbudget deficits increasing from $2.5 mil-lion for the 1989 fiscal year to $5.2 millionby 1993. !ronically, Michigan usually iscited as a model of a large, well-run pro-gram. The projections appear to be Closeto the mark. A summary published in theJanuary 8, 1990, issue of U.S. News andWodd Report shows an annual budget of$21.1 million in expenses and $18 5 mil-lion in revenues The athletic department

has teams in 21 sports, a staff of 130 full-time employees (inokiding a travel agent,mechanics carpenters, and engineers),and several hundred part-time employeeswho work at sporting events. In 1987 itsfacilitieg-12 buildings, including a sta-dium that seats over 100,000 spectato rswere valued at over $200 million. TheUniversity of Michigan fills its stadium athome football games In addition, Michi-gan appears on national television twc orthree times each football season, rep-larly goes to a major football bowl, sells outits basketball games, and enjoys substan-tial revenues from its NCAA champion-ship men's basketball team. If this estab-lished program projects a deficit, the fi-nancial outlook for intercollegiate athleticprograms at other universities is bleak.

WHY ARE COLLEGE SPORTSEXPENSES SG HIGH?

In projecting a departmental deficit , theassistant athletic director at the Universityof Michigan noted t hat expenses are likelyto increase by almost 25%, while reve-nues are expected to increase by only15% Over the next five years." This is duepartly to unavoidable increases in the costsof liability insurance, administative com-pliance, data reporting, and other operat-ing matters. Another partial explanation isthat athletic departments indulge in ex-pensivecustoms. Conspicuous consump-tion for student-athletes often is standardpractice as suggested by the constructionof special dormitories for them. Someprecedent for current spending comes f romthe University eif Pittsburgh, whose alumnidonated over $181,000 in 1974 for refur-bishing football 'ocker rooms. The headcoach commented, "Carpeting floorsdoesn't win ball games for you, but it suremakes things more comfortable." Ayounger generation of coaches has heededhis message: in November 1989 the newbasketball coach at the University ofKentucky directed an intense fund-raisingcampaign that provided $1 million for newlockers and furnishings in the practicefacility.

College coaches are not especiallyprecise in their ability ic select talentedstudent-athletes. Division I-A footballsquads are P' lowed to have 95 athletes onfull grant-in lid sufficient to subsidize more

than four players at each of the 22 posi-tions in a complete starting fineup (profassional teams in the National FootballLeague, by cumparison, limit squad sizeto 48). Reliance on a high number ofscholarship players often represents acoach's heoge against several problems:high attrition due to scholastic ineligibility,failure of athletes to play to their predictedpotential, and "stockpiling" athletes as astrategy to prevent opposing teams fromhaving access to player talent. Thesepractices are both expensive and waste-ful.

Attempts at frugality are uneven. Ath-letic directors and football coaches havebeen reluctant to endorse compacts thatwould promote savings in athletic grants-in-aid, leading to what Chancellor IraHeyman of the University of Califernia,Berkeley, has called the "athletics armsrace." Proposals to reduce the number ofpermissible grants-in-aid have been de-feated at recent NCAA annual meetingsAnd, of course, expenses are kept highbecause athletic grants-in-aid are no:basedona student-athlete'sfinancial need.

Another expensive practice is that ofpaying high salaries for selected coachesAt several major universities the headfootball or basketball coaches make Over$100,000 in annual base salary some-times more than the university presidentearns. (Contracts for these highly suc-cessful coaches also often include sub-stantial income from perks, such as localtelevision shows that can boost total an-nual remuneration, to the $200,000 to$700,000 range ) And, as already shownin discussing the University of Marylandbudget, big-time athletic departments fol-low the custom of `buying up" muttiyearcontracts of a fired coach. The Universityof North Carolina at Chapel Hill, to citeanother example, which is regarded ashaving a well-run, clean sports program,reportedly "bought up" a fired footballcoach's contract for over $800,000.

How Do COLLEGE SPORTSPROGRAMS REDUCE EXPENSES?

During a period of rising costs andinflation, athletic directors for Division I

intercollegiate programs tend to favorstrategies to increase revenues rathe r thanto reduce expenses. When cost cutting

7 limmitimimm8

One coach's view on pro-gram costs: "Carpeting

Boors Wesel? win ballgames for you, but It suremakes things more com-

fortable."

During a period of esingcosts, athletic directors for

Division I interco1'4lateprograms tend to favor

strategies to increaserevenues rather than to

reduce expenses.

What has been more curi-ous (and underreported) b;the disappearance frommany malor Weis/des ofsuch tudltionally estab-lished sports as basete4track, wrestling, swinming,and tennis.

! Athletic fund-raising canimbalance universities'prior1ties set by academicleadership.

does take place, it usually hits least andlast in the most expensive Sports, footballand basketball. The reduction approachhas been either to eliminate nonrevenue(minor) varsity sports or to adopt a policyof liering." According to the latter policy,the department targets selocted sports forreduced funding, limited facilities, fewerathletic scholarships, and !coca! schedules.As one would expect, the usual choices forelimination or drastic reduction are fenc-ing, riflery, and lacrosse. What has beermore curious (and underrepoffed) in thepast decade is the disappearance frommany major universities of traditionallyestablished sports e.g., baseball, track,wrestling, swimming, and tennis. About adecade ago the University of Coloradoeliminated varsity wrestling, baseball, andswimming. The University of Washingtoneliminated its nationally ranked teams inwrestling and gymnastics. Although var-sity wrestling gained national stature atseveral institutions in the SoutheasternConference in the 1970s, the sport hasbeen dropped. Indeed, a 1982 studyindicated that the athletic directors of mostSoutheastern Conference institutions fa-vored abolishing scholarships in nonreve-nue sports and diverting more funds andefforts to football and basketball.

This strategy strikes us as foul play,because it tends to violate an implicit jus-tification of big-time sports; i.e., a univer-sity endorses big-time football and, per-haps, basketball because these sportsgenerate revenues to subsidize the minorsports. Now, even when alleged revenu e-producing sports fail to provide thic ex-pected surplus (or run a deficit), the pen-alty of resource reduction falls on thevictim (minor sports), not the offender. Aadditional irony is that eliminating minorsports does relatively little to reduce defi-cits, because nonreve nue sports often al-ready are lean, relying on part-timecoaches, local travel schedules, minus-cule recruiting expenses, and few grants-in-aid

INCREASING REVENUES:PHILANTHROPY AND

BooSTERISM

The most popular solution for closingthe gap between flat or saturated reve-nues fromticket sales and noing expenses

is to increase donor solicitation Evenwithin many major conferences, privatecontributions stll surpass televisior (eve-nues as the pit lr of athlatic resourcesThe usual mechmism for fund-raising isthrough booster clubs ("athletic-educa-tional foundatiJ ns"), which are part of asemiautonomoUs intercollegiate athleticassociation. Investment in a sophisticatedathletic fund raising program often is jus-tified by one or more of the followingcontentions:winning teams in football andbasketball increase alumni giving to theentire institution; championship teamsenhance the total reputation of a campus;and donations to intercollegiate athleticshave a mitiplier effect for all institutionalgiving. 1:1 recent years a number of econo-mists nnd social scientists have attemptedto systematically test these assertionsThe bulk of the research literature indi-cates at best equivocal support for and, of-ten, rejection of such claims. For example,political scientists Lee Sigelman andRobert Carter concluded in their classic1979 study, "Win One for the Giver," that"there is simply no reiationship betweensuccess or failure in football and basket-ball and increases and decreases in alumnigiving." They also bring our attention tothe limits of logic in university planningdespite their research findings, theydoubted athletic departments would altertheir practices, because "so many peoplebelieve (the above-stated) relationshipexists."

More problematic is how intercollegiateathletic fund-raising by a semiautonomousassociation or foundation meshes withtotal university priorities, planning, anddevelopment. Despite athletic directors'aontention that their programs are inte-grated into institutional budgeting anddecisions, intriguing data suggest athleticfund-raising can imbalance university pri-orities set by the academic leadershipFor example, at the same time the Univer-sity of North Carolina's Athletic Educa-tional Foundation successfully raised $22million in two years to build a new basket-ball arena, faculty salaries were frozenbecause of low state tax revenues andrecession Tha chancellor responded tofaculty complaints about misplaced priori-ties by insisting, "The center was not apriority of the university. It was a priority ofthe Educational Foundation

8 IV

POLICY IMPLICATIONS:RETHINKING CONCEPTS AND STRUCTURES

ATHLETIC - EDUCATIONALFOUNDATIONS

Perhaps the most critical measure isfor universdies (especially state institu-tions) to rethink their justification for creat-ing separately incorporated "athletic as-sociations" within their institutional struc-ture. In the 1940s and "1950s the originalintent was to have these associationsclearly separated from educational budg-ets; i.e., they allowed universities to createa clean, clear entity that would make var-sity sports truly revenue producing andserf-supporting. This distinction was madefor two related yet very different reavons.First, in the wake of athletic scandals andcharges of financial abuse, a number ofstate legislatures wanted varsity athleticprograms clearly separated from the aca-demic and educational programs by acordon sanItalre, to build assurance thatstate Popropriations and tuition monieswould not go toward intercollegiate athlet-ics. Second, creation of the distinct ath-letic association was intended to providethe useful mechanism for raising moneyvia contributions and ticket sales. In-

creasingly, the data suggest, athleticassociations are having difficulty fulfillingeither charge. Nowhere is this more evi-dent than in the substantial, growing reli-ance on institutional support throughmandatory student fees as a source of"revenue" for supposedly-producing andself-supporting athletic programs. TheAASCU survey illustrated two dominanttrends among Di iision I athletic programs:for one large cluster of pnograms, studentfees accounted for 51% of revenues; for asecond cluster, an average of about 38%of varsity sports revenues came from stateand institutional sources. This distributionobviously is skewed among the Division I-AA institutions but the point still holds to alesser extent in Division I-A. For example,the University of Kentucky AthleticAssociation's 1988-89 projected revenuesof $14.8 million included $450,000 fromstudent activity fees.

Tracing where money comes from andwhere it goes in varsity sports is problem-atic. For example, our own earlier refer-

ence to newspaper accounts about finan-cial strain at Division I-A institutions raisesmore questions than it answers. Reportsof a deficit for varsity sports at the Univer-sity of Wisconsin are disheartening, butnot wholly surprising. In madced contrast,the University of Michigan's projecteddeficit in intercollegiate athletics strikes usas puzzling; i.e., at first glance it seems sotroubling and unlikely that it calls for moredetailed data and explanation from inter-nal records not available to us. Are therecapital projects or construction that dra-matically increase the deficits? Or is theprogram truly operating in the red? Onecurious noridevelopment is that we findlittle evidence of follow-up investigath,ereporting on this signif 'cant item in thenational press

Ir general, data on college sports fi-nances are uneven and often unreliableNational surveys often have low responserates. Perics and subsidies that benefdintercollegiate athletic programs tend tobe understated, as they are marbledthroughout the university budget in suchiorms as presidential discretionary fundscr relatively low charges for using univer-sity facilities. Financial reports from ath-le,ic departments along with completereports from affiliated booster clubs andathleilc. foundations frequently are notreadily available. Given the limits ofcomparable nationwide data, the f inancialinformation is most useful and compre-hensive when distilled to the campus levelEconomists Arthur Padilla and JaniceBoucher, for example, suggest that the$10 and 15 million annual operating budgetof a Division I-A athletic program is com-parable to the budget of a large academicunit, e .g , medium-size professional schoolof a university.

SUBSIDIES STRATEGIES

The fragility of "serf-supporting" inter-collegiate athletic programs is evident inthe growing interest in subsidy strategies.The state of Oregon, for example, recentlyimplemented a iottery (based on choosingwinners of professional football and bas-ketball games) to provide several million

9

Tracing whem moneycanes from and where itgoes In varsity spats ls

pmblematt . . . In general,data on college spons

finances are uneven andoften unreliable.

Coaches and athleticadministrators push thetheme of college Sp Offs as abusiness to retain re-sources to generate futurefunds or build winningteams. But when C011-fronted with deficits, theydepict intercollegiateathletics as an educationalactivity.

dollars to the intercollegiate athletic pro-grams at the University of Oreoon. OreoonState University, and Portland State Uni-versity This initiative may well representacknowledgment at the lev3lof public andinstitutional policy that ticket sales, bowlrevenues, television receipts, and directcontributions are no longer adequate tosupport big-time intercollegiate sports.

An interesting twist in budget discus-sions is the shifting stance of athleticdepartments Coaches and athletic ad-ministrators push the theme of collegesports as a business to retain resources orto acquire resources to generate futurefunds or build winning teams But whenconfronted with deficits, they depict inter-collegiate athletics as an educatioialactivrty This point comes through in therecent took edited by Richard Lapchickand John Slaughter, The Rules of theGame, in wh'ch the football coach at BostonCoilege and the athletic d:rector at South-ern Methodist Uwe! sity urge coaehesand athletic directors to be and be seen aseducators This proposal viould warrantmore support if , for example, waches andathletic directors I lad to operate under thesame conditions, salaries, restraints, andbuogetinc processes as their fellow "edu-cators" in modern languages, chemistry,social work, and so forth It loses someappeal, however, when one notes thatmost Division I programs are not con-nected to the educational structures of theinstitution and are not a defined part of thegeneral student body experience

A CRITIQUE OF iHE REFORMPROPOSAL FOR

"PROFESSIONALISM"

One recurrent reform proposal de-serves special attention From time totime one hears that big-time college sportsought to be allowed to be truly "profes-siwal." The logic is that this would elimi-nate the hypocrisy of 'shamateurism,"would allow varsity athletes to receivesalaries that are a fair share of the televi-sion and bowl games bonanza, and wouldacknowledge the true scooe and charac-ter of Division I-A sports And deregula-tion would enable established big-timeprograms to flourish

Despite these merds, however, we think

such a reform is unlikely for two relatedreasons first itwculd be inancially disas-trous for all but a handful of universityathletic programs Second, it would expose a central weakness of Division I-Acollege sports, sell-depiction as a buseness The 64 inst dutions that form the eliteCollege Football Association would be thelikely candidates for .an intercollegiateprofessional football conference But therich-get-richer "syndrome" would acceler-ate making d unlikely that the weakermembers could survive The reselt proba-bly would be about 40 major football pro-grams. Even this would be unattractil,e,for rf all play were corf ined within the ranksof 40, some traditionally winning teamswould by definition become losers It

would create a "devil-take-the-hindmost"situation, in which each season a growingnumber of teams would lose both moregames and more fans support It illus-trates the attractiveness of what PaulLawrence has called the NCAA "cartel" forpropping up college sports as an "indus-try Some other concerns are as folbws

Except for a relative minority of trulyexeeptional players, it is likely that stu-dent-athletes even in football and bas-ketball at major uni, ersities would ginoa glutted market and relatively littledemand for their services. To test thishypothesis, look at the low mart etvalue of football players who are cutfrom the National Football Leaguerosters So, enough an occasionalDoug Hut* or Patrick Ewing mightnegotiate i great contract, playerswho now receive a full grant-in-aid(roughly $12,000 to $15,000 per year)and wf-ie are the 90th member of avarsity squad would command little onthe open market

Professional teams are expensiveThe World Football League wentbankrupt Last year the New EnglandPatncts of the established NationalFootball League had difficulty meet-ing their payroll Professional teamowners usually have made their for-tunes elsewhere

A shift toward true professionalismand commercialism might force inter-collegiate programs to forfeit some

11) laussosmosnocimmars,1 1

privileges and subsidies they receiveunder cum; rei structures . A Division I-

A football coach is allowed 95 scholar-ship players; professional footballsquads are restricted to 48. The re-form proposal shows in dramatic reliefhow fragile even big-time collegeprograms Are.

It is time to stop thinking of intercolle-giate athletics as a business and to depictit instead, as a subsicheci activity. Auniversity may justify this subsidy on anynumber vf grounds but the general claimthat intercollegiate athletic programs arerevenue producing or self-supporting isdubious. Our main recommandatior. isthat universities at least accept that varsitysports are revenue c.onsuming. Havingacknowledged that fact, presider, s, pro-vosts, deans, and board members canstart to ask how and why investment inathletic programs is appropriate to thevision of total university operations andmission

Such self-study and redefinition can beuseful for reforming the governance andbudgeting of college sports. A college oruniversity ought place its intercollegiateathletic program appropriately within thecampus structure. For example, largeuniversities the, eadily define intercolle-giate athletics as a central activity in thelife of the institution might consider sayingso forthrightly as part of the mission state-

ment; this could lead to creation of a vicepresider,-; for ath!etie-s Vnrintirtric mightbe to place intercollegiate athletics underan appropriate existing vice presidencyColleges that define varsity sports as aneducatanal activity, for example, oughthave the athletic director report to the vicepresident for academic affairs. If a cam-pus values intercollegiate athletics as asource of institutional publicity, perhapsthe athletic department could be housedunder the office of the vice president foruniversity relations or development. Fi-

nally, a college that views sports as anintegral part of extracurricular student ilfewould have the athletic director rport tothe vice president for student affairs. Self-study and structural realignment havemultiple benefits: first, they counter thetendency to have intercollegiate athleticprograms be semiautonomous and rela-tive': uncontrolled; second, they bring col-lege sports into the regular budgetingprocess and consideration of prioritiesThis structural realignment and change inreporting system would bring intercolle-giate athletics into line with other camputunits. It would also make better use of theexpertise of vice presidPnts, t ius sparingthe involvement of the ur..versity presidentexcept in the most significant policy issuesregarding college spods It is by firstanalyzing th3 budget that we can promotethe proper balance of academics and ath-letics within the American campus

liohrt

Prt

77 1-1--.1

11

12

It Is time to stop thinidngof intercollegiate athletics as

a business ari to depict itinstead as a subsidized

activity.

A college or univw3ityought to place its intercol-

legiate athletic programappropriately within the

campus structures.

It is by first analyzing thebudget that we can promote

the proper balance of aca-demics and athletics within

the American campus

RECOMMENDED READINGS

Atwell, Robert H , Noce Grimes, and Donna Lopiano The Money Game: FinancingQgliegjaleAthietlas, Washington, D C American Council on Education, 1980

Hart-Nibbng, Nand, and Clement Cottingham The Political Economy _of Collegesports. Lexington, Massachusetts Lexington Books/D C Heath, 1986

Lapchick, Richard E , and John B Slaughter The Rules of the Game: Ethics InCollege Sports, New York American Counco on Education and MacmiAan, 1989

Lawrence, Paul Unsportsmanlike Conduct: The National Collegiate Athletic As-Sociatlon antitallualnisistQlleciefolkalla New York Praeger Press, 1987

Oliva, Jay What Tnistees Should Know about Intercollegiate Athiefica, Washing-ton, D C Association of Governing Boards, 1989

Padi!la, Arthur and Janice L Boucher "On the Econon.ics of Ink. rcollegate AthleticsPrograms Journal of Sport and Social Issues 11, nos 1 aii;) 2 (1937 and 88)61 and 73

Ralborn, Mitchell BeyenueLards.menses_gjjmorkilcisaaAthietic Programs..

AnalY-212--Q1-11nancial-nendLini-liela1/031425._12.21 ant; 19a5., Mission,Kansas National Collegiate Athletic Association, 1986

Sanott, Alv,n P , with Joanne M Schrof, "The Pnce cf Victory College Sports vsEducation" U.S. News and World Report (January 8, 1990) 52

Sicielman, Lee, and Robert Carter "Win One For the Giver Social Science Quarterly60 (19791 284-294

12

1 3

EVALUATION OF CAPITAL IDEAS

The Forum for College Financing has published Uaprtai ideal since June 1, 1986 Funding ior the puuhuation has

been provided by the Deparltrent of Education's Office of Educational Research and Improvement (OERI) Part of

our agreement with OEPI is to evaluate this publication We ask your assistance by filling oui this questionnaire

1 Pie selection of issues has been 2 The coverage of issues has been

1 2 3 4 5 1 2 3 4 5

Useful to my Not useful Too About Not detailed

institution detailed right enough

3 Toe Forum mails Capital !deli to presidents, chief financial officers, chairs of the trustee finance committee, aset of higher education policy makers, and others who have requested 1G be on the mailing hst How appro-

priate is this audience?

Presidents 0 1 2 3 4 5

Chief financial officers 0 1 2 3 4 5

Chair of trusteefinance committet-

1 2 'I 4 5

Policy makers 3 1 2 3 4 5

No opimon Very appropriate Not appropriate

4 Issue evaluation Are there any past issues wnich stand out in your mind as being particularly us''JI orinsightful or as not so useful or insightful

"New Tuition Savings Plans" 0 1 2 3 4 5

"E ,aiprnent Financing Ideas" 0 1 2 3 4 5

'Tax Reform and Higher Education" 0 1 2 3 4 5

"New Approaches to Debt Financing" 0 1 2 3 4 5

-Mortgage-Backed Student Loans" 0 1 c 3 4 5

"College Savings and Prepayment Plans 0 1 2 3 4 5

"The Economy ar,_t Higher Education" 0 1 2 3 4 5

'Rethinking Higher Education Capital Finance" 0 1 2 3 4 5

"Campus Facilities A Diminishing Endowment" 0 1 2 3 4 5

"Options for Technology Transfer" 0 1 2 3 4 5

The Economic Outlook and What it 0 1 2 3 4 5

Means for Colleges and Universities"'F,scal Fitness? The Peculiar Economics 0 1

n' q 4 5

of Intercollegr 4tnletics"No opinion Very useful

Suggestions for othor issues to Do covered and/or other comments

Not u:',eful

6 Your position is President/CEO Other academic officer Chief Financial Officer

Other Financial Officer Trustee Public Official

Other (indicate)

7 Institutional characteristics PublicColloge Two-Year EnrollmentPrivate College Four-Year Over 10,000

5,000-10,000Stale Agency Federal Agency 1,000-5,000

Commercial Othei (indicate) under 1,000

Organization

FoldOOOOO OOOOO

FoldOOOOO 4 OOOOOOO - , OOOOO ,

RETURN SURVEY TO:

Forum for College FinancingBox 38

eachers College, Columbia Univt,rsityNew York, New Yolc 10027

Staple 15

Non-prolit orgU S Postage

PaidNew York, NY

Permit No5381

FORUM'S ADVISORY BOARDSeventeen national authorities on higher education finance and managementserve as advisors on the Forum's Technical Advisory Board. They are

Mr. Alan Anders, V. President,J.P. Morgan Securities, Inc.

Mr. Jack C. Blanton, Vice Chancellor forAdministration, University of Kentucky

Mr. David C. Clapp, Partner, GoldmanSachs & Co.

Dr. Elaine El-Kawas, Vice President, PolicyAnalysis and Research, America* leCouncil on Education

Mr. Roben Forrester, PartnerCoopers & Lybrand

Mr. Edward Fox, President and ChiefExecutive Officer, Student Loan Mario'ing Association.

Mr Wham Goldstein, Partner, Dow, Lohnes& Albertson

Mr Caspa Harris, Executive VicePresident, National Association ofCollege and University Business Officers

Dr Peggy Heim, Senior Research Officer,Teachers Insurance Annuity Association

Dr. Richard T. Ingram, Executive Via)President, Assoaatior, J: GoverningBoards

Dr

Dr

Dr

Mr

Mr

Harvey Kaiser, Sereor.Syrarause University

William F. Mossy, ViceBusiness and Finance,University

Preaklent,

tPresident forStanford

Richard J. Meisinger, Jr., Associate ViceChancellor, Planning and Budget,University of Caldomia-Davis

James B. Morley, Jr., Senior VicePresident, Cornell University

Troy Murray, Managing Director,Cambridge Associates, Inc.

Dr William Nordhaus, Professor ofEconomics, Yale University

Dr. William Pickens, Caldornia StateUniversity

I= 1 '31 6

t

END

U.S. Dept. of Education

Office of EducationResearch and

Improvement (OERI)

ERIC

Date Filmed

March 21,1991

u.............A.:._ leesvrwasu.aw ...w