It’s not a secret that I think the numbers put out by college sports programs tend to obscure rather than illuminate the actual economics of the programs. I discussed some of the problems with Paula Lavigne of ESPN for her work on the University of Nebraska, Omaha. See http://sports.espn.go.com/espn/otl/news/story?id=6488960 . I also discussed these issues with Paula and her colleague, Tom Farrey, in a March 2011 story for Outside the Lines called “Selling the NCAA”:
The NCAA stopped counting allocated revenue in its 2004 report, according to NCAA spokesman Erik Christiansen. “College presidents wanted to know the real cost of intercollegiate athletics without any institutional support,” he wrote in an email to ESPN.
Schwarz considers that method to be misleading because any support that flows the other way — from the athletic department to the university — counts as an expense in the eyes of the NCAA. Some athletic departments, for instance, give money annually to their school. Further, Schwarz argued, any payments made by universities to athletic departments could be seen as marketing fees, given that sports teams provide enormous publicity for universities.
"The NCAA wants to say these programs are horribly expensive and there’s not enough money for them, but on other hand they admit they’re valuable to the campus," he said. "They provide advantages in fundraising and help with admissions by driving up the quality of applicants. Those benefits don’t show up on the balance sheet."
There is good academic research that some of these accounting choices are likely designed for the purpose of hiding the profits, as schools face the trade off between justifying their programs (so a bean counter doesn’t cancel sports) vs. justifying why they cannot share the profits (for obvious reasons). See Brian Goff & Dennis Wilson “Estimating the MRP of College Athletes from Professional Factor Shares” (March 2013 – presented at the Southern Economics Association) where they write:
… athletic ‘deficits’ reflect the accounting practices of universities or the flow of revenues back into expenses rather than the inability of revenues to meet costs…Within athletic departments it can flow into salaries for athletic staff (coaches, athletic directors, support personnel) or into facilities. Beyond the athletic department, it can appear in the general revenue fund as a transfer for grants-in-aid or be embedded in any number of intra-university transactions between athletic accounts and other accounts.
In any event, yesterday it was announced that one of these obscuring adjustments — the adjustment for student fees — may be changing:
Under one proposed change, student fees might no longer be treated only as subsidy, but also as revenue generated by the athletics department. That could make it easier for some athletics programs, especially those at schools in the power conferences, to be considered by the NCAA as self-sufficient at a time of tight university-wide finances and increasing costs for students. The standard for self-sufficiency is whether revenue generated by an athletics department at least equals its annual expenses.
Some numbers to show why this matters.
Schools in Data Set: 227
Profitable Schools (unadjusted): 136
Profitable Schools (per old adjustments): 22
Profitable Schools (per proposed new adjustments): 35
Increase in number of Profitable Schools: 59%
How I did the work:
I used the USA Today database for 2011 Division I finances. They include 227 schools and show that without accounting adjustments 136 of the programs showed a full-athletic department profit (or surplus if you prefer that term). (and yes, I realize I am looking at the entire athletic department when I should really look just at football and basketball, but these data don’t allow that).
With the current NCAA adjustment, only 22 of those schools continued to show profits/surpluses.
If the new change is implemented, that number will grow to 35. That’s a 59% increase in the number of profitable athletic departments, all from just undoing an adjustment that shouldn’t have been made in the first part. And so while it is a small start, I take two things from this: (1) my comment that the current accounting obscures, rather than illuminates remains valid and (2) just think what else we’d find if the entirety of the financial benefits from and financial cost of football and basketball were laid out in an open and clear fashion!