College sports thrive amid downturn

ByPaula Lavigne ESPN logo
Thursday, May 1, 2014

The economic downturn that started about six years ago flattened wages and crushed jobs. But sports programs at the nation's top public colleges have thrived: Revenues continue to reach record levels while payrolls have risen on average about 40 percent.

Total revenue from the nation's top-tier college sports programs -- the NCAA's Football Bowl Subdivision -- has increased by about a third, fueled by ticket sales, donations and lucrative television contracts that together resulted in about $8 billion.

"We thought college football was big time 30 years ago," said Brian Goff, an economics professor at Western Kentucky University who also writes a sports money blog for Forbes. "In some ways, it was just getting going."

How much college athletic departments earn and spend has always been a hot topic, but it's taken on more import in light of movements to give athletes a share of the money. On Friday, football players at Northwestern University voted on whether to unionize. A trial is scheduled to begin in June to decide whether college athletes are entitled to any of the money made off of their names, images and likenesses. And the NCAA faces a third major threat in the form of an antitrust lawsuit that charges it with unlawfully capping player compensation at the value of an athletic scholarship.

ESPN's "Outside the Lines" analyzed figures from six years of revenue and expense reports submitted to the NCAA -- acquired through public records requests -- from public FBS schools, along with data on private schools provided to the U.S. Department of Education, a total of 123 schools.

From academic year 2007-08 to 2012-13, operating revenues at all schools increased by about 32 percent. The nation's wealthiest athletic department program, the University of Texas, brought in $166 million in revenue in 2012-13. Texas officials did not respond to interview requests. (In 2011, the university signed a deal with ESPN to launch the Longhorn Network worth $300 million over 20 years.)

At many schools, the bank of college athletics defies soaring tuition costs, university budget cuts and shortages that strain other parts of campus.

The Texas Memorial Museum at the University of Texas is facing salary cuts of $507,000, leaving it with a budget of $109,000. The top-earning Texas athletic department had a surplus of $18.9 million in 2012-13 and spent $1.3 million on its cheerleaders and spirit squad. But it also sent $9.2 million back to the university's general fund. At the University of Nebraska, officials are sweating over a $4.7 million deficit, and the chancellor has suggested reducing planned raises at the university and making other cuts. In contrast, the athletic department enjoyed a $5.2 million surplus but did do its share to help, transferring about $2.7 million to the university in 2012-13.

Operating revenue listed by athletic departments includes what's often referred to as a subsidy -- money the university (including student fees) or a state government provides to an athletic department to help it cover its expenses. But even if those dollars are removed, which is possible for public schools that disclose that information, the percentage increase in "earned revenue" is still about the same.

In 2012-13, 20 public schools showed a surplus of earned revenue, a number that hasn't changed much over the past few years. The NCAA puts the figure at 23, which likely includes a few private schools whose data the NCAA has access to but doesn't release publicly. For six schools -- Ohio State, Alabama, Oklahoma, Texas, Florida and Oregon -- the surplus was in excess of $15 million.

Ohio State showed a surplus of almost $24 million, but that does not factor in $16.6 million in debt service that the department is paying on bonds issued to fund renovations at Ohio Stadium and to build a new aquatics center, along with some smaller building projects, said associate athletics director for finance Pete Hagan. Hagan said not including debt service was an oversight that should have been included in the expense figures submitted to the NCAA. He said that his department plans to address the oversight.

Hagan said the NCAA, U.S. Department of Education and university require unique financial reports, and the bottom lines are never the same, making it difficult to see how much money is really left over.

Sports economists say the actual number of schools with a surplus is probably far higher, as they point to several ways athletic departments can pad expenses to hide extra revenue.

Goff said schools have long been trying to keep their actual bottom line "under wraps." "If there's going to be a surplus, you find some expense to put that into often before the surplus even appears," he said.

Goff and other economists say it's not nefarious, but it's a practice common to nonprofit organizations and government entities: Spend as close as you can to what you bring in every year, because there's no incentive to show a profit.

Chad McEvoy, a professor and graduate program director with the Department of Sport Management at Syracuse University, said, "it's definitely interesting accounting."

"We've definitely seen growth in salaries and personnel, but I think a lot of that is by choice," he said. "I think these athletic programs have added staff both on the sports side and the administrative side because they have the money to spend and needed to spend it on something."

He points to a volleyball coach making $300,000 a year for a program that draws only a few hundred fans who pay $5 or $10 a ticket. "The market rate or the math doesn't add up," he said.

Even travel costs, which are legitimately going up due to rising fuel prices and the need to play schools farther away due to conference realignments, can be pushed up by traveling more luxuriously and staying in higher-end hotels, McEvoy said.

Ohio State's Hagan, who has worked in athletic department finance since the early '80s, said he doesn't believe there's a general incentive to spend more so as not to show a surplus -- or too much of a surplus. But he said athletic departments are in a highly competitive environment, an "arms race" as he described it, in which they're driven to be bigger and better to attract top recruits and faculty: "We could spend every cent that we make and then some trying to just keep up with renovating our stadiums and improving our facilities and practice fields."

Salaries and scholarships make up two of the largest expense categories for most programs, but tuition is another cost that sports economists dispute, because they say the costs are inflated and it's more of a transfer among university departments than an actual expense.

"These tuition expenses are soft dollars," Goff said. "For that extra basketball player, it doesn't cost an extra $30,000 a year to keep that guy on campus. We could debate for a long time what exactly is the cost, but it's a lot less than the full actual tuition rate."

University of Iowa associate athletics director Rick Klatt said that at Iowa, at least, those charges are real.

"The AD is writing a check for every scholarship athlete that we extend a scholarship to," he said, adding that the athletic department also pays the university for utilities and the university hospital for medical care. Athletics do not receive any direct financial support from the university's general fund, either.

The NCAA declined to make anyone available to answer questions about athletic department economics or about the impact any decision in the Northwestern case or the two court cases would have on athletic departments. But some athletic department officials already are exploring how they could fit additional compensation for athletes into budgets.

"All I can say is that I can tell you that we are having the discussion as to how to accommodate that decision," Klatt said.

Hagan said Ohio State already has started a few programs to give extra perks to athletes, such as providing all student athletes with an Apple iPad, which started in 2012 and has cost $400,000, and paying tuition for former athletes -- including those who might have left school to play professionally but didn't make it very long -- who want to return and finish their degree, at a cost of about $125,000.

While some athletic departments likely could absorb some sort of extra benefit for student athletes, others could not. If there is one area where there is agreement among those in and out of the programs, it is that there is growing economic disparity among schools, even within the FBS ranks, but especially if the field includes all 1,100 NCAA schools.

As most football and basketball programs in major conferences rake in money, the schools left behind face real shortages. It will be a question for Rutgers, which showed the biggest deficit -- without subsidies -- of any FBS school at $47 million, as it moves to the Big Ten. And for the University of Massachusetts, which recently moved to the FBS and was $25 million in red in 2012-13.

Another example that could contribute to the growing divide: Under the new playoff systems, schools in the major conferences have less incentive to bring in teams from smaller programs for pre-conference matchups, which used to be a big source of revenue for those middle-of-the-road programs. Last year, schools in the Big Ten agreed to no longer schedule schools from the smaller-scale Football Championship Subdivision during nonconference play.

Highlights from the figures analyzed by "Outside the Lines":

RecruitingIn 2012-13, Auburn spent $2.8 million on recruiting, more than any other school.

Second was Tennessee at $2.4 million, although the Volunteers top the list for total money spent on recruiting since 2008 at about $12.5 million. Most of that money went to the school's floundering football team, which has failed to qualify for a bowl game the past four seasons. Its last winning season was a 7-6 finish in 2009.

Yet there has been a shift: While the percentage of recruiting money going to football has declined, the percentage spent on men's basketball recruiting has more than doubled, perhaps proving to be a better investment because the team has had several NCAA tournament appearances, including the Elite Eight in 2010.

Tennessee associate athletic director Jimmy Stanton said he believes the high cost is due to travel expenses. The Volunteers' student-athlete population is 80 percent out of state. And he points out that the current football recruiting class has been "ranked as a consensus top-five class nationally."

Out the doorPerhaps not coincidentally, Tennessee spent the most on severance pay in 2012-13 at $8 million. In 2012, when the college fired football coach Derek Dooley, he was paid a severance of $5 million and his assistants up to $4 million overall. A payout of $1.3 million went to former athletic director Mike Hamilton, who resigned in 2011, adding to the department's $19 million total over the past six years. (One that should ease up this year because those deals have all been accounted for, Stanton said.) Second to Tennessee over that time was Kansas, at $14.4 million, which agreed to a $3 million severance with former coach Mark Mangino in 2009.

Coaches cashing inWhile Tennessee was paying big bucks to fired coaches, its overall spending on coaching salaries increased by only 1.3 percent from 2008 to 2013, putting it at the bottom of the list. (Two possible reasons: Two highly paid legacy coaches, Pat Summitt and Phil Fulmer, were replaced with coaches making a lot less. And the school consolidated men's and women's teams in two sports -- track and field and swimming and diving -- resulting in one head coach for each.)

At public FBS schools overall, spending on coaching salaries increased on average by 45 percent. At the top of the list was Penn State, whose spending on coaches increased by 130 percent over that time period, which saw the resignation of iconic football coach Joe Paterno in light of the child-molestation scandal involving former coach Jerry Sandusky. Overall in 2013, Ohio State spent more on coaching salaries than any other public school, about $28.5 million. The least was Louisiana-Monroe at $2.5 million.

TravelWith colleges busting out of their old region-based conferences and joining with teams halfway across the country, it's no surprise that travel costs were up across the board -- about 8 percent from 2012 to 2013 for public schools. In 2013, Michigan spent the most on travel, at about $9.6 million. The least was Troy, at $1.2 million. The school in southern Alabama is part of the rapidly shifting Sun Belt Conference.

Student supportIn 2012-13, Florida International relied more on student fees to support its sports programs than any other university, at 69 percent or almost $20 million. Six other universities relied on students to fund the bulk of their sports. Of the 20 public schools netting a surplus, seven assess student fees for sports. Florida and Oregon, with profits of $19 million and $18 million, charge student fees totaling $2.5 million and $1.5 million.

GuaranteesVisiting schools get money from the home team called "guarantees," mostly for early-season pre-conference games. While most of these visits are reciprocal over a couple of years, and the flow of money pretty even, many schools manage to come out ahead -- some significantly so.

The U.S. Naval Academy has been the biggest winner, having netted about $29 million over the past six years. A spokesman for Navy's athletic department says most of that stems from two traditional matchups -- annual games with Notre Dame and Army, which is held at a neutral site. (Notre Dame, a private school, does not release its guarantee figures.) Ohio State, which scheduled Navy in 2009, paid $1.4 million to bring the Midshipmen to Columbus.

"We're a national school. We do bring a little bit of cache when a school schedules us," said Navy athletics spokesman Scott Strasemeier. Not coincidentally, Army is second on the list with $16 million. Beyond Navy and Army, among public FBS schools, are less prominent programs that often rely on guarantee money for a big portion of their revenue, such as Louisiana-Monroe ($14 million) and Arkansas State ($10 million).

Better than youFrom 2008 to 2013, the average revenue of a top Division I program increased by 32 percent. Over the same time, the median household income in America went down by 1.3 percent.

Booster shotFlorida gets the nod for the most generous donors, seeing more than $259 million in contributions over six years. It's followed by Texas, Oregon, and Oklahoma State, in an examination of public school data.

Shout outFor 2012-13, four public schools spent more than $1 million on their spirit squads -- Georgia, Florida, Texas and Michigan.

The patient is stableOn average, medical care for student athletes makes up less than 1.5 percent of the expenses at the top public Division I schools. That percentage has held steady for the past five years. Texas spent the most last year at $1.9 million.

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