End the “Athletics Arms Race”

Intercollegiate athletics are often falsely thought of as revenue-generating profit centers for American universities. Data reported to the National Collegiate Athletic Association (NCAA) by universities themselves show that the vast majority of intercollegiate athletics programs actually lose money. In FY 2006, only 19 of the 119 NCAA Division I Football Bowl Championship (FBS) schools reported positive net revenues, and the median profit for those 19 was only $4.3 million.209 Furthermore, not a single athletics program outside of Division I FBS profits from athletics. All these programs—the remaining Division I as well as all Divisions II and III programs—are forced to rely upon wider university resources to balance their budgets. It is clear that athletics are not a positive source of funds for the typical school in this country.

Indeed, athletics are becoming more expensive as costs are rising more rapidly than generated revenues. While both income and expenses increased from 2004-2006, the median expenses for all FBS schools increased at a rate of 15.6 percent compared with only an 8.3 percent increase for generated revenues (as is shown in Figure 8.1). While the disparity is not as severe at Division I schools without football programs, it is worse at FCS (football championship series) schools. (The major difference between FBS and FCS divisions is that FCS athletics are generally of a lower profile and typically have much smaller budgets. Regardless, for every classification of program, the median expenses grew more than generated revenues, meaning that not only are athletics a drain on university resources, but they are becoming even more of a financial burden.

When an athletics program cannot cover its expenses through generated revenue, it is forced to rely on allocated funds from the wider institutional budget. Just as Figure 8.1 demonstrated rising athletic budget shortfalls, Figure 8.2 illustrates an increased dependence on allocated revenue from the school between 2004 and 2006. In 2006 allocated revenues accounted for slightly more than a quarter of total revenue at FBS institutions, and median allocated revenue grew 57 percent, from around $5.7 million to just under $9 million. Allocated revenue comes from both the institutional budget and student fees. In fact, at the median FBS school, student fees accounted for more than $1.4 million of allocated funding to athletics. On a per-student basis, students at the median FBS institution paid $81.73 directly to athletics in 2006. This is especially concerning since, as an average of all FBS institutions, only 3.2 percent of undergraduates participate as athletes in intercollegiate athletics.

Figure 8.1: Real Growth in Generated Revenue vs. Expenses (medians): 2004-2006
Figure 8.1: Real Growth in Generated Revenue vs. Expenses (medians): 2004-2006

 

Figure 8.2: Real Growth in Median Allocated Revenue: 2004-2006
Figure 8.2: Real Growth in Median Allocated Revenue: 2004-2006

 

Methods to Cut the Cost of Athletics

One strategy to lower costs is to shift more in favor of club sports rather than varsity athletics. Varsity athletics are a drain on precious institutional resources in almost every case and require a vast bureaucracy of administrative support. Club sports teams receive only modest subsidies from their universities. Already there has been a growing trend across the country, shifting more toward club sports. An estimated 2 million college students compete in club sports while only around 430,000 compete in NCAA varsity athletics.211 For example, 1994 was the first year club teams competed in the soccer club championship sponsored by the National Intramural Recreational Sports Association. Since that initial year, the number of teams competing has expanded from 15 to 75. Similarly, the club tennis championship has expanded from an initial 11 teams participating in 2000 to 64 teams eight years later.

Club sports maintain a highly competitive nature (they are entirely separate from uncompetitive intramural sports) while still teaching important values such as teamwork, leadership and time management that proponents of sports espouse. Indeed, these benefits may be true to an even greater extent as the athletes themselves are often responsible for coordinating all functions of the team, including everything from fundraising and budgeting to contest scheduling and making travel arrangements. In varsity athletics these details are left to the athletics bureaucracy, at a significant cost.

Smaller reforms within the current framework also provide promising methods of reducing costs and saving money for both athletics departments and schools as a whole. Figure 8.3 displays the different line item expenses. Any strategy to cut costs must look strategically at the current budget makeup in order to make useful and targeted cuts.

Reduce Salary Expenses

University-paid salaries to athletics employees account for the largest expense incurred, at around $11.3 million in 2006. Compared to the wider university, athletics employees earn competitive salaries. The College and University Professional Association for Human Resources (CUPA-HR) reports that at doctoral institutions, the top five median base salaries for all university mid-level administrators go to athletics employees. During the 2008-09 year, head football and basketball coaches made around $219,000 and $202,000, respectively. Offensive and defensive coordinators for football both earned in excess of $125,000. Data provided by CUPA-HR for 2007-08 show that athletic directors at doctoral schools made $185,000 with associate athletic directors earning around $100,000.

Figure 8.3: Median Athletic Expenses by Category of Expenditure, FBS Institutions, 2006
Figure 8.3: Median Athletic Expenses by Category of Expenditure, FBS Institutions, 2006

The University of Kentucky made history by hiring former University of Memphis head basketball coach, John Calipari, to an eight-year, $31.65 million contract. This trend of escalating salaries has been met with much criticism by the late NCAA President, Myles Brand, who remarked that salaries have “extended beyond what’s expected in the academic community.” Yet Brand notes that an easy fix of capped salaries evades the power of the NCAA due to antitrust laws. The Women’s Sports Foundation is one group that has called upon Congress to grant the NCAA a limited exemption that would permit salary caps for coaches. 

It must be noted that coaches’ salaries are determined by institutional priorities and market forces, albeit distorted market forces due to the unpaid nature of the athletes. The Calipari case is but one example of universities’ willingness to spend exorbitant amounts on coaches. Fierce competition exists between schools for a relatively small supply of desirable coaches. University leaders believe that highly skilled coaches are necessary to produce successful and profitable teams. When institutional priorities place a high value on successful sports teams (and particularly on basketball and football teams), such high salaries are justified as necessary to win the bidding war for top caliber coaching (and recruiting) talent. Were all schools to agree to refuse to pay such high salaries, every school would benefit from lowered expenses. Yet there would be an incentive for schools to renege on their self-enforced agreements since offering a higher salary may be the only way to attract a top-flight coach (especially for programs lacking other attractive benefits such as a national reputation or stellar facilities). For this reason, reform at the institutional level without an external regulator is unlikely to succeed.

In the absence of salary caps, what else can be done? Encouraging better transparency in hiring processes and demanding closer oversight from university presidents and boards of trustees would be a good start. Is it truly the case that at a majority of FBS schools the institution as a whole values the football coach more (or at least pays them more) than the university’s President? Does such a large allocation of resources to a single coach really fit into institutional priorities? A careful consideration of these questions is necessary before contracts are awarded. It is the job of boards of trustees to act in the best interest of the overall university, keeping in mind the desires of students, faculty, administrators, and the state’s taxpayers (in the case of public schools). Ultimately, boards of trustees have the power to refuse such wild contracts and need to be bold in allocating funds to those programs that best fulfill the priorities of the university.

The high mobility of college coaches contributes to escalating salaries. A 1983 study concludes that mobility centers around major athletics (i.e. Division 1-A) and that within these schools, “there is a high degree of intra-stratum exchange of personnel.”217 This exchange is costly, as the bait to draw an individual from one program and to another is higher compensation. One coach moving to a new program at a higher salary opens a new vacancy which will likely be filled by a coach who likewise will earn more than his/her previous post. Schools wishing to maintain their current coach are then pressured to offer substantial raises to prevent that coach from accepting offers elsewhere Gordon Gee, president of Ohio State University, argues that better structured contracts that discourage the premature departure of coaches would help tame escalating salaries by tamping down the “revolving door.” Contract provisions could include strict financial penalties for coaches who opt out of contracts before their agreed-upon term is completed. In the case of Virginia Tech’s contract with football coach Frank Beamer, penalties do exist should he terminate the contract early. However, under his most recent contract, after two years both parties agree to discuss a one-time contract extension which does not penalize either the school or coach for early termination. Clauses such as these provide no incentive to retain coaches and thus contribute to escalating salaries.

Reduce Numbers of Scholarships and Lower Tuition

Evident in Figure 8.3 is that university-paid grants-in-aid to athletes are the second largest expense, with a median cost of around $5.8 million annually. Reducing the cost of college— tuition, fees, room/board, textbooks—would obviously help save much money in this area. This study explores potential cost-cutting reforms to make college more affordable. While a detailed discussion of wider reforms for higher education is beyond the scope of this section, it is important to note that athletics too would benefit from serious reform in higher education.

Simply reducing the number of scholarship positions offered would reduce costs in this area. Numerous reform groups, such as the Coalition on Intercollegiate Athletics (COIA) and the Women’s Sports Foundation, have targeted football for scholarship reductions. Currently football teams are allowed to offer a maximum of 85 awards. However, there are only about 25 unique positions—offense, defense, kicker, punter, and long-snapper all considered—on a team.

Certainly there is some need for reserve players, especially considering the high incidence of injury. Yet, even if three scholarships per position were allowed, only 75 scholarships would be necessary, and a good case could be made that even three per position is excessive. The Women’s Sports Foundation points out that National Football League (NFL) teams have only a 45-person roster with 7 reserves. Furthermore, they cite that cutting football scholarships to 60 “would save approximately $750,000 annually.” Athletic departments are unlikely to pursue this reform on their own for fear of losing a competitive edge with others; however, a uniform rule change by the NCAA would eliminate this problem and help schools save money.

Facilities Maintenance and Rental

The costs associated with athletic facilities are sizeable as well. Citing a 250 percent rise in capital expenditures for facilities from 1994 to 2001, the Knight Commission argues that an athletics arms race is underway. To remain competitive, schools feel the need to build bigger stadiums and better practice facilities. Rather than increasing spending, they should be looking for ways to lower costs.

An obvious move would be to rent existing facilities rather than building new ones. College football teams play at most 5 to 6 home games per season and usually have a separate practice facility. In large cities where there is also a professional team, it may be more cost effective to rent that stadium for game days. This step would save on fixed costs associated with construction and the variable costs for maintenance.

If it is necessary to build one’s own facilities, leasing them out when not in use would help generate revenue. Since teams only have a limited number of home games every year, facilities are usually dormant. Football fields can be used by other area teams and basketball stadiums make great concert venues and convention centers. Arizona State University leased the use of Sun Devil Stadium to the NFL’s Arizona Cardinals from 1998-2005. ASU has also historically had arrangements with the Fiesta Bowl and even hosted the Super Bowl in 1996.

Reduce Travel Expenses

Transporting an army of athletes, coaches and equipment to often far-away destinations can be quite costly. Travel expenses are a major and growing cost to intercollegiate athletics. Schools themselves are responsible for all non-championship travel with a median cost for FBS institutions of nearly $2.5 million in 2006. The NCAA foots the bill for postseason tournament travel and reports that this expense for Division I grew around 31 percent from the 2007 to 2008 academic year. In this time of economic hardship, escalating travel costs are an obvious area for reform.

In September of 2008, the NCAA endorsed a number of proposals to control championship travel costs. First, the plan increases the air travel mileage limitation threshold from 350 to 400 miles for all sports besides basketball (and from 300 to 350 for basketball). This shifts more travel to ground transportation, which is dramatically cheaper than air travel for shorter distances. Furthermore, the ground commute distance from the airport to game location was increased from 120 to 150 miles. This allows for more discretion and provides a larger number of alternatives when selecting tournament locations. A December 2008 memo from the NCAA reports that these reforms were effective in saving money during fall championships and resulted in 19 fewer chartered flights than the previous year. While these are aimed to save the NCAA money, institutions could save money from these types of reforms too.

The NCAA reforms also call for a prohibition of hosting championships in high-cost sites or remote locations. Institutions themselves could learn from this. Several of the 2008-09 preseason men’s NCAA basketball tournaments were held in destinations such as Anchorage, Maui, Puerto Rico, Cancun and the U.S. Virgin Islands. Schools voluntarily participate in these, and at their own cost. While basking in the sun or enjoying the Alaskan wilderness may be fun, it would be more responsible and cost-effective to host these tournaments in more central locations.

A somewhat dramatic reform to save on travel costs would be to realign conferences to be more regional in nature. The Atlantic Coast Conference (ACC) expanded its membership in 2004 and 2005 to incorporate the University of Miami, Boston College and Virginia Tech. This onceregional conference that was centered in the Carolinas now spans more than 1,500 miles (from Miami to Boston). This is the equivalent of traveling halfway across the country to compete in a conference contest. While this travel may prove profitable for football and basketball, it certainly is not for the non-revenue-generating sports that also must make this unusually long and costly trip. One innovative solution approved by the ACC in May of 2009 was to limit football travel squads to 72 players. This mirrors a rule already in place by the Southeastern Conference (SEC) that has a 70 athlete cap. Such a cap reduces the number of individuals to transport, house and feed during road trips.

Despite expanding conferences, savings could also be realized by playing fewer non-conference games. The New York Times reports that two chartered flights for Ohio State University to travel to compete against the University of Southern California during the 2008-09 season cost the department $346,000. Since non-conference games generally require longer travel distances, they are inherently more costly. The ACC recently rejected a proposal that would increase the number of conference basketball games (and by implication reduce the number of non-conference match-ups).

A reduction in season lengths could help shave travel costs as well. Season lengths have grown over time and cutting a game or two could erase thousands of dollars worth of expensive travel. This may be especially worthwhile for non-revenue sports since the marginal revenue associated with playing one extra game is almost always negative. Even leaders of major athletic departments have indicated that a cut-back of nontraditional season lengths may be a good idea. Tim Curley, athletic director at Pennsylvania State University, recently remarked that “We’ve got kids going 365 days a year. Maybe this is an opportunity to give them a little downtime.” While saving money on travel, this would also allow athletes more time to focus on academics.

Beyond the several ideas outlined above, schools could save on travel costs through such methods as shipping baggage separately on buses/vans when teams fly. New baggage charges make transporting athletic equipment on chartered flights even more expensive. Eliminating the entrenched practice of booking hotel rooms for the football team the night before a home game would also save money. If players are not smart enough to make responsible decisions the night before a game, then perhaps they do not belong in college in the first place. The Pacific Ten (Pac-10) Conference is currently considering a plan to eliminate this practice conference wide. It would save an estimated $40,600 for the University of Oregon, whose team stays in the Eugene Hilton. The Pac-10 is also considering national legislation that would eliminate foreign tours and place limits on school party-travel allowances to bowl games.

Better Transparency/Accountability

The lack of transparency and accountability in intercollegiate athletics fails to provide incentives to reduce costs. Indeed, the third largest expense to athletics—a median figure close to $2.9 million—is listed as “other.” The fact that departments are unaccountable for almost $3 million is appalling.

Economist Andrew Zimbalist argues that an incentive problem facing athletics is that departments are not responsive to shareholders. Certainly they have thousands of stakeholders (athletes, parents, fans, etc.), but there is an important distinction between the two terms. Shareholders have a serious interest in the financial viability and profitability of the program while stakeholders can have many interests—e.g. winning games or providing an enjoyable entertainment experience for the community. Stakeholders may be less concerned with financial viability at the expense of these other interests. A stakeholder who values winning games more than balancing a budget may urge the program to spend more money to increase competitiveness, even if this forces the department to run a budget deficit. Shareholders are concerned most fundamentally with the bottom line, and decisions are made from the underlying premise that the department must remain solvent. 

The Association of Governing Boards of Universities and Colleges recently released a report calling upon boards of trustees to play a more prominent role in providing oversight of athletics departments. The report cites that intercollegiate athletics have reached a point that in many cases “may be detracting from the institution’s mission,” and that there is “a widening gulf between the athletic and academic cultures at some institutions.” In order to achieve the desired balance between these two competing forces, “governing boards will need to lend consistent and public support to their chief executives and academic leaders.” In addition to often generating or losing such large sums of money, athletics are a highly visible component of the institution. This reality mandates that it receive appropriate attention from the governing board.

One of the most innovative approaches to restructuring athletics was undertaken at Vanderbilt University in 2003 under the leadership of then-chancellor, Gordon Gee. Gee eliminated the athletics department, replacing it with the Office of Student Athletics, Recreation and Wellness; housed under student affairs and reporting to the vice chancellor for student life and university affairs. The university’s intercollegiate athletics, intramural sports and community sports programs are all included under the auspices of this office. The athletic director position was eliminated, with an assistant vice chancellor running the day-to-day operations of the office. This scheme has allowed Vanderbilt to better integrate athletics into the overall mission of the institution. Furthermore, it provides greater oversight and demands the same transparency required by other departments within the university. The school also reports greater efficiency by eliminating duplicate costs that can now be shared between units. Vanderbilt is an interesting case study demonstrating an approach to both assert better oversight over athletics and cut costs.

More Radical Approaches to Athletics Reform

Since only a small minority of schools profit from athletics (less than 20 out of all schools supporting athletic programs), eliminating school-sponsored intercollegiate athletics would be a simple way to cut costs for almost every school. However, this is obviously not very realistic and perhaps not desirable either. There is a well-cited literature describing the various benefits from athletics that range from providing national exposure to the institution to teaching student-athletes themselves valuable skills such as time-management, teamwork and leadership. Some Division III schools even praise athletics as a major admissions tool that helps the school meet enrollment targets and augment tuition revenues (since Division III offers no athletic scholarships).

Privatization is another systematic change that could potentially lower costs. Under such a scheme, licensing rights for the use of the university’s name could be sold to a private firm. The firm would manage the team in the same fashion as a professional organization. Competitors, coaches and administrators would be paid due compensation for their services, eliminating the two top athletic-related expenses to universities: salaries and grants-in-aid. Current university athletic facilities and equipment could be leased to private entities. However, since football and men’s basketball are the only sports that generate profits, it is likely that no private firm would ever invest in the many of the other sports. Since privatization would likely lead to the elimination of all sports besides football and basketball, this may not be the most desirable or realistic option either.

Conclusion

Contrary to popular belief, intercollegiate athletics is a net drain for virtually every participating institution in the country. For many schools, losses from athletics are sizeable, with athletic departments requiring large—and growing—subsidies from the university to balance their budgets. Any approach to reducing overall university costs must address intercollegiate athletics as well. A number of both dramatic and more realistic approaches exist to help bring these costs into line. As escalating spending fuels the athletics arms race, it is crucial that schools begin making sensible reforms to ensure the health of the university.

One major hurdle to implementing any of the proposed reforms is the fear among university leaders that doing so would harm the school’s competitiveness. While it is in the best interest of every school to have reduced costs, the loss of competitiveness in light of others’ continued spending serves as a disincentive for institutions to take the initiative to reduce spending. Perhaps reform must start as a movement of university presidents who lead schools of both nationally prominent athletics and academics. As leaders whose institutions carry much sway with both communities—schools such as the University of Michigan, the University of North Carolina, the University of Virginia, Northwestern University, the University of Notre Dame, Stanford University, Duke University, etc.—if they agree to a series of reform, it could both bring athletics back within the mission of the university and reduce costs for all.