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Intercollegiate athletics at the country’s most prominent colleges and universities has become a multi-billion dollar enterprise. It involves not only institutions of higher education, but also television networks, apparel manufacturers, advertisers from all sectors, and above all, millions of fans and donors. Now, almost all state flagship universities, many regional institutions, and some private research universities maintain teams in the Football Bowl Subdivision (FBS) of the National Collegiate Athletic Association (NCAA), formerly Division I-A.

At these institutions, athletics are a focal point for universities and their communities. Tens of thousands of fans (and at a few institutions, over a hundred thousand) come to cheer on football teams, with smaller numbers flocking to men’s basketball and other sports. Team logos and nicknames are recognized coast-to-coast, branding their institutions for people who could not find the university on a map. Donors give munificent sums to fund athletic scholarships or construct stadiums.

A handful of the most visible athletics programs can afford to spend more than $80 million annually on their operations, thanks to such donations as well as ticket revenue, royalties from championship events, licensing and sponsorship revenue, and broadcast rights. Indeed, most fans and observers of college sports believe that the majority of athletics departments generate large net sums of money for their institutions. A 2006 survey sponsored by the Knight Commission on Intercollegiate Athletics found that 78 percent of Americans polled believed athletics programs were profitable (Knight Commission on Intercollegiate Athletics, 2006).

In fact, the vast majority of athletics programs reap far less money from external sources than they need to function. Virtually all universities subsidize athletics departments through general fund allocations, student fees, and state appropriations, and the NCAA estimates in a given year that only 20 to 30 athletics programs actually generate enough external revenue to cover operating expenses. Institutional subsidies to athletics can exceed $11 million, according to data provided by the NCAA. With costs in athletics rising faster than in other areas of university operations, it is not clear how many institutions can continue to underwrite athletics at their current level without allocating significant funds that could be used for teaching, research, service, student services, or other core functions.

The economic downturn has exacerbated these financial pressures, but the problems with the economic structure of big-time intercollegiate athletics go much deeper than the current circumstances. Among the primary issues:

  • The wide gap between wealthy conferences and struggling conferences is growing wider, deepening a class structure even within the ostensible “big time.” Among the eleven conferences with teams in the bowl subdivision, the richest league’s members generated approximately fourteen times as much revenue as those programs in the poorest conference in 2007, according to data provided by the NCAA.
  • No matter the size of an athletic department’s budget, over the past decade expenditures have been rising dramatically every year and much faster than revenue is growing.
  • At many institutions, athletics budgets are rising more quickly than educational budgets, and the subsidies provided by institutions to their athletics budgets are rising more quickly than both.

The finances of intercollegiate athletics always have been one of the core concerns for the Knight Commission on Intercollegiate Athletics. In its 1991 report Keeping Faith with the Student-Athlete, the Commission called for the development of a “one-plus-three” model for the governance of college sports—the “one” being presidential control, and the “three” being academic integrity, fiscal soundness, and a system of accountability (Knight Commission on Intercollegiate Athletics, 1991).

In most of these areas, there are notable signs of progress. Presidents now act as directors of the NCAA’s Division I and the organization as a whole. There are metrics for academics designed to hold individuals, teams, and institutions accountable for retention and graduation rates. A detailed certification process for athletics that has served as a quiet accountability mechanism on individual campuses is now in its third cycle of institutional reviews. Obviously, there are problems remaining in each of these areas, but on the whole, the landscape has changed considerably since 1991.

However, finances remain an intractable problem, particularly given the growth of athletics expenses in big-time sports. As this report will show, this intractability has many roots. One of the key ones may be a lack of a common understanding or willingness to address the national dynamics that lead to decisions that exacerbate the economic problems in intercollegiate athletics, and the goal of this primer is to provide that common ground in the hopes of engaging academic leaders and policymakers.

This report is focused on intercollegiate athletics. However, policymakers must recognize that the challenges and trends in college sports, particularly at the nation’s top universities, mirror situations across campus. Universities subsidize all manner of programs, both academic and auxiliary, that do not generate revenue. Costs have been rising inexorably at all institutions, to the dismay of state legislators, federal officials, and tuition-paying parents. Observers of higher education have raised concerns about institutional investments in areas such as applied research focused more on technology transfer than on the production of basic knowledge, as well as about programs designed to drive higher margins of tuition revenues, such as executive MBA programs.

The extraordinary visibility of big-time programs and the pressure applied by all of the agents involved in college sports require a heightened level of vigilance on the part of institutional decisionmakers and policymakers.

In such circumstances, the question of what is and isn’t appropriate must be answered by the institution’s administration, faculty, governing board, and to some extent its accrediting agency. With regard to athletics, the extraordinary visibility of big-time programs and the pressure applied by all of the agents involved in college sports require a heightened level of vigilance on the part of institutional decisionmakers and policymakers with an interest in higher education.

This report is organized into the following chapters:

Background: How has the business of college sports evolved over the century and a half since colleges first fielded teams?

Expenses: Where do big-time athletics programs spend money? How much of a department’s budget does coaches’ compensation represent? Are expenses growing more quickly than revenue?

Revenue: Where do athletics departments get the funds they need to operate? How do these sources vary from institution to institution, or conference to conference? Which revenue streams are growing most quickly, and at which universities? How much are universities paying to subsidize their athletics programs?

Construction in college sports: Is there an “arms race” among programs that spend more on facilities in hopes of increasing revenue and attracting top-flight high school athletes?

Cost-containment: What are colleges doing to cut costs? Are such cuts window dressing, or do they fundamentally affect the nature of college athletics? What roles do leaders such as college presidents, conference commissioners, and NCAA officials play in this process?

Title IX and Olympic sports: As budgets get tighter, how will the business model of big-time athletics address gender equity and the maintenance of non-revenue sports?

Myths and intangibles: How do intercollegiate athletics really affect donations, prospective student applications and the quality of prospective students? Does more spending lead to greater athletics success and increased revenue?

Commercialism: Where are universities blurring the line between collegiate and professional sports to keep their programs viable?

Conclusion: What will happen to athletics departments and their universities if the business model of big-time intercollegiate athletics persists in its current form? What are the biggest threats?

To assist in the preparation of this report, the NCAA provided a report on financial data compiled from member institutions. The 119 member institutions in the Bowl Subdivision in 2007 were ranked by total athletic expenditures that year and divided into ten groups of 11 to 12 members. From these deciles, median values for a wide range of revenues and expenses were calculated. The results demonstrate the wide range between the “haves” and the “have-nots.”

Intercollegiate athletics arouse the passions of millions of Americans, particularly during the football and basketball seasons. In its consideration of the issues outlined here, the Knight Commission’s goal is to help develop a model of college sports that is sustainable at the top rank of American colleges and universities without compromising their core missions or exploiting the student-athletes who participate in them. This is a complicated and daunting goal, but the intent of this primer is to help those who care about college sports to understand the challenges facing the enterprise, especially at this critical moment.