This is the second installment of a three-part series on the business of college athletics. Part 1 explains the unique business model of college athletics. Part 3 will be released Friday and explains the financial ramifications of current issues plaguing college sports.
Editor’s Note: The following information came from a presentation by Jeff Tallant, USC Athletics Department Chief Financial Officer, to Dr. Tom Regan’s Introduction to Sport and Entertainment Management class in February 2010. To protect sensitive financial data contained within the presentation, rounded figures are used, which reflect budgeted (not actual) revenues and expenditures from Fiscal Year 2009-2010.
In the seven years that Eric Hyman served as South Carolina’s Athletics Director, USC’s Athletics Department went from running in the red each year to turning a significant profit. While fans and longtime donors may have suffered ruffled feathers and skinnier wallets due to his policies, it’s hard to argue with his results, both in wins and in cash flow. For Fiscal Year 2009-2010, for example, total departmental revenue was nearly $68 million while profits came in at just under $1 million. Approximately 74% of the department’s total revenue came from three sources: ticket sales, SEC allocations from media rights contracts and football bowl revenues, and Gamecock Club donations. The remaining revenue came from other sources like student fees, seating fees, parking revenues, and the department’s contract with Under Armour.
Within the $20 million in ticket sales, over $17 million came from football. This comprised nearly 87% of all ticket revenue and over a quarter of the department’s total revenue. Men’s basketball sold about $1.7 million worth of tickets and baseball about $900,000; all other sports combined to net just $62,000 in ticket sales.
South Carolina does a very good job of controlling its expenses at the departmental level. Its $53 million in expenses leaves it with an operating surplus of about $14.5 million, or over 21% of its total revenue. Salaries are by far the largest line item in the expense budget. Another large expense is grants-in-aid, the fancy NCAA term for athletic scholarships. The department, not the university, pays for scholarships for athletes. It loves players like baseball’s Grayson Greiner, an Honors College student from nearby Blythewood who likely had most or all of his education paid for through academic scholarships and lottery assistance available to in-state students. The athletics department pays little or no money for Greiner to play baseball.
A little-known consequence of scholarships is that it is actually more expensive for a program to recruit out-of-state players since they must pay out-of-state tuition to attend classes. There are many reasons to love football star Marcus Lattimore, but the athletics department is giddy over the fact that a preseason Heisman Trophy contender and revenue producer (through jersey sales, ticket sales to fans coming specifically to watch him play, etc.) can be plucked from an in-state high school. The department only has to pay in-state tuition for him to attend the university, and since he’s from South Carolina, potential lottery scholarships can discount his cost of attendance even more. Some lower-revenue departments actually stipulate that a certain percentage of its team’s rosters be comprised of in-state students, which controls costs but potentially severely handicaps the talent pool from which a team can draw. Fortunately, South Carolina is not forced to mandate its coaches to recruit heavily within South Carolina’s borders. But grants-in-aid are considered a variable cost that can fluctuate significantly from year to year.
General and administrative expenses (whatever that means) are another large line item, taking up 22% of total departmental expenditures. Team travel and recruiting also consume large chunks of cash. There are many other, less interesting line items on the expense budget that round out the $53 million. Of the $15 million operating surplus, about $14 million fall into a category called “Total Transfers.” Money in this category covers department debt service payments, such as paying off the construction of Carolina Stadium or the Farmer’s Market development across Bluff Road from Williams-Brice Stadium. Money is also transferred to capital projects and student organizations. In this particular fiscal year, $1.75 million was given to the university’s general scholarship fund, which gives out scholarship money to “regular” students like you and me.
The department’s net profit, approximately $1 million during Fiscal Year 2009-2010, is put into a “rainy day fund” instituted by Hyman. This money is put into an account that can be tapped into in emergency situations, such as if the economy takes another downturn and ticket revenue falls off considerably. The department actually used money from these reserves to pay for its legal defense against recent NCAA violations. The $600,000 for legal counsel, along with the department’s relatively harsh self-imposed penalties, went a long way in ensuring that USC wasn’t forced to vacate wins from its 8-5 campaign in 2009. Money well spent in the opinion of most Gamecock fans. And it wouldn’t have been possible without years of shrewd financial management by Eric Hyman.