The Financing of College Athletics: Application to Current Debates

This is the final installment of a three-part series on the business of college athletics. Part 1 explains the unique business model of college athletics. Part 2 examines South Carolina’s athletics budget.

To most outside observers, current debates raging within college athletics are simply about morality. What they don’t realize is that beyond moral considerations are significant financial repurcussions to any decision regarding scholarships. We take a look at two of the most hotly debated topics in college athletics and consider both the financial implications and the long-term ramifications of each.

Four-Year Scholarships

Last October, the NCAA unexpectedly passed a rule allowing colleges, if they so choose, to offer athletes a multiyear scholarship. It was met with widespread opposition, so widespread that the NCAA put it to a vote. 62.5% of its member institutions needed to vote against the proposal for it to be overridden. The final tally? 62.12%.

Demetris Summers 2003

Summers was rated the top running back in the nation coming out of Lexington High School, but was unable to consistently produce at the collegiate level

The problem with a multiyear scholarship is that not all players turn out the way a coach would hope. For every Marcus Lattimore and Jadeveon Clowney there’s a Demetrius Summers, a former Lexington High School standout considered the top running back in the country who came to Carolina in 2003 and was a huge disappointment. Recruiting is an inexact science. Sure, there are some legitimate can’t-miss prospects. But there’s seemingly just as many highly-touted recruits that come to college and flop. And not every key contributor to a college team is considered a stud recruit while he’s in high school.

Coaches enjoy the flexibility to renew scholarships on an annual basis. Few coaches would “cut” a player from a scholarship simply because of a lack of production. But do athletes that have little to no work ethic, don’t go to class, or put forth no academic effort deserve a scholarship more than the walk-on who busts his tail every day for the opportunity to see the field once or twice in mop-up duty and maintains a 3.5 GPA?

The four-year scholarship creates some interesting implications for recruiting. Remember, schools aren’t mandated to offer it–but if a recruit is offered a four-year deal from Alabama and Clemson and a one-year deal from Georgia and South Carolina, which schools do you think he’ll be more interested in?

There are, however, financial ramifications to doing offering multiyear scholarships. Big-time programs recruit heavily both within their state’s borders and into surrounding states. Because athletics departments pay the cost of an athlete’s scholarship, it is financially advantageous to recruit in-state players that only have to pay in-state tuition to attend classes. If schools choose to offer multiyear scholarships, it makes the most financial sense to offer them to top- and middle-tier in-state recruits that can be solid contributors, as well as only the most obvious of can’t-miss out-of-state prospects.

Not all athletics departments will be forced to make choices like this. Programs that have the luxury of large chunks of contractually obligated cash from television deals and sponsorship agreements will likely be able to absorb the cost for out-of-state athletes. But guaranteeing pricey out-of-state tuition may be an expense that is difficult for some low revenue departments to bear. Those unlucky few may be forced to make tough decisions between controlling short-term expenses and potential long-term profit maximization coupled with on-the-field success over time.

Paying Players

An even more contentious debate rages in college athletics over whether athletes, who could be considered to constitute an unpaid labor force, should be paid. On one side sit those who believe that players are already paid through a free education in exchange for their efforts on the field. On the other sit those who argue that college athletics departments bring in tens of millions of dollars in revenue while the players don’t get paid.

Auburn Paying Players Cartoon

And some people believe certain players already have

An NCAA proposal was passed last October that would allow schools to provide a stipend of $2,000 annually to its athletes if they so choose. Studies have demonstrated that athletic scholarships fall approximately $3,500 short of the full cost of attendance, which is considered to be the actual cost of room, board, tuition, books, and any ancillary costs incurred by a student (such as outside meals, grocery store runs, etc.). Since athletes can’t accept any money or meals to avoid NCAA violations for extra benefits, this $2,000 per year would go a long way toward cutting down on the out-of-pocket costs for athletes.

It was a well-intentioned proposal, but it was met with fierce opposition from NCAA member institutions. The measure was suspended, then eventually voted down. Why?

Because most schools simply can’t afford to pay their players without significantly trimming expenses elsewhere. Paying players could mean cutting office staff, forcing teams to bus instead of fly to faraway games (some lower-revenue teams aren’t able to fly to any games), lower salaries for coaches or assistant coaches (which could cause them to bolt for another, higher-paying job), or even cutting sports, which brings with it the prospect of Title IX violations and expensive litigation. What outside observers don’t realize is that most college athletic departments don’t even make money. Students are forced to subsidize athletics at those institutions through activities fees. It’s a sad, little-known truth about college athletics. And it’s not simply a money management problem.

Luxury Box

Amenities like luxury boxes are expensive to build but eventually bring in mountains of cash

Athletics directors could certainly look to open new revenue streams, but in most cases that isn’t possible without significant spending on the front end. Adding luxury seating options, especially club seats, is the most prevalent current trend in sports to create positive cash flow. But it takes millions of dollars to create these types of seating options, which may not cover their initial cost and become profitable for some time. Maximizing contractually obligated income is always prudent, and media rights fees can provide a significant chunk of a department’s revenue, but that amount is fixed for the life of the conference’s media contract. Most conferences have recently renegotiated deals, meaning that conference allocations won’t significantly increase for some time. Annual seating rights fees can provide a few million extra dollars, but may alienate a fan base. There simply aren’t many places left to raise significant capital in a hurry to begin paying the players.

“What’s the big deal about $2,000?” you may be thinking. “It’s not like that’s going to break the bank.” But the truth is, it might. North Carolina Athletic Director Bubba Cunningham explains that if the full stipend were offered to each of the university’s 400 athletes, it would cost the athletics department $800,000 annually. For a bit of perspective, consider that our own athletics department at South Carolina, one of approximately 25 NCAA Division I Football Bowl Subdivision departments that are profitable in any given year, ran a profit in 2009-2010 of $978,213. There really isn’t much money to go around.

Paying players could cause significant inequities down the road as well. If a department can’t afford to pay the full $2,000 to all athletes, it may choose to offer higher stipends to players at certain positions where it has a greater need. Let’s say the Gamecocks are in desperate need of offensive linemen during a recruiting cycle but can’t pay all athletes. Maybe in that particular year, South Carolina offers a $2,000 annual stipend to its offensive line recruits, but only $500 to wide receivers, where it already has great depth. That could be a favorable short-term recruiting strategy that would allow the team to meet its goals.

But what would the state of football look like in a decade or two if this practice were to continue? There would be isolated incidents where offensive linemen or placekickers or longsnappers were in high demand, but across the landscape of college football, skill position players would always be in needed in great numbers. What sorts of inequities might this cause? Will there be an influx of 6’5″, 280 lb. high school kids trying to play wide receiver since they know they’ll get paid more? Will kids that size quit football altogether and try another sport? Will there be a terrible deficiency of linemen twenty years from now? Will kids do everything they can to avoid playing defense since excelling on that side of the ball may not be as profitable? The possibilities are endless.

Steve Spurrier Smile

Spurrier’s proposal didn’t have many coaches smiling

Steve Spurrier made waves last summer when he suggested that players be paid $300 per game out of their coach’s salary. Coaches like Spurrier could afford such a payment. Coaches at smaller programs could not. There are a multitude of people with their heart in the right place on this issue. But, at least for the time being, the economics simply aren’t there.

The moral side of this debate has gotten a lot of attention in the media. The side that says it’s wrong for departments, coaches, and administrators to make a living while the people that make their jobs possible work without pay. I can get behind that argument. I hope I’ve laid out the financial ramifications of paying players. But there’s another perspective to this as well.

Full disclosure: my scholarships at USC actually exceed the amount of my tuition and ancillary costs. If you want to use the term, I get a stipend to attend school here. All I have to do is go to class, not let my social life torpedo my studies, and keep my GPA high enough to maintain my scholarships. These players have to do all of those things, and go to hours upon hours of practice every week on top of that. And go to team meetings. And travel to games. And have their bodies beaten up and broken on a daily basis. And study the playbook in their free time. Is it right that I have to do so much less and get so much more than they do? Absolutely not.

Certain institutions will always have inherent advantages when it comes to athletics. Alabama will always be able to recruit better football players than Duke, which will always be able to recruit better basketball players than Alabama. That’s just a fact. At its core, the NCAA should exist to protect the integrity of college athletics and not allow manufactured on-the-field inequities to damage competition. Allowing for players to be paid, however, is a surefire way to create the very inequities that the NCAA should be working to protect against, since so few athletics departments can actually afford it.

Do players deserve to be paid, or at least receive some form of compensation above a scholarship? Absolutely. But from a financial standpoint, the current proposal is not the right one. It will take belt tightening and creativity from financial managers all around college athletics to make paying players a reality. I, for one, hope it happens soon.

Photo Credits: Fanbase.com, 808 Overtime, Roger Dean Stadium, Palm Beach Post

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