The Financing of College Athletics: Why It Matters

This is the first installment of a three-part series on the business of college athletics. Part 2 will be released Thursday and examines South Carolina’s athletics budget. Part 3 will be released Friday and explains the financial ramifications of current issues plaguing college sports.  

To most outside observers, college athletics has an image of a big-money, big-profit industry. They see coaches getting rich, new facilities being constructed, and new TV deals being negotiated, and conclude that the financial machine driving college athletics is not unlike that driving the NFL, the NBA, or any other professional sport league.

What most people don’t realize is that all but a few college athletic departments are undertaking financial burdens that they simply can’t bear.

At virtually all institutions, the athletics department is a completely separate financial entity from the university itself. At South Carolina, a public university, the budgets for athletics and academics do not overlap. The athletics department uses revenue from ticket sales, media rights contracts, donations to the athletics booster club, and other athletic sources to cover its expenses. No tuition dollars, taxpayer money allocated by the state, or alumni donations to the university fund athletic programs. In fact, the athletics department donates millions of dollars each year to the university’s general scholarship fund. This arrangement is extremely favorable for both the department and the university itself, made possible by the significant profit turned each year by the fiscally sound athletics programs at USC. Unfortunately, however, running a profitable athletics department is a rarity.

Run in the RedIn any given year, approximately 25 NCAA Division I Football Bowl Subdivision athletics departments run in the black. For the fiscal year ending in June 2009, for instance, 91 of the 117 FBS schools were subsidized by the university under whose name they competed, including a $1 million bailout given to our friends in orange on the shores of Lake Hartwell.

In these instances, student activities fees typically make up the portion of funds given to cover athletic expenditures. While South Carolina and other SEC schools are aided by exorbitant conference allocations from bowl revenue and television deals (which will soon get exorbitant-er with the addition of Texas A&M and Missouri and the subsequent contract renegotiations scheduled for next summer), you’d be stunned at the names of some of the big names in the big conferences whose athletics departments need help making ends meet.

Not surprisingly, football ticket sales and other football-related revenue streams, such as booster club donations, premium seating and other ticketing fees, bowl revenue, and media rights deals primarily driven by football broadcasts, make up the lion’s share of most departments’ finances. Without football, departments simply would not be profitable. Men’s basketball at most schools is able to stay in the black. Nearly all other sports hemorrhage money like it’s their job. Even our beloved baseball program is a money loser for the department. With strong ticket sales and luxury seating options available, baseball would come close to turning a profit at USC–if it wasn’t busy paying off the $36 million construction cost of Carolina Stadium. From a financial standpoint, department personnel should stop worrying about ways to make money and start thinking of ways to not lose as much money when it comes to non-revenue sports with non-impressive attendance figures and ticket prices like softball, volleyball, equestrian, and track and field.

Baseball Stadium

It’s beautiful. And it’s a money loser.

There is, therefore, a significant emphasis on football revenue maximization in college athletics. Sometimes, this means higher ticket prices and ancillary costs, driving revenue up while causing attendance to decrease. How does a school know when it has gone too far in this area? According to Eric Nichols, USC’s Director of Marketing, it’s when the gameday atmosphere suffers. When asked during a class speaking engagement in 2011 about the atmosphere at football games in prior years, he admitted that simultaneous cost increases in tickets, Gamecock Club memberships, yearly seating fees, and parking fees had led to a larger-than-expected decrease in attendance. The loss of fans means the loss of their crowd noise and exposed silver bleachers where they should have been sitting, which looks unseemly both to television cameras and to fans accustomed to sellouts. The low point came at the Kentucky game in 2009, a 12:30 kickoff during students’ fall break, that was witnessed by just 68,278 fans.

Empty Seats 2009

As a marketer, this is never what you want to see

That’s not to say every game has to be sold out to have a good atmosphere. (Ask any senior to list the most memorable games since he or she has been a student at Carolina, and the 2009 Ole Miss game is guaranteed to be among those mentioned. It was a Thursday night game about 5,500 fans short of a sellout, and it was indescribable.) But when the cost of attendance causes the fans to stay away in droves, a department has become its own worst enemy. And the reason goes deeper than just the one-time loss of revenue from the fans watching the game at home for free.

A good atmosphere, ideally coupled with a full stadium, means there’s lots of fans paying money to watch the games. That money can then be reinvested into athletic programs (not just football) to improve locker and weight room facilities, upgrade practice facilities, and add amenities, all in an effort to impress top recruits. Those recruits will turn into great players that help the team win more games, which will make more people want to see games in person and pay a higher ticket price to do it. That new money can be reinvested in the same way described above, or by having a higher salary pool with which to entice top coaches, the kind top recruits want to play for. Or it can be used to add luxury amenities to stadium facilities, or even build new stadiums, to entice more people to pay more money to come watch games live. It’s a huge cycle that affects every sport a university sponsors (the new tennis and softball facilities aren’t funded by tennis and softball ticket sales, that’s for sure), and it all starts with football revenue.

Why can’t most departments turn a profit?

College athletics departments have access to all the same revenue streams as professional teams, which typically include media rights deals, ticket sales, luxury seating options, licensing and merchandising revenues, concessions, and parking. In fact, colleges are even able to solicit booster club donations to fund operations, something professional teams largely don’t do. Professional teams also have to make enough money each year to pay player salaries, while college athletics departments do not. So why are professional teams so profitable while their collegiate counterparts struggle to make ends meet? There are a few reasons:

  1. Size of television contracts and revenue sharing allocations. While conferences like the SEC and Pac-12 have huge television deals, they’re nothing compared to what’s seen in most of professional sports. The typical NFL franchise gets 60% of its revenue from television deals. By comparison, USC gets less than 25% from television contracts and bowl allocations combined. The NFL television contract signed in December is worth about $3 billion annually to the league, which is then distributed among the 32 teams. Dang.
  2. More games. NFL teams play at home ten times during the preseason and regular season, while most college football teams play seven times in front of the home crowd. NBA teams have 41 home games, while most college teams have a little less than 20. MLB teams play 81 games at home in just the regular season; colleges in warm climates that host NCAA Tournament games have a chance to get to 40. There are simply a lot more opportunities to make money in professional sports, but remember: they don’t just make money on tickets. Concession sales, merchandise sales, parking revenues, etc. all add to the total cost of attending a game, and these sources of revenue can bring significant profits when spread out over an entire season.
  3. Professional teams only have to fund themselves. This is probably the most obvious reason. Major college football teams have to fund every other sport. South Carolina had a budget approaching $68 million during fiscal year 2009-2010, and only $2.5 million of that could be directly attributed to sources other than football. But here’s the amazing part. Even with funding all of those other sports, the athletic department turned a profit in excess of $14.5 million before transferring money to cover debt service payments, university scholarships, capital expenditures, etc. Pretty good job controlling expenses, wouldn’t you say? The point is, the football team could be very profitable of its own accord, albeit nothing like an NFL team. Even with all the other sports that depend on football revenue to survive, the athletic department itself is able to manage its funds extremely well.

And finally, if you’re still not convinced that a department’s finances matter, consider this:

2009 SEC East Standings 2009 SEC East Spending
Florida Tennessee
Tennessee Florida
Georgia Georgia
South Carolina South Carolina
Kentucky Kentucky
Vanderbilt Vanderbilt

Photo Credits: Solar FeedsPantsari.org, FITSNews

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  • LogicalPosition

    Well researched! I’m glad you mentioned that not all schools are operating like this one, that’s a fact that matters.