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Finances on the Field

July/August 2014

By Nancy Mann Jackson

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Institutions are using a first round of strategies to pull back intercollegiate athletic funding and keep it more apace with what is spent on academic priorities.

College and university Division I athletics departments typically spend three to six times as much on each athlete as the institutions do to educate the average student, according to data from the National Collegiate Athletic Association (NCAA) and the Delta Cost Project. From 2005 to 2010, athletics costs increased at least twice as fast as academic spending, on a per capita basis across each of the three Division I subdivisions.

Those figures, and many more like them, are building a growing concern among higher education’s senior leaders that college athletics programs are not sustainable for the long term. 

For example, in a 2009 survey of university presidents, sponsored by the Knight Commission on Intercollegiate Athletics, fewer than one quarter of presidents said they believed intercollegiate athletics were sustainable in their current form at their institutions. Nearly half expressed concerns about the proportion of institutional resources being used to support athletics programs, and a similar proportion said they feared that economic pressures might force them to discontinue one or more sports. 

Similarly, in the “2012 Inside Higher Ed Survey of College & University Presidents,” when asked about the overall status of intercollegiate athletics in American higher education, fully 75 percent of college and university presidents surveyed agree or strongly agree that colleges and universities “spend way too much money” on intercollegiate sports; 67.8 percent believe that the “athletic scandals of the past year have hurt the reputation of all of higher education, not just the institution involved”; and almost half (48.2 percent) view the recent scandals as “inevitable” in big-time athletics programs. 

“Last year,” says Kathleen McNeely, NCAA’s vice president of administration and chief financial officer, “only 24 Division I institutions generated more money through athletics than they spent.” With nearly 350 colleges and universities in the Division I membership, this represents only 6.9 percent. “Most athletics department budgets comprise only 3 to 5 percent of the total university budget,” says McNeely. “But, they do make up a larger proportion of the institution’s reputational risk.”

Amy Perko, executive director of the Knight Commission, says, “At a time when all of U.S. higher education is under unprecedented pressure to be more transparent to the public and more accountable for the results it achieves, intercollegiate athletics cannot expect to be immune to the same standards. 

“Heightened scrutiny of college sports should not be viewed as a threat but as an opportunity,” says Perko. “With the spotlight already on college sports, more effective disclosure of finances—and of financial priorities—will enhance the long-term prospects of college athletics by ensuring that they remain part of, not apart from, the central mission of colleges and universities.”

As institutions seek methods to rein in athletics spending and more closely align spending with academic priorities, their actions include everything from cutting sports programs to building closer, more in-touch relationships among athletics offices and central business offices. At the same time, sports-related organizations such as the NCAA and the Knight Commission are creating tools to assist in the process, particularly those that make data tracking and analysis more efficient and available for benchmarking and decision making.

Setting Priorities

As colleges and universities struggle to strike the right balance between academic and athletics spending, a growing number of them are making tough decisions to cut sports or transfer to less expensive divisions of competition. For instance, Temple University, Philadelphia, recently dropped from 24 athletics programs to 17, cutting sports that included baseball, softball, rowing, and men’s gymnastics. The decision was a financial one, as university leaders realized they could not continue to fund two dozen athletics programs at appropriate levels as the costs of intercollegiate athletics continue to rise, according to a statement by Kevin Clark, vice president and director of athletics. 

And Temple isn’t alone. Rutgers University, New Jersey, dropped six sports in 2007; Robert Morris University, Illinois, is cutting field hockey; and Spelman College, a historically black college in Atlanta that competed in NCAA Division III, dropped intercollegiate athletics altogether last year in favor of a health and fitness program designed to benefit all its 2,100 students. 

At North Carolina’s Winston-Salem State University (WSSU), the athletics program was in its last year of transitioning from Division II to Division I competition when Chancellor Donald Reaves pulled the plug on the transition in 2009. It was “purely a financial decision,” Reaves says. “We simply didn’t have the financial resources to complete that transition. First and foremost, we are an academic institution, and we were not willing to drain resources from the academic mission for athletics activities.”

Before returning to Division II sports in 2010–11, Reaves says WSSU racked up unsustainable costs and processes. For instance, some coaches were being paid from academic department budgets, while student athletics fees, at $579 per student, were some of the highest in the state. When the decision was made to stop pursuing Division I competition, WSSU eliminated three sports—men’s indoor track, men’s outdoor track, and men’s golf—and made other changes, such as setting a fundraising goal for the athletics department and giving the department a strict budget, Reaves says. 

Choosing to return the university’s athletics program to its previous level was a difficult decision that was met with severe backlash, especially from the alumni association. Reaves held town hall meetings, spoke at national alumni association meetings, and committed to respond to every e-mail, “no matter how strongly worded,” he says. “They will never forgive me for this, but I’m absolutely convinced it was the right decision.” 

Since the decision was made, the WSSU athletics program has been extremely successful, winning 16 conference championships since 2010 and competing in the Division II National Football Championship. “Winning cures everything,” Reaves says. “And the decision has enabled us to strike the right balance between academic quality and athletics aspirations.” 

Other universities seek ways to boost their athletics programs while valuing academic priorities at the same time. For instance, the University of Maryland, College Park, recently made the decision to move to the Big Ten athletics conference from the Atlantic Coast Conference (ACC), in hopes of (1) eventually generating increased revenue for the university’s athletics program, and (2) gaining the benefits of the Committee on Institutional Cooperation (CIC), a consortium of the Big Ten universities plus the University of Chicago that facilitates the sharing of expertise, leveraging of campus resources, and collaboration on innovative programs.

According to an August 2013 CBS report, “the university has loaned the athletics department—which has a goal of being self-sufficient—upwards of $21 million to overcome [earlier deficits].”

While the board of the University System of Maryland leaves such athletics decisions to the campus president, System Chancellor Brit Kirwan supported the move “not only because of the potential for increased revenue but, more importantly for me, because of the strong academic alliance that exists within the Big Ten and that does not exist within any other conference except possibly the Ivy League,” he says. 

That alliance, the CIC, was established by the presidents of the Big Ten conference members in 1958 as the athletics league’s academic counterpart. For the University of Maryland, the increased athletics funding necessary for joining the Big Ten was considered worth it because of the academic opportunities offered by membership. “Membership in CIC is why the faculty at UM were in support of the move to the Big Ten,” confirms Kirwan.

Implementing Changes

While some institutions are cutting sports or limiting athletics programs that are growing too expensive to sustain, others are managing the cost issue by implementing changes in the way athletics are funded and reported. 

When annual dashboard information is updated, the NCAA alerts university presidents, CFOs, and athletics departments; but the tool is also accessible and easy to use for others across campus, such as the finance division or budget office. At Notre Dame, for instance, the dashboard has been used to help with benchmarking and to pinpoint areas where spending trends may differ. “Throughout the year, we have used the dashboard to see trends across the country and compare them to our numbers,” Paluf says.

In addition to athletics spending information, the database also includes trends in institutional funding for athletics through student fees and other institutional sources. Given the significant role football plays in shaping Division I spending patterns, football-only spending data are included for additional analyses. The database, which draws on data provided in various public reports, allows users to compare trends and search by institutions, conferences, and subdivisions.

After launching in December 2013, the Knight Commission database has already been mentioned in a report by a University of North Carolina Board of Governors’ working group on athletics financial transparency. The report, says Perko, referenced the database as one of the publicly accessible databases that is available for learning about different aspects of intercollegiate athletics.

The database, explains Perko, “should help lead to practices and policies that will improve the long-term financial prospects for college sports by bringing a better balance to athletics expenditures within the broader institutional missions. For instance, institutions that rely heavily on institutional allocations through student fees to balance the athletics budget might make changes in athletics budgeting after using the database, so that the rate of growth in institutional funding for athletics does not outpace the rate of growth for spending on core academic activities.” 

Building Relationships

NCAA’s McNeely says that she frequently hears athletics business officers say they have “little to no relationship” with the finance staff on their campuses. And when the central business office rarely or never interacts with the athletics business office, the campus is missing a vital opportunity to keep athletics costs under control and informed by the context of the larger university. 

“A quarterly meeting would really help both parties to identify solutions before a crisis occurs,” says McNeely. “A dashboard can be used by both to see where they fit in the range of universities. When I was associate vice president for finance at Indiana University, I met with the athletics department quarterly. It helped me understand their issues and helped me to help them in dealing with issues and moving forward. Our institutions that have done a really good job of telling their stories allow administrators to know early on when and where there are challenges—and address them in a timely manner.”

At Notre Dame, a close relationship between the athletics office and the central business office helps ensure that athletics spending is understood and stays in check. “We are indeed very fortunate that we know what’s going on with monthly [athletics office] activity, and the athletics office knows exactly when our finance committee meetings are,” Paluf says. “They are as interested as we are in giving us the information we need, when we need it.” 

For instance, in some cases, there are restrictions on donor funds that are used by the athletics department. If athletics business officers were not informed about the administrative requirements or legal requirements associated with those funds and misused them, it could be problematic, Paluf says. “Utilizing donor funds comes with responsibilities,” he adds. “Having athletics be in lock-step with other offices is huge.” 

That close relationship is not standard on most campuses, but it is worth working toward, Paluf says. “If you can get your culture to evolve into that, you won’t be surprised when budgets come out,” he says. “You can deal with the issues, meet them head-on, and work together to solve them.”

Part of building a close relationship is developing an understanding of where the other party is coming from. Not only should CBOs ask how much money the athletics office needs for the coming year, but they should try to understand why the needs might change from year to year. For instance, an athletics program will earn more revenue on the years the football team plays at home against opponents whose fans travel, pay for parking, and buy lots of tickets and concessions. 

In the years when the football team plays mostly smaller schools at home, or those whose fans do not travel, revenue figures will decrease. “Athletics budgets are growing, but in many cases, they are important to help fund academic programs and initiatives,” Paluf says. “We try to keep it in context of how athletics fit into the overall student life experience. We have to look at the entire financial picture, making sure we understand not only the costs of athletics but understand the revenues as well.” 

Rewarding Best Practices

In 2010, the Knight Commission outlined a number of changes that could help ensure the financial sustainability of college athletics in its in-depth report, “Restoring the Balance: Dollars, Values and the Future of College Sports.” An important recommendation was that institutions should be rewarded for making academic values a priority. 

In the years since the report was published, college athletics has made some progress toward that goal. For example, after the Knight Commission proposed setting aside for academics 20 percent of the new TV revenue coming from the college football playoffs—to reward athletics programs for achieving academic benchmarks—the Big Five Conferences took “a modest step in this direction,” says UM’s Kirwan, who also cochairs the Knight Commission, “even though they did not set aside as much as we recommended.”

In addition, the NCAA has recently begun requiring teams to be on track to graduate at least half of their respective players in order to participate in postseason play, which was recommended by the Knight Commission several years ago. The NCAA’s Academic Progress Rate (APR) “had its roots in Knight Commission recommendations as well,” Kirwan says. 

The Academic Progress Rate is a team-based metric that accounts for the eligibility, graduation, and retention of each student athlete, each term. Beginning with 2012–13 championships, teams must earn a minimum 900 four-year APR, or a 930 average over the most recent two years, to be eligible to participate. The APR requirements increase further in 2014–15 championships; and for 2015–16 and beyond, teams must earn a four-year APR of 930 to compete in championships.

“The NCAA has a long-running academic reform program,” adds McNeely. “It’s less about rewarding and more about expectations. The Academic Progress Rate is like a report card for each Division I school. Teams with high scores are publicized and celebrated. We used to rely on only graduation rates, but that’s a historical measure, while the progress rate is in real time. 

“We’re talking about college athletes; most of them will not be professional athletes. So, we want them to succeed in college so that they will be positioned to succeed in life,” McNeely says.

Progress, More or Less

Despite the pressures on intercollegiate athletics spending and some measurable efforts to curb its burgeoning growth, predictions of out-of-control costs persist. A report released in April by the American Association of University Professors (AAUP) contends that “increasingly, institutions of higher education have lost their focus on academic activities at the core of their mission. The spending priority accorded to competitive sports too easily diverts the focus of our institutions from teaching and learning to scandal and excess.”

Using data from the U.S. Department of Education, the NCAA, and its own surveys, AAUP paints a sobering picture in its report, “Losing Focus: The Annual Report on the Economic Status of the Profession, 2013–14.” Not only does the report target athletics spending, but it also notes stagnating faculty salaries, explosive growth in administrative positions, and tripling employment in non–tenure track positions as further evidence of the veering away from the academic mission.

While Terry Hartle, senior vice president of the American Council of Education, has pointed out that the AAUP “has a vested interest in finding that too little money is going to faculty,” the University of Maryland’s Brit Kirwan is more circumspect. In his comments on the research report, he says, “Many of us have had the concern that out-of-control expenditures in Division I would have a cascading effect, and this report suggests that our worst fears are coming to pass. The American culture is so in love with athletics that even though many people know the right thing to do, they can’t do it.”

NANCY MANN JACKSON, Huntsville, Alabama, covers higher education business issues for Business Officer.

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“We’re talking about college athletes; most of them will not be professional athletes. We want them to succeed in college so that they will be positioned to succeed in life.”

—Kathleen McNeely, NCAA