It's enough to make legendary college-football broadcaster Keith Jackson cry, "Whoa, Nellie!"

During a three-year project completed in 1999, the University of Texas spent $90 million to upgrade and expand the football stadium on its Austin campus. Now, less than seven years later, Texas is at it again. Last February, fresh from a Rose Bowl victory that clinched a national championship in football, the university's regents approved another $150 million to further remodel and expand the Darrell K. Royal-Texas Memorial Stadium. Expected to be completed in 2008, the project will add another 10,000 seats and 44 premium suites, bringing the total seating capacity to more than 90,000.

The University of Texas isn't the only institution of higher learning lavishing funds on stadium makeovers. In Ann Arbor, the University of Michigan is spending $226 million to overhaul Michigan Stadium and add 83 suites and 3,200 club seats. The "Big House" is already one of the largest stadiums in the country, with a capacity of more than 107,000. Meanwhile, Oklahoma State, which competes with Texas in the Big 12 conference, is putting the finishing touches on a $102 million upgrade to its football stadium. Last January, the athletic program announced a gift of $165 million from oilman and alumnus T. Boone Pickens, earmarked for further renovations to the stadium and other athletic facilities. It was the largest-ever gift to a National Collegiate Athletic Association (NCAA) athletic program.

Ed Goble, associate athletic director for business who acts as sports CFO at the University of Texas, is unapologetic about the sums Texas is spending. "You've got to have great facilities if you are going to remain competitive," he says. "If we can pay for it, we'll do it."

Goble's words could serve as a motto for college athletic departments around the country. In the name of competition, universities are spending more and more on state-of-the-art stadiums, arenas, gyms, practice facilities, and weight rooms. Seeking to please fans and alumni, they are bidding higher sums for coaches and spending more to lure prize recruits.

But as programs vie to outspend one another, many go deep into the red, forcing schools to raise student fees and seek new sources of support. (Texas is a rarity: its program is self-sufficient and usually runs in the black.) Indeed, although many schools have increased revenue by adding premium seating and charging for seat licenses and ticket guarantees, they haven't improved their financial positions much, if at all. Unlike in the corporate world, most universities don't bother to track the returns on their sports investments beyond the win column. Despite the myth of massively profitable college-sports franchises built on the backs of unpaid players, only a handful of athletic programs manage to break even without university or student-fee subsidies.

Some argue that successful athletic programs bring intangible benefits to their schools, in the form of publicity and image enhancement. But research has cast doubt on the value of such reflected glory (see "Money Well Spent?" at the end of this article).

"College sports is the only business in America that has no bottom-line responsibilities," says Rodney Fort, a sports economist at Washington State University. "Even nonprofits have to watch the bottom line to some degree." In his 2000 book Beer and Circus, which takes a critical look at the world of university athletics, Murray Sperber, an emeritus professor at Indiana University, called college sports "the most dysfunctional business in America." Six years later, Sperber says it's as true as ever.

Haves and Have-Nots
According to an analysis by the Indianapolis Star newspaper of the 2004–05 budgets of 164 public universities, just 9 percent of these Division I schools had athletic departments that were able to support themselves. The rest received a total of more than $1 billion in student fees, general school funds, and other subsidies. Without the financial assistance, the average school would have lost $5.7 million, according to the Star.

"Except for a handful, they are all losing money," confirms Daniel Fulks, a professor of accounting at Transylvania University in Kentucky. Fulks, who analyzes athletic budgets for the NCAA, adds that the gap between the haves and the have-nots is getting wider. Many have-nots are trying to keep up, he says, but are destined to fail. "It's not so much difficult as it is impossible," says Fulks. "I call these schools 'the pretenders.'"

Consider the disparity between Ohio State, which competes in the Big 10, and Iowa State, which belongs to the Big 12. Ohio State has the largest athletic budget in the country, spending more than $90 million last year. For 2006–07 it has budgeted $97.5 million with a full-time staff of 300 to support 36 sports, with more than 900 student-athletes participating. The Buckeyes athletic department is completely self-supporting and usually operates in the black. "We are very lucky. Ohio State [football] has such a following that even in a down year we can expect to have sellouts," says Susan Henderson, senior associate athletic director, who acts as CFO of the athletic department.

• 1
• 2
• 3
• 4
• 5
• next »