Spendthrift U.
In the corporate world, revenue growth like that would certainly be something to cheer about — but not if costs were increasing just as fast. And that's the case, unfortunately, with college athletics. Costs are rising nearly dollar-for-dollar with revenues. In 2002–03, Division I-A schools averaged $27.2 million in total spending on athletics. "As good as we are at bringing it in, we are just as good at spending it," admits Texas's Goble.

Worse, spending on the cash cows of men's football and basketball doesn't necessarily generate an incremental increase in revenue. According to an NCAA study commissioned in 2003, an increase in operating expenditures of $1 on football or men's basketball in Division I-A was associated with additional revenue of just $1. In other words, increasing spending, even on the profitable sports, has yielded no return on investment at all.

Those who follow the economics of college sports say the system is set up to encourage athletic departments to spend all the revenue they can make. "There's no tight oversight from the university, due to a vocal group of alumni that want to win," says Andrew Zimbalist, a professor of economics at Smith College who studies the business of sports. He says athletic directors are driven to expand the territory they control. "The more they pay coaches and the bigger the stadiums get, the more the ADs are worth," he says. "There are no shareholders to show a profit to."

Yet out-of-control spending isn't just the result of ADs trying to expand their domains, but also of the imperative that colleges must win, at all costs. "In the corporate world, the bottom line is profits, and if the company does well, everyone goes home happy," says Iowa State's Pollard. "In college sports, the bottom line is a championship, and everyone else goes home unhappy." He says this drives athletic departments to spend everything they can to further that goal. "They could stand up and say, 'This is insane, I'm going to stop it,' but they would get fired." College ADs are under pressure to do everything they can within the rules to win, says Pollard, including spending all of their resources. Anything less means they didn't try hard enough.

When schools don't spend everything they bring in, they generally bank those revenues in reserve funds to guard against a down year. At Ohio State, profits were squirreled away with the expectation that the department would lose money in the 2004–05 academic year, when the football team played only six home games instead of the usual seven. "We knew that was coming, so we were able to prepare for it," says Henderson. Likewise, the University of Texas banked its 2005–06 surplus in a reserve fund.

Only a few schools ever send money back into the general university fund. The department of athletics at Ohio State, for example, pays the university a fee of more than $4 million annually in overhead charges to support basic campus infrastructure. The University of Kentucky's athletic department contributes $1 million a year to the president's office for nonathletic need-based scholarships, says Rob Mullens, deputy director of athletics.

To be sure, some cost escalation is uncontrollable. Athletic departments, which generally pay back scholarship money at the list price, are subject to the same runaway tuition costs that all students are seeing. Mullens says that the cost to cover athletic scholarships at Kentucky has increased 12.5 to 15 percent in each of the last four years.

When athletic departments lose money, they often raise student fees to cover the deficit or dip into the university's general fund. For example, when the University of California at San Diego went $300,000 into the red this past academic year, its student-affairs department covered the shortfall, and the school put an increase to student fees on the table. Students will vote in a referendum to raise the fee this fall. Similarly, Colorado State University, which expects an annual deficit in its athletic department of $1 million in coming years, is looking to raise what students pay into the sports program from $53 a semester to $68 a semester, bringing in an additional $720,000 each year. And on the infrequent occasions when Ohio State runs in the red, the university covers the shortfall, but charges the athletic department between 5 and 6 percent interest on what it considers to be a loan. "We're expected to be in the black every year," says Henderson.

Facing a shortfall after a scandal-plagued couple of years and an expensive contract buyout for former football coach Gary Barnett, the University of Colorado obtained an $8 million loan in June from the general university reserve fund at a rate that CFOs would kill for — 2 percent.

Stretching the Dollar
Plenty of universities, however, say they have no choice but to watch the cost side closely. Minnesota, which in 2002 was projecting a deficit of $31 million in its athletic program by the 2007–08 academic year, recently conducted a top-to-bottom review of its sports budget and cut costs anywhere it could. "We looked at every nickel," says Eull. The program now operates close to break-even, with less dependence on general university funds.

Charges that athletic directors spend foolishly ring false to Suzette Fronk, assistant athletic director for business affairs at the University of Toledo in Ohio. She says the athletic department is under tremendous pressure to rein in spending after years of running a deficit. "We don't just have to balance our yearly budget, we're also working against a [loss] carry-forward."

• « previous
• 1
• 2
• 3
• 4
• 5
• next »