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Trusteeship Magazine

Changing the Game: Athletics Spending in an Academic Context

By William E. Kirwan and R. Gerald Turner
September/October
2010

Institutions must weigh the value of athletics programs against a full and clear understanding of the costs and benefits they present.

To reshape the way athletics programs operate, institutions must emphasize greater transparency and oversight, enhanced support of academic values, and a heightened focus on amateurism.

Boards can play a role not only through oversight of athletics spending versus academic spending, but also by supporting actions at the institutional and conference levels.

At many of the nation’s most prominent institutions of higher education, sports are far more than just extracurricular activities or even campus spectacles. Contests in football, basketball, and often other sports unite colleges and universities with their students, fans, friends, and alumni, both in person and across the globe. Big- time college sports are integral to the identity of many institutions, including our own.

However, rising expenses—and the pursuit of more revenue to support college sports—have become a destabilizing force for many institutions, regardless of athletic mission or program size. According to the National Collegiate Athletic Association (NCAA), over the past decade, spending on athletics has been rising at a rate three to four times faster than the rate of increase of academic budgets among institutions competing in the NCAA’s Division I.

Moreover, most programs rely on institutional resources--in the form of student fees, general-fund transfers, and, in a few cases, state appropriations--to balance their budgets. such transfers are also rising much faster than other educational expenses. According to a recent analysis in USA Today, only seven universities generated enough outside revenue from athletics to cover their athletic costs in each of the past five years.

This is particularly concerning given the challenging financial conditions facing institutions. Universities are dealing with double-digit cuts in state appropriations and sharply reduced endowments in the face of rising costs across the boar--not to mention the loss of federal stimulus money meant to address the current recession. With employee furloughs, program reductions, and increased tuition and fees, spending on college sports can seem questionable or even counterproductive.

Such trends get lost in the news of multimillion- or multibillion-dollar contracts to televise college sports, but they pose real-world problems for many universities. Should institutions pay salaries at the top of the market, in this environment, for head and assistant football and basketball coaches? Should they invest heavily in new facilities designed for the exclusive use of specific teams, such as basketball-team practice facilities? And if athletics programs cannot cover their costs, should universities raise student fees or devote more general funds to keep up?

These are serious concerns for presidents and boards to consider. Athletic programs can be distinctly valuable to their institutions, but only if operated with a full and clear understanding of the costs and benefits they present. Especially given current economic conditions, presidents and boards must ensure that investments in athletics neither displace nor devalue academic priorities.

Examining the Challenges

To address these concerns, the Knight Commission on Intercollegiate Athletics embarked on an 18-month examination of the economic challenges facing inter- collegiate athletics. The commission is an independent group of presidents, university trustees, and former student-athletes that advocates for policies to ensure that athletics programs operate within the edu- cational missions of their institutions.

The commission's examination and the resulting recommendations are set out in Restoring the Balance: Dollars, Values, and the Future of College Sports, published in June 2010, which can be found online at the Knight Commission site. The report calls for greater transparency of athletic finances; for rewarding practices that make academic values a priority; and for treating college athletes as students, not as professionals. Trustees have important roles to play in considering all three goals.

During our examination, we studied data, held public meetings to hear directly from leaders in academe and athletics, and surveyed university presidents leading the 120 institutions competing in the major football division, the Football Bowl Subdivision (FBS) of Division I. We focused on this subset of institutions both because the financial trends in this sub-division pose the greatest challenges for intercollegiate athletics, and also because spending practices in this subdivision are beginning to adversely affect the cost of athletics at all levels of college sports.

Our findings will not be surprising to those involved in the governance of intercollegiate athletics. Ever-increasing demands for higher coaching salaries, more staff, better facilities, and more extensive travel have created a never-ending cost spiral. These demands continue to be met despite data that show athletics-spending growth is out-of-balance with growth in academic spending. At the median, public universities in the FBS spend about $84,000 per athlete annually but only $13,349 per student. Their athletics spending from 2005–08 grew 38 percent--nearly twice as much as spending on academics.

Moreover, the trends do not look good. Last year, the 10 public FBS institutions with the most expensive athletics programs spent an average of $98 million on athletics; by 2020, that amount is projected to rise to $254 million, given the rate of growth from 2005 to 2009.

The problems these trends present are widely acknowledged. In the 2009 survey of FBS university presidents sponsored by the Knight Commission, fewer than a quarter of presidents said they believed intercollegiate athletics were sustainable in their current form at their institutions. Nearly half expressed concern 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 a sport.

The great diversity in budgets, resources, funding models, institutional practices, and state laws presents practical challenges to any one-size-fits-all solution, even among FBS institutions. But the commission agreed with and, through its recommendations, acted upon the key finding from the earlier presidents’ survey: the need for strong support for collaborative actions by groups of institutions, whether at the national level, through the NCAA, or through athletic conferences. While curbing expenses can be particularly perilous if actions are viewed as harming an institution’s competitiveness, collective change at the highest levels of governance gives institutions an opportunity to make progress together.

The commission's report was particularly timely given the recent shifts in athletic-conference affiliations by four public universities and other proposed realignments that could have drastically altered the college-sports landscape. The pursuit of television revenue to cover escalating spending was one of the key factors in both the actual and proposed realignments. Without considerable effort to control spending growth, additional shifts are likely as institutions position themselves to produce greater revenues. The financial conditions driving these major changes give new urgency to the survey's conclusion that presidents must work together to achieve greater financial stability in athletics, particularly with the support of their boards.

Reshaping Athletics

To achieve these goals, the commission calls for universities, conferences, and the NCAA to reshape the way athletics programs operate. In particular, three fundamental changes in national and institutional policies, all of which would strengthen trustee oversight and responsibility, would begin the process of bringing college sports back into proper perspective:

Greater transparency and strengthened oversight: Institutions should publish accurate and comparable information annually on what their athletics programs cost, including debt-service costs, what those programs generate in revenue, and how much they are supported from the institution's general funds. Institutions should also make public data on growth rates in both academic and athletics spending. Reinforcing board responsibilities for oversight; reforming the NCAA athletics certification process, which requires that all member institutions undergo a comprehensive examination of their athletics programs every five years; and including assessments of athletics spending in regional accreditations are also recommended. In particular, boards should review the revenue and expense models in use at their institutions in light of institutional missions and strategic plans.

Enhanced support of academic values: Teams not on track to graduate at least half their athletes should not be eligible for championships. Also, a portion of revenue from NCAA and conference television contracts should be used to provide incentives for institutions to graduate student-athletes and keep athletics spending in check. The report describes this proposed revenue-distribution program as the "Academic-Athletics Balance Fund." The commission recommends that 20 percent of postseason football and basketball revenues be redirected to such a fund and distributed to institutions that demonstrate fiscal discipline and academic success. If such an incentive program existed this year, over $100 million would have been distributed through the new fund.

A heightened focus on amateurism: Athletics programs should be organized to treat athletes as students first, not as professionals. This may include reorganizing postseason schedules so as to minimize intrusions on academic schedules and shortening athletics seasons by reducing the number of contests. NCAA limits on the number of coaching personnel should be enforced, and new limits on the number of non-coaching personnel, such as directors of recruiting or sports operations, should be established to keep programs from hiring auxiliary personnel to gain competitive advantage. And reductions in the number of scholarships offered, particularly the 85 allocated to BFBS football teams, should be considered.

These proposals are not a panacea, but they provide a solid foundation upon which future reforms can be built. Leaders in higher education, including the presidents of the top higher-education associations, have endorsed our proposals and our approach. Indeed, U.S. Education Secretary Arne Duncan praised the commission for protecting educational priorities and strengthening accountability in intercollegiate sports.

AGB President Richard Legon notes the importance of examining the commission's recommendations in an environment where there are increasing demands for higher education to be more efficient, graduate more students, be more competitive globally, and perhaps most importantly, be more transparent and accountable. "The financial crisis has wreaked havoc on our institutions; public and private institutions are operating in an unprecedented fiscal environment that has already required serious changes in what we do and how we do it," Legon says.
"Intercollegiate athletics is not immune from the need for change."

Moreover, AGB traditionally has acknowledged and embraced trustee responsibilities and opportunities in this area, most explicitly in the AGB Statement on Board Responsibilities for Intercollegiate Athletics--adopted in 2004 and updated last year. In our report, the commission reiterates its endorsement of this statement, which provides effective guidelines for boards to follow, such as paying close attention to the appropriate level of revenues and spending on athletics, heightening transparency and accountability, and ensuring that academic values are properly reflected in spending decisions.

Publicly Reported Metrics

The NCAA provides presidents and chancellors with a set of metrics in the form of "dashboard indicators" to assess their athletics programs' financial health and their revenue and expense patterns relative to peer institutions. over the past year, these financial patterns and projections prompted two universities to move from Division I to Division III and another university to abandon its formal transition from Division II to Division I.

In making his recommendation to the Winston-Salem State University board, Chancellor Donald J. Reaves said the escalating expenses required by the move to Division I could not be met "without diverting resources from competing academic priorities." Chancellor Reaves cited the overwhelming reliance on student fees to support those expenditures as one of the primary reasons for not continuing the transition. More presidents and boards will have to explore similar strategies to control athletics expenses in the near future, particularly in the absence of the reforms we recommend.

More effective disclosure of finances--and of financial priorities--will enhance the long-term prospects of college athletics by ensuring they remain part of the central mission of colleges and universities. Some boards already call for the type of public transparency recommended in our report. For example, the Arizona Board of Regents requires its institutions to provide detailed breakdowns of revenues and expenses, including a careful analysis of external revenues generated by athletics programs as well as funds transferred from institutional sources such as student fees. Our proposal would require that these data, including metrics that compare athletics and academic spending, be publicly reported for all Division I institutions.

In addition to their oversight responsibilities, trustees can be particularly helpful in supporting actions at the institutional and conference levels. Athletic conferences can modify revenue-distribution formulas to reward educational values, and trustees can have tremendous influence over such decisions. And meanwhile, boards and their institutions can make their own decisions about operations that impact growth, such as whether to expand athletic staffs or support curbs on such numbers. For instance, a rules change establishing limits on the number of football and basketball non-coaching staff members is being proposed for NCAA institutions to consider. We urge institutions to endorse this national initiative as the first of many that will be required to change the financial trajectory of our athletics programs.

The Salary Conundrum

A particularly difficult issue is that of coaching salaries. The multimillion-dollar salaries of many football and basketball coaches have made headlines, and the majority of the presidents surveyed in 2009 pointed to such compensation as the single largest contributing factor in the unsustainable growth of athletics expenditures. But federal antitrust laws prevent colleges from acting together to restrain salaries, through action by conferences or the NCAA. The commission was advised that it would be very difficult at best to secure even a limited exemption to the antitrust laws for this purpose, so it recommends that an exemption to address compensation not be sought--at least not at this time. Instead, the commission recommends that the higher-education community focus on a more comprehensive and permanent collaborative solution that should be entirely consistent with the antitrust laws: developing and implementing the broader transparency and accountability systems, and the financial incentives and structures, recommended in our report.

In sum, there is every reason to believe that the current direction of big-time college sports is leading us to even greater imbalances of fiscal priority for athletics over academics. We worry about a scenario in which a college must use ever-growing amounts of general funds or increased student fees to maintain a Division I FBS football team instead of using those resources for teaching and research. In this era of declining state support for higher education, trustees, academic leaders, and stakeholders must think hard about how investing in athletics and academics will shape their institutions in the long term.

We are striving to get this right. We did not embark on this effort merely to examine the problem and issue statements. We stepped forward because institutions of higher education must take action now, together, to restore the balance between academics and athletics.

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