Do college athletic departments make a profit?

In recent years, debate has surrounded college athletic departments. Legal challenges have questioned why students aren’t getting more financial reward and a share of the revenues. Faculty and staff question the value and amount of money spent in support of athletics in an environment of scarce resources. Astronomical coaches salaries, massive facilities, and the churn of conference realignment make even the biggest fan question the future of intercollegiate athletics. In spite of the media exposure and interest, I am consistently surprised at how little we know about basic questions related to athletics.  In today’s post, I want to address one of the most basic and misunderstood questions:  Do college athletic departments make a profit?

Photo credit: Matthew Henry Hall www.matthewhenryhall.com

Before discussing whether college athletic departments make a profit, it is important to understand how incredibly difficult it is to answer this question. Public universities are required to disclosure information.  Thus, most of what we know about athletics expenses comes from public university athletic departments. There is little reason to expect significant differences in how an athletic department operates based on the public/private distinction, but it is a gap is what we are able to understand.

In order to understand if athletic departments make money, we have to understand revenue and expenses.  Since expenses are easier to identify, let’s start there.

The major areas of expenses for athletic departments are coaching salaries and other personnel costs, tuition and other costs related to students, travel, marketing, recruiting, and expenses associated with games including areas such as visiting team expenses and game operations.

Typically, athletic departments are treated like other university departments and do not get charged for central services such as legal counsel, information technology, or human resources.  So although these are costs, they are shared by everyone on campus and not any individual unit.

Athletic revenues are far more complicated.

First, athletic departments receive revenue that many would expect from areas such as ticket sales, fundraising, branding, and television/media rights.

There are two tricky areas when considering athletic department revenues:  student fees and university subsidies.

On many campuses, students pay an athletic fee that provides several million dollars in direct support for athletic operations. Athletic departments argue the fee essentially pays for student tickets and is a reasonable source of revenue. Opponents respond that the fees are simply students (including those on need-based aid) supporting out of control athletic spending.

Although there is a case to be made that student fees may be considered like ticket revenue, no such claim exists for university subsidies. These subsidies are literally money that the university sends from the central university budget to the athletic department to cover athletic department expenses (particularly operating deficits). While these are technically revenues, I think few would argue they should be considered alongside other revenues like television or ticket sales.

For the NCAA, they define self-sufficiency (aka profit) as revenues (not counting university subsidies, student fees, or government support) exceeding expenses.

So using this pretty reasonable definition of revenues vs. expenses, do college athletic departments make a profit?

No.

Not even close.

This week, USA Today released their annual analysis of athletic department revenues and expenses (they do yeoman’s work every year putting this together).  According to their analysis, just 24 of 230 public Division I universities made a profit.

That’s 10.4%.

Perhaps even more striking is that all 24 schools came from four athletic conferences: Big 10, Big 12, SEC, and the Pac-12. Even as a so-called power, the ACC did not have a school that made a profit although N.C. State came close losing only $165,000.

If you use the more generous and athletics friendly calculation and include university subsidies and student fees, 50 departments came out in the black including all of the power conference schools.  However, only 3 non-power conference institutions did not lose money showing the truly poor financial state of many athletic departments.

The bottom line is that almost all athletic departments lose money.  Most lose millions of dollars every year even when using accounting methods in their favor.

I think the false perception comes from how awash departments are in money.  It is true that departments make millions of dollars.

The problem is they are big spenders too.  And almost everyone spends far more than they bring in.

If I make a million dollars a year in salary, I am not automatically a millionaire.

If I make a million dollars a year in salary and spend two million a year in expenses, I’m not a millionaire.

I’m bankrupt.

(Unless I get a university subsidy to support my two million a year expense habit).

And herein lies the problem with understanding and fixing athletic department finances.