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Finance issues make news in college sports

This is an excerpt from Sport Finance-3rd Edition by Gil Fried,Timothy DeSchriver & Michael Mondello.

Paying Student-Athletes

Although certainly not a new concept, over the last several years advocates for paying student-athletes have collectively voiced support for such action. Although current NCAA president Mark Emmert publicly acknowledged that paying stipends to student-athletes would not happen under his leadership, he also strongly opined that something needs to be done sooner rather than later. Specifically, Emmert agreed that discussions should occur about how the NCAA’s revenues could be distributed to the actual workforce, but his reservation about creating an employee-employer relationship should be carefully considered (Weiberg, 2011).

In an attempt to provide several perspectives regarding the compensation levels for those directly involved with the production of revenue in major collegiate sports, essentially the student-athletes and coaches, Huma and Staurowsky (2011) analyzed financial metrics including room and board, coaching salaries, and revenues produced by each team. Following four analyses, they released a report titled “The Price of Poverty in Big Time College Sport.” Among their findings were the following:

  • College athletes on full scholarship do not receive a “free ride.” For the 2009-2010 academic year, the average annual scholarship shortfall (out-of-pocket expenses) for Football Bowl Series (FBS) “full” scholarship athletes was $3,222.
  • The compensation that FBS athletes on “full scholarship” receive for living expenses (room and board, other expenses) positions the vast majority at or below the poverty level.
  • If allowed access to the fair market system similar to that enjoyed by professional athletes, the average FBS football and basketball player would be worth approximately $121,048 and $265,027, respectively (not counting individual commercial endorsement deals).
  • Football players with the top 10 highest estimated fair market values were worth between $345, 000 and $514,000 in 2009-2010. The top spot was held by University of Texas football players. Although 100% of those players received scholarships, leaving them living below the federal poverty line and with an average scholarship shortfall of $2,841 in 2010-2011, their coaches were paid an average of over $3.5 million each in 2010, excluding bonuses.
  • Basketball players with the top 10 highest estimated fair market values were worth between $620,000 and $1 million in 2009-2010. The top spot was held by Duke basketball players. Although 80% of those players received scholarships, leaving them living below the federal poverty line and with an average scholarship shortfall of $3,098 in 2010-2011, their coaches were paid an average of over $2.5 million in 2010, excluding bonuses.

Based on these findings, Huma and Staurowsky (2011) proposed several recommendations:

  • Support legislation allowing universities to fund their athletes’ educational opportunities with scholarships that cover the full cost of attendance. The average $3,222 increase per player would be enough to free many from poverty and reduce their vulnerability to breaking NCAA rules. This initiative could be funded with the new TV revenue streams permeating throughout NCAA sports.
  • A $3,222 scholarship increase would cost approximately $32.8 million for 85 scholarship players from each of the 120 FBS football teams, and $14.2 million would be required to do the same for 13 scholarship players on each of the 338 Division I basketball teams that offer scholarships. The total would be about $47 million annually. Should Title IX compliance require that provisions be made for female athletes to receive a similar benefit, that amount could be doubled for a total of $94 million annually.
  • Colleges should be free to provide multiple-year scholarships in all sports if they so choose. The NCAA’s one-year cap on the duration of a scholarship undermines its purported educational mission and puts in jeopardy the educational opportunities for every college athlete. High school recruits deserve to know which colleges are willing to prioritize their education so that they can make an informed decision.

Brown (2011) estimated that the rents generated by the top college football players significantly exceeded the costs associated with athletic scholarships. A top college football player, defined as one drafted into the National Football League (NFL), produced marginal revenues exceeding $1 million in 2005, representing a 30% increase from estimates 16 years earlier.

Broadcasting Deals

In 2011 the University of Texas (UT) reached an agreement with ESPN to launch the Longhorn Network, a channel devoted exclusively to broadcasting and promoting both the university’s athletic department and the university. As part of the agreement, UT will receive payments totaling over $300 million dollars distributed over 20 years. This money is in addition to the share of Big 12 revenues that the university already receives as a conference member. Although the University of Texas will certainly reap the financial benefit of having their own dedicated network, the biggest advantage for Texas may not be the financial payoff, because half of the money will initially go to academics, but rather the constant presence on television and other platforms. Potential high school recruits will see the Longhorn Network in their homes and on their iPads and smart phones. Potentially, the Longhorn Network could become the nation’s first regional college sports network focusing on one school with a limited high-profile inventory.

Despite the increased media attention brought to a host institution, televising collegiate sporting events are not always profitable for everyone. For example, in 2010 the University of Pittsburgh hosted a four-team subregional in the NCAA women’s basketball tournament. But Pittsburgh failed to qualify and was not among the participants. Four teams without a local draw were selected, and only 2,000 tickets were sold after the participating teams were announced. Although the amount of money that Pittsburgh lost was not made public, an Associated Press report in 2009 stated that 11 of the 16 first- and second-round host sites lost money (Zeise, 2010).

Conference Realignment

Although the start of the 2010 college football season was overshadowed by off-field controversies involving high-profile coaches and player-related incidents, the 2011 season was equally compelling away from the gridiron in the form of conference realignment. Several marquee universities including the University of Nebraska (Big Ten) and Colorado (Pac-12) competed in new conferences, and the number of institutions changing conferences or contemplating a change in membership snowballed as the season began. Just a month into the 2011 football season, the Atlantic Coast Conference welcomed Syracuse University and the University of Pittsburgh to their conference, bringing their membership to 14 institutions. Other schools were also being considered, potentially creating a 16-team league (Dinch, 2011). Although stakeholders of college athletics continue to talk about conference membership being influenced by geography and academic reputations, realistically these changes are driven by financial opportunities, specifically the revenue-sharing models of each conference. Furthermore, if conferences all shared revenues equally, the number of schools seeking new conference membership would likely diminish significantly. For example, after the Big 12 conference lost members Colorado and Nebraska respectively to other conferences in 2011, the conference was criticized for its disproportionate television revenue distribution. Only after losing teams and seeing the potential exodus of several other institutions did the Big 12 conference administration agree to modify their existing revenue-sharing policy to distribute money equally among conference members.

Before this change, the Big 12 operated differently. For example, although half of the television revenue was equally shared, the remaining half was distributed proportionately to the number of television appearances for football and men’s basketball. Consequently, high-profile institutions with a consistent television presence received more money than other conference members did. This revenue distribution disparity was closely aligned with the model used by several professional sport leagues. Specifically, although Major League Baseball (MLB) teams equally share revenue from national broadcast deals, local television revenues are negotiated independently and vary significantly across teams. The bidding wars among conferences to secure the most lucrative television deals will undoubtedly be an important criteria as universities become engaged in conference realignment discussions. When the Pac-12 conference negotiated a $3 billion, 12-year broadcast deal in 2011 with ESPN and Fox Sports respectively, the deal became the top financial deal in college sports (Miller, 2011). Given the dynamic state of college sports, particularly football conference affiliation, this deal will undoubtedly be surpassed in the

Read more from Sport Finance, Third Edition by Gil Fried, Timothy DeSchriver, and Michael Mondello.

More Excerpts From Sport Finance 3rd Edition