The Knight Commission focused on fiscal reform in intercollegiate athletics during its October 27 meeting in Indianapolis. The meeting marked the Commission's 15th anniversary.

Commission members heard from Peter Orszag of The Brookings Institution; Judith Palmer of Indiana University, Bloomington; and University of Texas at Austin accounting professor Michael Granof. The three panelists addressed existing studies regarding the so-called "arms race" in intercollegiate athletics, the challenges inherent in acquiring reliable financial data from institutions and the desire to include athletics under the university budgeting umbrella rather than as a separate entity.

Commissioners also heard from Robert Hemenway, chancellor of the University of Kansas and chair of the Division I Board of Directors. Hemenway discussed a variety of issues, including academic reform, fiscal responsibility and the "social capital" that is unique to intercollegiate athletics.

Orszag, co-director of the Tax Policy Center and Economic Studies Program at The Brookings Institution, co-authored a study commissioned by the NCAA that researched athletics operating budgets for an eight-year period between 1993 and 2001. Orszag provided Commission members with additional data from 2002 and 2003 that continue to refute several popular myths about athletics spending, such as the notion that increased expenditures or an increase in winning percentage automatically lead to increased revenues or more quality undergraduate admissions. Orszag's study supports neither assumption. Findings also do not confirm that an arms race exists, at least as far as athletics operating budgets are concerned.

"The evidence and the conclusions are inescapable," said Knight Foundation President and CEO Hodding Carter III. "Runaway costs do not equate with winning or more revenue for general university purposes. While researchers continue to try to account for the true costs of athletics, presidents and trustees must continue to focus on this issue of runaway spending with little or no return."

Orszag acknowledged that the NCAA study focused on operating expenses and not capital expenditures, primarily because of the difficulties in obtaining reliable data on the latter. One Knight Commission member challenged the notion that there was not an arms race simply because the data on operating expenses did not support the existence of one. Orszag said that while data on capital expenditures -- if reliable data can be obtained -- may support the idea of an arms race in that area, it is premature to assume that to be true. After all, he said, the study refuted the same assumption about operating expenses.

"Before we know, we have to admit that we don't know," Orszag said.

Orszag also emphasized that the debate over athletics spending should not be focused so much on the spending itself but on the value athletics brings to the university. He cited the study's finding that athletics operating expenses, on average, account for just about 3.5 percent of the entire university budget. The issue, Orszag said, isn't whether athletics is providing a subsidy to or being subsidized by the university.

"It would be highly unusual for something that is only 3 percent of the overall budget to have a huge negative or positive effect on the total enterprise," he said. "The real debate should be to what extent institutions should engage in the activity -- what value does intercollegiate athletics bring to the institution?"

Rein in athletics budgeting

Palmer, a vice-president at Indiana and chair of the NCAA's joint task force with the National Association of College and University Business Officers, said more reliable data will need to be compiled before presidents can make informed decisions about fiscal responsibility.

"It is difficult to aggregate data across a national group or even across a conference unless university presidents first insist on a full, complete and transparent report at their own institution," Palmer said.

Kent State University President Carol Cartwright, a Knight Commission member and chair of the NCAA Executive Committee, supported Palmer's claim.

"It is particularly difficult for decision-makers because there is so little comparative data available, and we want to keep pushing to get more standardized information that can be compared," Cartwright said. "That way, we can really look at a database to determine the extent to which we are engaged in things such as an arms race.

"Some good work has been accomplished on this front, but this is beginning work. These issues are challenging and complicated -- institutional practices and definitions have been built up over time and while they are defensible they are not always comparable. We are beginning now to understand a strong community of interest among the NCAA, the Knight Commission and individual university presidents to get better data."

Granof, a member of the faculty-based and reform-minded Coalition on Intercollegiate Athletics, warned against separating athletics from the rest of the university. In such cases, Granof said, athletics doesn't have to justify its expenditures against the overall university budget because it doesn't have to compete with other programs for university dollars.

"We should not have two separate wings of the university -- one academic and one athletic," Granof said. "These wings are part of the same bird, and it's an academic bird, not an athletics bird."

Granof also said that "we are what we pay for" when it comes to athletics spending. He said the desire to be No. 1 in football or basketball leads to coaches' salaries that exceed those of university presidents or senior faculty members.

Hemenway agreed that some coaches' salaries resemble those of pop culture stars more than university faculty and staff. But he argued that "arms race" may be the wrong terminology to use in the discussions.

"This is American capitalism at work," he said. "The dilemma for universities is that we have an academic market juxtaposed with an athletics market and the latter is more closely tied to the entertainment industry in some cases. (Television portrays) coaches as entertainment stars and they are paid accordingly."

'Social capital'

Hemenway compared the two-market system of academics and athletics to that facing a university's teaching hospital. "What drives neurosurgeons to earn the salaries they do is the value of the service. That's the same phenomenon we experience in athletics."

Hemenway also addressed the issue of budgeting for athletics according to the value they bring to the university. He said the concept of "social capital" should not be ignored in fiscal-reform discussions. He said that a full football stadium or basketball arena creates a community of support that is not fiscally quantifiable.

"The return on investment for college athletics is more in the social capital than economic capital," Hemenway said.

In addition to hearing from panelists, Commission members also deliberated about the group's future focus. The Commission generally is regarded as having been a primary impetus for presidential leadership in intercollegiate athletics after issuing its initial report in 1991. The group released a second report in 2001 that addressed academic reform and over-commercialization, among other issues. The current version of the Commission reconvened in 2003 and has met three times.

William Friday, chair of the Knight Commission, said, "It is clear that the commercialization of college sports and the rising and uncontrollable costs of athletics are two of the most important issues we face as a body -- particularly with the arms race and commercialization of athletics rapidly spreading to youth sports in both scholastic and nonscholastic programs."

Commission members plan to meet again February 7 in Miami.