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Latest revenues and expense data reveal effects of slumping economy

By Gary Brown
NCAA.org

Data from the most recent report of athletics revenue and expenses at Division I institutions are starting to reflect the effects that a slumping economy has inflicted on all of higher education.

Data collected from the 2008-09 report compiled by Transylvania University faculty member Dan Fulks, which include the early stages of the recession, reveal more of a burden on institutional allocations to balance athletics budgets. Just 14 programs from the Football Bowl Subdivision generated revenues over expenses, compared with 25 such programs in 2006-07 and 2007-08.

In addition, the median institutional allocation for athletics (total expenses minus revenue directly generated by the athletics department) at the FBS level rose from about $8 million in 2007-08 to $10.2 million in 2008-09. That means FBS institutions are committing more dollars to maintain their athletics program.

NCAA Interim President Jim Isch, who was the Association’s chief financial officer for 11 years before stepping in to replace the late Myles Brand last September, warned that future reports might reveal more of the same.

“While some might be quick to claim that the increases are the result of runaway spending, the more likely scenario is that due to the economy, institutions did not realize anticipated revenue to keep up with fixed costs,” he said.

Isch said institutions tend to set their expenses two or three years out, but revenue is a more real-time budgetary phenomenon. “When generated revenue is down, the allocated revenue (revenue from student fees and other institutional support) has to increase to cover the shortfall,” Isch said.

For the entire FBS, median generated revenue (dollars earned directly by the athletics department from sources such as ticket sales and media contracts) increased by only 5.8 percent, considerably less than the 17 percent from 2007 to 2008. Meanwhile, median total expenses increased by 10.9 percent, as compared with 5.5 percent from 2007 to 2008.

That fuels a trend that the NCAA’s 2006 Presidential Task Force warned as being unsustainable over time. Total expenses have outpaced total generated revenue since 2004 by 58.3 percent to 41.1 percent. Yet, as many Division I institutions continue their quest to be self-sufficient in athletics, more are finding just the opposite to be true – that a balanced budget requires increased allocations from the institution.

While that may be an unsettling trend, Isch said how institutions choose to invest in athletics is their decision, not the NCAA’s.

“It continues to be all about an institution’s determination of the value athletics adds to overall operation,” he said. “It appears more institutions are having to face these difficult decisions about where to invest their money. The top end – while it is not as populated as it was a year ago – still does not have to rely on institutional subsidies. But those that do are falling further behind.”

Indeed, the spending gap is most profound within the FBS. The largest generated revenue for any athletics program in 2009 was $138.5 million, compared with the median generated revenue of $32.3 million. Similarly, the largest total expense of $127.7 million dwarfs the median of $45.9 million.

“Obviously, institutions in the lower quartiles of the FBS have decided athletics have enormous value to the institution, even though it is going to cost more than it is for others in the top quartile that generate revenue over expenses,” Isch said. “Institutions have to make decisions about affording the neighborhood in which they live. Again, it’s all about value.”

Trends continue

Overall, the percentage of athletics expenses as compared with institutional spending remains at about 5 percent in Division I, an allocation that has been relatively consistent since 2004. It also is in line with trends in other divisions. Division III institutions spend about 3 to 4 percent of their budgets on athletics. Division II institutions that sponsor football are at the high end of the scale at about 6 percent.

Another trend that has held steady is the commitment to paying for top coaching and administrative talent in Division I. Coaches’ and staff salaries and grants-in-aid continue to make up almost half of total expenses for the FBS, with salaries accounting for 33 percent and scholarships 15 percent.

The scholarship expense follows the national trend of tuition increases, while salaries appear to be market driven. The highest salaries are in football, men’s basketball, women’s basketball and men’s ice hockey, in that order.

Facility maintenance and rental is the next-largest line item at 13 percent of total expenses.

Ticket sales and contributions from alumni and others continue to compose most of the revenue. Ticket sales account for 30 percent of generated revenues and 24 percent of total revenue, while contributions account for 25 percent of generated and 20 percent total.  Together, these two line items account for more than half of generated revenues.

As for individual sports, between 50 and 60 percent of FBS football and men’s basketball programs have reported surpluses for each of the last six years, a percentage that has been relatively stable. Still, that means almost half of the subdivision’s so-called “revenue sports” don’t cover their own expenses, let alone pay for the non-revenue programs.

Isch said he expects subsequent reports to reveal more drops in generated revenue, though as the economy slowly recovers, schools with big-time endowments and large donor bases will recover, too.

But he also hopes that the somber financial data encourage more schools to moderate their spending behaviors – a message the Association has been emphasizing for several years.

“As alarming as some of these numbers are,” Isch said, “the fact is that the median ratio of athletics expenses to institutional spending has remained steady at about 5 percent over the last six years. Early on in this period, athletics expenses were growing at rates that were up to 5 percent faster than the rates for institutional expenses. However, in the last year, the median institutional gap has closed to zero.

“What we don’t know is whether that phenomenon is the result of the economy or some type of behavior modification. The only way to find out is to see what happens in subsequent years.”

Other findings

Among other findings in the report:

• Median expense per student-athlete at FBS institutions showed a 10.8 percent increase from $69,000 in 2008 to $76,000 in 2009. The average number of participating student-athletes remained essentially unchanged, while total expenses increased.
• In the Football Championship Subdivision, the median generated revenues decreased from 2008 by 3.1 percent, as compared with a 6.0 percent increase from 2007 to 2008. Median total expenses also decreased slightly (0.8 percent) from 2008.
• No FCS athletics program reported net generated revenues in 2009. The median negative net generated revenue (expenses in excess of generated revenues) in 2008 was $7.9 million and $8.7 million in 2009. The net losses have increased steadily over six years.
• Only 2 percent of football programs, 6 percent of men’s basketball programs and 2 percent of women’s basketball programs in the FCS reported net generated revenues (surpluses) for 2009, which is consistent over recent years.
• For Division I institutions without football, the median generated revenues fell by 1.2 percent from 2008, after seeing a 9.0 percent increase from 2007 to 2008. The median total expenses increased by only 1.5 percent from 2008, much better than the 10 percent from 2007 to 2008. Thus, revenues and expenses in this subdivision are moving in a parallel course. No athletics program in this subdivision has reported net generated revenues since 2005, while one reported small net revenues for 2004.