In the early part of this century, most states began experiencing budget crises -- mounting deficits and expenses and decreasing revenues. Budgets were cut at all levels of state government, forcing agencies and entities to trim back their spending. Many state colleges and universities felt the pinch and, transitively, so did their athletics departments.

While many states have laws strictly prohibiting the use of state-allocated funds for athletics departments (though some states, such as South Carolina, have supported providing funds for athletics facilities), even departments at member institutions in those states can be affected by state budget cuts. If the university receives less money from the state, it has less money to commit to its own departments.

Athletics departments at smaller institutions often are disproportionately affected by the state economy compared to larger institutions. According to the most recent NCAA Revenues and Expenses of Divisions I and II Intercollegiate Athletics Programs, only 1 percent of total revenues in Division I-A come from "direct government support." Daniel L. Fulks, accounting program director at Transylvania University and director of the biennial study, said that government source is most likely state support.

The study also reports that "direct institutional support" -- funds transferred from the main institutional budget to that of the athletics department -- increases as schools get smaller. At the Division I-A level, only 10 percent of total revenues come from the institution. The remainder comes from other sources, which often are easier to find at more well-known and recognized programs. Conversely, at the Division I-AAA level, 43 percent of total revenues come from the institution.

"As you get into other divisions, it's a bigger piece. In the other divisions you just don't generate revenues from other sources," Fulks said. "If the main university gets hurt by state cuts, it's going to have fewer resources to support athletics."

Often, state legislatures or university boards don't cut budgets, but instead raise tuition and fees, which also affects the athletics department (See Part I of this series in the October 10 issue of The NCAA News). As tuition and fees are increased, costs for grants-in-aid awarded to student-athletes rise as well.

Those scholarships often represent a major portion of an athletics department budget. According to the revenues and expenses report, at least 50 percent of an athletics department budget is consumed by salaries and benefits for employees and grants-in-aid for student-athletes.

Related costs

Jeff Orleans, executive director of the Council of Ivy Group Presidents, said there is a logical connection between the cost of higher education and the cost to run the athletics department.

"Anything that drives up costs is going to
drive up the need for revenue," he said. "Especially at public institutions, the bursting of the 1990s bubble wrecked state budgets. Lots of people thought state institutions were under-priced in that bubble and the correction, while it was extreme, brought people back to the right level of pricing. Be that as it may, the price changes for tuition in the last few years have been substantial."

Athletics departments tackle the problems of decreasing support or rising costs due to increased scholarships in vastly different ways. For some, as distasteful as the thought might be, cutting grants-in-aid could eventually be an option in a worst-case scenario. For others, those subsidies for student-athletes are sacred cows that never will be reduced.

Darin Spease is associate athletics director for business affairs at the University of North Carolina, Charlotte. While North Carolina is one of the few states that prohibit the use of state funds for athletics departments, rising tuition costs do have to be absorbed into the athletics department budget.

While Spease doesn't foresee it happening, if the state were to pile up double-digit tuition increases in consecutive years, things definitely would get tight for the 49ers athletics department.

"It puts more pressure on the athletics program to actually go out and solicit more corporate and private dollars. We're in an era where it's not as easy to get those philanthropic gifts as it used to be," he said. "What we'll be faced with (in the event of consecutive major tuition increases) is, 'How do we keep pace?' "

He pointed to several places the department could make cuts -- changing transportation from airplanes to buses or making uniforms last more than a year.

"We'd try to use those dollars we were saving to continue to keep pace with education costs," Spease said. "It would be difficult -- if tuition suddenly raised 20 percent over three years -- to go from having a fully funded volleyball program to maybe being a mostly funded volleyball program.

"I just use them as an example -- we offer 12 full out-of-state scholarships, but if double-digits continued to pile up, we might say now you have 10 full out-of-state scholarships. We can't afford 12 anymore. It would certainly be going in the wrong direction. We're trying to be fully funded in everything, and this would push us away from that goal, which decreases educational opportunities. That's not what we're about and that's not what athletics scholarship programs are designed for. But it does come down to having to pay the bills and balancing the checkbook at the end of the day."

Affects schools differently

At other institutions, scholarships are untouchable and likely will remain intact, no matter what state legislatures or university boards decide about tuition or university budgets. Those often are larger institutions that have a strong donor base or other sources of funding upon which they can draw.

Clayton Hamilton, business manager in the Florida State University athletics department, said the grants-in-aid the athletics department offers to students likely would not change in the face of a budget crisis. Instead, he said, the department could turn to its endowment fund if necessary or other funding sources to make up the difference.

"We'll continue to fund the scholarships we have in place. I don't see us moving away from that at all. Sometimes you just have to go out and beat the doors of your donors a little harder," Hamilton said. "Scholarship costs will continue to increase and you just have to evaluate the costs of your entire athletics department. There might be certain areas you can offset with new revenue sources. But as far as cutting scholarships, I don't see that happening."

Orleans said few of the mostly private institutions in the Ivy Group are affected by state budgets at all. However, he spent almost a decade in the University of North Carolina system, and he said the health of state governments can affect athletics departments in other ways.

"I think the issue is not so much that state support is going down, so how do you make up for it, but that the funding model for higher education has changed dramatically in the last 20 years," Orleans said.

He pointed to the University of Virginia, which he said has been decreasing its reliance on state support in the past few years, aiming to be more autonomous in most areas.

"If that's the model that (Virginia) has adopted, what I would look at when I looked at (Virginia) athletics is not what model it is, but is it consistent with the way (Virginia) is running everything else?" Orleans said. "If it is, and (Virginia) as an institution is just different than it was 20 years ago, then so be it. I think the real issue is when the institution is running itself generally in a certain way, expecting all academic units to raise 20 percent of its budget from grants, then it expects athletics to raise 80 percent of its money from outside...that puts an expectation on athletics that is very different."

Consistency within a university is important, Orleans said.

"If the university is saying to departments that have a lot of contact with the public like the business school or the engineering school, 'Well, we want you to raise 50 percent of your budgets from outside grants and contracts,' and it's saying the same thing to athletics, then maybe neither the athletics director nor the dean of the school of engineering is happy, but at least there's a model," he said. "The model is where there's revenue available from the outside, we want the institution to go out and get it. And it's consistent."

Fulks has identified the same problem -- institutions often expect athletics departments to be independent financially, while holding no such expectation over any other area of the university.

"There are lots of people on every campus that don't really value athletics. The problem is that nowhere else on campus do we have expectations that a department is going to be self-supporting," Fulks said. "You don't expect the history department to be self-supporting. The logic is inconsistent. I value athletics just like I value anything else on campus. My position is if it's worth having, it's worth paying for."

The mind-set of a self-sufficient athletics department often is political, Fulks said, and something Division I may have brought on itself when it made self-sufficiency part of its philosophy statement. That goal, Fulks said, is not only impractical, it's unrealistic. Most institutions will never be able to reach self-sufficiency.

"In Division I-A, schools that are making money are making more and more money, and the schools that are losing money are losing more and more. So the gap between the financial haves and have nots is getting wider every year," he said.

Fulks predicted that the discussions about funding athletics will remain political, with the disparity between the top-funded athletics departments and those with less support continually growing.

"There are about 40 schools in Division I-A that are showing a profit from athletics, and once you get past that, it's unrealistic to expect others to do so," he said. "I think at some point in the future, we have to realize that, and what I call the 'pretenders' will have to accept their lot."

Coming in the November 21 issue: Creative ways in which athletics departments develop new revenue sources.

NCAA working on method to collect accurate reports

In the October 19 edition of USA Today, the paper examined how accurately athletics spending is conveyed to the federal government through the Equity in Athletics Disclosure Act report required of all institutions receiving federal funds.

In the story, reporters claimed that a large percentage of the reports to the U.S. Department of Education contained significant errors. The NCAA collects similar, more detailed information that is not released to the public.

According to NCAA Managing Director of Research Todd Petr, the NCAA also reviews its data for errors, something the federal government does not do with its EADA reports.

"We produce detailed reports every year (gender equity, revenues and expenses, and others) using the data we work hard to clean," Petr said. "Additionally, the data are used in private ways to inform Association policy -- and I would argue they are invaluable in those efforts.

"What we don't do is provide school-by-school data to the general public. That simply is longstanding NCAA policy on all of our data collection efforts -- except graduation rates -- and our members could make an exception for EADA data if they see fit."

The NCAA operates under a system of institutional autonomy that dictates the data are the property of institutions, not the Association, and the institutions decide what is appropriate for public release. Promising confidentiality in all areas of NCAA data collection encourages more cooperation in submitting sometimes highly sensitive data, including academic-performance information.

The Association has acknowledged problems with the EADA collection process, and the issue is one that will be confronted by the NCAA Presidential Task Force on the Future of Division I Intercollegiate Athletics. University of Arizona President Peter Likins, who chairs that group, said the task force has appointed a subcommittee specifically focused on fiscal responsibility. Likins, who also chairs that subcommittee, said it will address whether the NCAA is collecting the right information, and whether the information from each institution is similar enough to allow for both fair comparisons and individual institutional integrity.

The Association has attempted to effect change in this arena before. In 2003, the Division I Board of Directors joined forces with the National Association of College and University Business Officers to discuss the issue. As a result of that group's work, the Board in 2004 adopted legislation that requires that all athletics-related revenues, expenses and capital-expenditure data to be reviewed by an independent accountant before submission to the NCAA. Division II is subject to the review once every three years. Division III is exempt from independent review. Each institution's president or chancellor must approve the submission. Compliance is required by January 15, 2006.

The changes brought by the legislation resulted in the collection of data similar to those required by the federal government.

The NCAA also began a new Web-based reporting system beginning in the fall of 2004. Data submitted by the January 2005 deadline was the first to be presented through the new online application. NCAA officials recently conducted a joint webcast on the new procedure with NACUBO representatives. That webcast will soon be available for viewing at www1.ncaa.org/membership/ed_outreach/eada/index.