The Money Bowl

The real competition in big-time college sports is over who can spend the most.

It doesn’t stop there. In June, Big 10 officials announced plans to team with Fox Cable Networks to launch the Big 10 Channel, which will cover Big 10 sports 24 hours a day. If it’s successful, other conferences will be sure to launch dedicated cable channels of their own. College-sports television contracts, even aside from the monster deals with the big-four broadcast networks and ESPN, can be wildly lucrative. An all-college-sports network, CSTV, was launched in 2003 and purchased by CBS in January for $325 million.

All told, Division I-A colleges increased revenues by 34 percent from 1999 to 2003 (the latest year for which data is available), when the average athletic program brought in $29.4 million.

Spendthrift U.

In the corporate world, revenue growth like that would certainly be something to cheer about — but not if costs were increasing just as fast. And that’s the case, unfortunately, with college athletics. Costs are rising nearly dollar-for-dollar with revenues. In 2002–03, Division I-A schools averaged $27.2 million in total spending on athletics. “As good as we are at bringing it in, we are just as good at spending it,” admits Texas’s Goble.

Worse, spending on the cash cows of men’s football and basketball doesn’t necessarily generate an incremental increase in revenue. According to an NCAA study commissioned in 2003, an increase in operating expenditures of $1 on football or men’s basketball in Division I-A was associated with additional revenue of just $1. In other words, increasing spending, even on the profitable sports, has yielded no return on investment at all.

Those who follow the economics of college sports say the system is set up to encourage athletic departments to spend all the revenue they can make. “There’s no tight oversight from the university, due to a vocal group of alumni that want to win,” says Andrew Zimbalist, a professor of economics at Smith College who studies the business of sports. He says athletic directors are driven to expand the territory they control. “The more they pay coaches and the bigger the stadiums get, the more the ADs are worth,” he says. “There are no shareholders to show a profit to.”

Yet out-of-control spending isn’t just the result of ADs trying to expand their domains, but also of the imperative that colleges must win, at all costs. “In the corporate world, the bottom line is profits, and if the company does well, everyone goes home happy,” says Iowa State’s Pollard. “In college sports, the bottom line is a championship, and everyone else goes home unhappy.” He says this drives athletic departments to spend everything they can to further that goal. “They could stand up and say, ‘This is insane, I’m going to stop it,’ but they would get fired.” College ADs are under pressure to do everything they can within the rules to win, says Pollard, including spending all of their resources. Anything less means they didn’t try hard enough.

When schools don’t spend everything they bring in, they generally bank those revenues in reserve funds to guard against a down year. At Ohio State, profits were squirreled away with the expectation that the department would lose money in the 2004–05 academic year, when the football team played only six home games instead of the usual seven. “We knew that was coming, so we were able to prepare for it,” says Henderson. Likewise, the University of Texas banked its 2005–06 surplus in a reserve fund.

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