Blog Archives

How to Curb Spending in College Athletics

Nearly a year ago, this article asked, how much is too much when it comes to spending on college football?  Assuming the answer is whatever they’re spending now, the next question is how to reform it.  I have a thought.  What if there was a cap on the amount of money universities could spend on college athletics?  Think about it.  University presidents and other observers are constantly decrying the “arms race” that exists today, yet nothing is done.  The reason: presidents know (or suspect) their counterparts are going to keep on spending and gaining a competitive advantage, and no president is going to risk crippling their athletic programs and alienating the alumni base.

But what if there was an NCAA rule which capped the amount of money you could spend each year?  Or perhaps a luxury tax imposed on those who spend over the cap?

A policy like this would allow presidents to put athletics spending on a more sustainable path, without the risk that competitors are going to exploit it and surge past their teams on the field.  It would help address the concerns faculty and other constituents have about spending at the expense of academics, including the public relations problem of increased athletic spending at a time of shrinking state appropriations and rising tuition for students.  Capping spending also means more schools would have the opportunity to compete for championships.  This is a big one.  Our country’s most popular sport by far, the NFL, has a hard salary cap to help provide all its teams with a realistic shot at taking home the trophy.  Even Major League Baseball, which doesn’t have a salary cap, has a luxury tax that teams must pay if they go over the spending threshold.

But why should the University of Texas be prevented from or penalized for spending as much on its athletic programs as its leadership and alumni please?  This is America after all!  Read its leaderships’ comments on this issue here.  They’re going to spend as much as they can and don’t see a problem with it.  But there is a problem.  Texas, Ohio State and others aren’t operating independently.  They are voluntary members of a conference and an association, with other institutions, upon which they depend for competition as well as the revenue they love to spend.  And the large majority of these institutions can’t and shouldn’t keep up.  Texas President William Powers said you don’t tell Albert Pujols he can’t hit in the 9th inning because it’s unfair to the other team; but that isn’t the analogy that applies here.  More on point would be the Angels can’t stack their lineup with nine Albert Pujolses without paying a hefty luxury tax.  In the NFL, you don’t get a backfield with three Adrian Petersons because you literally won’t be able to field a team and stay under the hard salary cap.  In leagues of athletic teams, rules are crafted to foster competition for the betterment of the league over and above the betterment of individual members.  A spending cap is precisely this type of rule.

An issue that would need to be resolved simultaneously with something like a spending cap or luxury tax is the Division I membership, which simply has too many schools which cannot compete at the highest levels.  I would not advocate for a system which tried to bring Texas football and Louisiana-Monroe football to a similar place in the financial “middle.”  In 2010 for example, Texas spent $25M on football; Louisiana-Monroe spent just under $3M.  They are both playing for the same championship.  That’s a joke and needs to be rectified with a split into more divisions.  But certainly you could do something with the top 50 or 60 (financial) football schools.  Michigan, Miami and Nebraska each spent $18M on football in 2010.  You think those schools are operating on the cheap?  Is there any need for those guys to spend more money?  Of course not, except for the fact Texas is outspending them by nearly 40%.

Whether it’s a hard spending cap or a luxury tax, there are controls that should and could be put into place to control spending in college athletics.  However, they will only happen if the presidents collectively decide it’s something they want to do.  Otherwise Mr. Powers and company at Texas will continue circling the Monopoly board, collecting properties, and charging obscene rent to the rest of the college athletics world.

Follow Daniel on Twitter: @DanielHare.

Fan Rewards Go Social

Rewards programs are not new. Whether for pumping gas, swiping your credit card or booking a flight, companies have long sought to incentivize consumer loyalty. Think about it: between commercials, people in booths at the airport and internet pop-up ads, rewards programs are becoming ubiquitous.

College athletics fan rewards programs, where athletics departments give out prizes based on attendance at various sporting events, are also nothing new. Recently, a new trend has developed in this arena, one that seeks to combine the rewards concept with social media. Social media fan rewards programs have been popping up around the country, including schools like Oregon, Florida State, Duke and Penn State, among many others.

The premise is simple: fans are already interacting via social media outlets like Facebook, Twitter, Foursquare and Instagram, often immediately before, during and immediately after athletic contests. Schools utilizing this technology are now providing a platform for fans that makes it easy for them to interact and engage (and spread the good word of the athletics department), while also garnering points to be used for free swag (and who doesn’t like free swag?).

One of the earliest adopters of these programs was Baylor, whose Baylor Bold Rewards program kicked off at the beginning of the 2011 academic year. At the time Associate AD John Garrison stated that, “With so much of our communication moving to social media, we felt this rewards program would be the way to get beyond our ‘friends’ to our friends’ friends.” The program has generated over 22 million social media impressions over the course of a year. That ability to expand a fan base is a big reason these programs have themselves gone “viral”. It’s about rewarding fans for spreading your message about your brand to their friends. Now, not only are more and more schools getting into the act, but conferences are as well, with the Big Ten Network, Horizon League and SWAC all launching their own iterations recently.

Two of the leaders in this burgeoning industry are Row 27 and Lodestone Social. Row 27 was responsible for Baylor’s groundbreaking program and also offers a number of other social marketing tools through their Fanmaker App Suite. Each company boasts long lists of clients from major programs, and each promises to galvanize a fan base through social media while dangling the carrot of the potential monetization of those social media initiatives. Lodestone Social’s pitch is to, “unite the void between social media efforts and revenue, connecting the passion of the crowd to the power of your team.”

One recent example of this “unity” is when Ole Miss and Mississippi State jointly announced in September that C Spire Wireless had signed on to become the official wireless partner of the universities’ social media rewards programs. The sponsorship will allow fans who participate in the Ole Miss Social Rebels and Hail State Social Rewards programs to interact with C Spire Wireless and earn additional rewards and giveaways, and also allow both universities to better engage their fans during games through their smart phones. It is believed to be the first program of its kind in the country, but is not the only way to make money from social media efforts. For example, in 2011 the University of Michigan made $376,478 in revenue from Facebook referrals alone.

Not everyone is impressed with social media fan rewards programs, however. A recent post on the digital and social media blog Digital Hoops Blast questioned if social media rewards programs are necessary at all. The three arguments made to support this notion are: 1) that these programs cause schools to lose focus on creating and sharing amazing content by focusing instead on points, 2) these programs dictate what social networks are better for fans to engage in by skewing the point scheme (more for a like on Facebook than a retweet on Twitter for example), and 3) the automation that totals up points to decide who your best fans is impersonal, which is counterintuitive to how you would want to connect with your best fans.

Those are great points but ultimately these programs are not going to go away. If Michigan, Ole Miss and Mississippi State were able to monetize their social media efforts, you can bet others across the nation with similar or even larger social media footprints are in the process of forming similar partnerships. Rather than the latest tech trend these programs appear to be an extension of what athletics departments have been doing with “traditional” fan rewards programs for years. For this reason look for companies like Lodestone Social, Row27 and others to continue to saturate the market, and for a social rewards program to come to a university near you (if it hasn’t already happened).

BCS Payouts vs. March Madness Payouts

Quite frequently in the debate over the BCS there are comparisons to March Madness. Proponents of moving to a playoff system point to the approximately $771 million a year (beginning in 2011) March Madness generates in television alone (previously an average of $545 million). Meanwhile, the BCS bowls will generate just $125 million beginning in 2011 (previously$96.4 million per year ).

While it’s true March Madness generates more television revenue overall, that doesn’t necessarily mean more money for each athletic department. A total of $452,200,000 was distributed by the NCAA in 2010-2011, and less than half of all monies distributed went back into the athletic department with no strings attached (via the Basketball Fund). Here’s the breakdown:

Basketball Fund ($180,467,000): Monies are distributed based on a six-year rolling period. Institutions receive one unit for each appearance, not including the championship game. Each unit was worth $239,664 in 2010-2011.

Academic Enhancement ($22,461,000): Each Division I institution gets $66,000 to use for academic support service for student-athletes.

Conference Grants ($8,115,000): Each conference receives $261,744 less an agreed upon amount remitted to the regional officiating advisors program. Funds must be used to improve officiating, enhance conference compliance and enforcement programs, drug abuse education, enhancement of opportunities for ethnic minorities, and development of gambling education programs.

Sports Sponsorship Fund ($60,155,000): Each school’s share is determined based on the number of varsity sports sponsored. Points begin with the 14th sport (the number required in Division I), and $30,091 is distributed for each sport above thirteen. These monies may be directed to individual institutions or to the conference for distribution, as decided upon by each conference.

Grants-In-Aid Fund ($120,309,000): Each school’s share is determined based on the number of grants-in-aid awarded. These monies may be directed to individual institutions or to the conference for distribution, as decided upon by each conference.

Student Assistance Fund ($59,738,000): This fund also consists of the Special Assistance Fund and the Student-Athlete Opportunity Fund. For the Student Assistance Fund, all athletes are eligible to receive these funds, even if they have exhausted eligibility or no longer participate due to medical reasons. These monies are distributed to the conference who decides how to allocate. This fund is to be used to assist student-athletes with financial needs that “arise in conjunction with participation in intercollegiate athletics, enrollment in an academic curriculum or that recognize academic achievement. The Student-Athlete Opportunity Fund is distributed by conferences based on the formula used for sports sponsorship and grants-in-aid. The Special Assistance Fund is to be used to meet student-athlete financial needs of an emergency or essential nature for which other financial aid is not available.

Supplemental Support Fund ($955,000): Used to support campus-based initiatives designed to foster student-athlete academic success at eligible limited resource institutions.

At the end of the day, most conferences receive larger payouts from the BCS than March Madness when it comes to money going back into the athletic department with no strings attached. Below is a look at the payouts for the past four years. Totals in red reflect conferences who received a larger payout from basketball than football for the given year. You should also note the football payouts indicated for the non-AQ conferences (Mountain West, Mid-American, Sun Belt, C-USA and Western Athletic) are based on the payout from the BCS before the agreement between the conferences to split BCS money equally between all non-AQ conferences kicks in. Also, these numbers do not include payouts for non-BCS bowl games.

ACC 2006-2007 2007-2008 2008-2009 2009-2010
Football $18,088,675 $18,324,992 $18,672,725 $19,787,058
Basketball $14,149,120 $15,090,053 $15,863,538 $18,220,902
Difference  $3,939,555 $3,234,939 $2,809,187 $1,566,156
         
Big 10 2006-2007 2007-2008 2008-2009 2009-2010
Football $22,588,675 $22,824,992 $23,172,725 $24,287,058
Basketball $13,087,936 $13,561,946 $13,803,338 $15,332,222
Difference $9,500,739 $9,263,046 $9,369,387 $8,954,836
         
Big 12 2006-2007 2007-2008 2008-2009 2009-2010
Football $18,088,675 $22,824,992 $23,172,725 $19,787,058
Basketball $14,325,984 $15,663,093 $16,275,578 $17,109,871
Difference $3,762,691 $7,161,899 $6,897,147 $2,677,187
         
Big East 2006-2007 2007-2008 2008-2009 2009-2010
Football $18,088,675 $18,324,992 $18,672,725 $19,787,058
Basketball $14,856,576 $16,618,160 $19,365,880 $23,109,436
Difference $3,232,099 $1,706,832 ($693,155) ($3,322,378)
         
Pac 10 2006-2007 2007-2008 2008-2009 2009-2010
Football $18,088,675 $18,324,992 $18,672,743 $19,787,058
Basketball $11,849,888 $12,606,880 $13,391,298 $14,665,604
Difference $6,238,787 $5,718,112 $5,281,445 $5,121,454
         
SEC 2006-2007 2007-2008 2008-2009 2009-2010
Football $22,588,675 $22,824,992 $23,172,725 $24,287,058
Basketball $13,087,936 $14,708,026 $15,657,518 $15,110,015
Difference $9,500,739 $8,116,966 $7,515,207 $9,177,043
         
Mountain West 2006-2007 2007-2008 2008-2009 2009-2010
Football $3,529,600 $3,724,000 $9,788,800 $9,878,710
Basketball $3,183,552 $4,011,280 $4,120,399 $3,999,710
Difference $346,048 ($287,280) $5,668,401 $5,879,000
         
Mid-American 2006-2007 2007-2008 2008-2009 2009-2010
Football $1,964,800 $1,508,000 $2,094,400 $2,139,355
Basketball $1,945,504 $1,910,133 $1,442,140 $1,333,237
Difference $19,296 ($402,133) $652,260 $806,118
         
Sun Belt 2006-2007 2007-2008 2008-2009 2009-2010
Football $1,443,200 $2,062,000 $1,529,600 $1,559,570
Basketball $1,061,184 $1,146,080 $1,854,180 $2,222,061
Difference $382,016 $915,920 ($324,580) ($662,491)
         
C-USA 2006-2007 2007-2008 2008-2009 2009-2010
Football $2,486,400 $2,616,000 $2,659,200 $2,719,140
Basketball $7,782,016 $8,213,573 $9,064,879 $8,507,523
Difference ($5,295,616) ($5,597,573) ($6,405,679) ($5,788,383)
         
Western Athletic 2006-2007 2007-2008 2008-2009 2009-2010
Football $9,008,000 $9,170,000 $3,224,000 $7,798,925
Basketball $3,006,688 $3,247,227 $3,090,300 $3,110,886
Difference $6,001,312 $5,922,773 $133,700 $4,688,039

I think it’s interesting to note that AQ football conferences are bringing in more from March Madness than non-AQ football conferences. Some of that has to do with the smaller size of some of the non-AQ conferences, but it’s still rather sizeable disparity. Nonetheless, I imagine people still find the March Madness system more digestible because it is a playoff system and because payouts are based on number of appearances.

Special thanks to my research assistant Eric Heckman for helping me compile the data.

Around the Web

Here are some interesting stories about business in college sports floating around the web to start your weekend:

  • The BCS has delayed their decision regarding the Fiesta Bowl’s status. I still say odds are at least 50-50 the Fiesta Bowl is out and the Cotton Bowl takes its place at Jerry’s World.
  • Utah’s Attorney General says he’ll file an antitrust suit against the BCS in the coming months. Check back on this site next week for my thoughts on why an antitrust suit won’t bring a playoff to college football.
  • Boise State’s AD speaks out against the BCS and urges university presidents to educate themselves on the money they’re losing.
  • Iowa State is going to make a BIG statement with their new video board. Does anyone else think it makes the poor stadium look small?
  • Kansas State is installing new turf which can lower surface temperatures on the field by 18 percent. I’m betting Florida and LSU would never consider such a thing – they like to watch their opponents suffocate from the humidity!

How Much Did the BCS Top 25 Spend on Recruiting?

As I continue to write about the financial aspect of college athletics, I find myself wondering about things like how much money plays a role in winning. Is there one place where you can spend more money and increase your odds of competing for a championship? Or is the Athletic Director more of a conductor choosing which instruments to highlight and when in order to produce the best sounding symphony?

I thought it would be interesting to see how much spending on recruiting plays a role in football success. The numbers reflect recruiting expenses for the 2009-2010 school year.

One thing to note is that recruiting dollars are not broken down by sport, so the numbers you see below reflect the total amount spent on recruiting for all male athletes. Since football has the largest recruiting class and we can safely presume most schools spend the majority of their recruiting dollars on football, I think the numbers still paint an interesting picture.

Below you will see recruiting dollars spent during the 2009-2010 school year for each school in the 2010 BCS final standings, when presumably the athletes recruited with 2009-2010 dollars were then members of the team:

  School Recruiting Expenses % of Total Expenses
1 Auburn $1,129,984.00 1.24%
2 Oregon $844,235.00 1.29%
3 TCU $438,422.00 0.84%
4 Stanford $754,689.00 0.92%
5 Wisconsin $473,897.00 0.53%
6 Ohio State $676,966.00 0.65%
7 Oklahoma $1,010,570.00 1.14%
8 Arkansas $1,187,216.00 1.65%
9 Michigan State $677,958.00 1.10%
10 Boise State $158,355.00 0.63%
11 LSU $741,762.00 0.73%
12 Missouri $596,738.00 1.12%
13 Virginia Tech $625,207.00 1.24%
14 Oklahoma State $414,655.00 0.69%
15 Nevada $216,920.00 1.00%
16 Alabama $1,257,128.00 1.47%
17 Texas A&M $532,641.00 0.77%
18 Nebraksa $685,361.00 1.00%
19 Utah $466,532.00 1.46%
20 South Carolina $565,967.00 0.72%
21 Mississippi State $416,333.00 1.15%
22 West Virginia  $669,844.00 1.18%
23 Florida State $581,923.00 0.77%
24 Hawaii $272,078.00 0.93%
25 UCF $354,264.00 0.99%
       
  Averages $629,985.80 1.01%

Boise State is spending the paltry sum of $158,355, which is just 25% of the average. Only 26 of the 115 on the Broncos 2010 roster hailed from Idaho, with a huge percentage coming from as far away as California and Texas. Impressive that Boise State recruits so well on such a limited budget.

As an interesting side note, Boise State spends nearly as much on female recruiting as male, with female recruiting costs coming in at $123,287. That’s 44% of the total recruiting expenditures. Compare that to the leader for male recruiting expenses on this chart, Alabama, who only spends 26% of their recruiting expenditures on female recruiting. To complete the data needed for comparison, Alabama has 10 women’s teams and Boise State has 9 (with all track-related sports combined into one in each total).

The other thing that stood out to me was that Utah spent above average in terms of the percent of their total expenses advanced towards recruiting. In fact, they rank fourth overall in terms of percentage of total expenses spent on male recruiting. I was also surprised to see Ohio State and Michigan State from the Big Ten spending so much less than Alabama, Arkansas and Auburn from the SEC. The latter three make up the top three spenders overall on the list. Did this help them in their quest to move from a non-AQ conference to an AQ conference?

What surprised you from this list? If your school is on this list, how do you feel about what’s being spent on recruiting?

PlayoffPAC Files IRS Complaint Against BCS Bowls

I’ve written previously on Playoff PAC, the principle opposition group to the BCS.  They’re making the news again, this time with an IRS complaint they have filed against the BCS Bowls.

In a 27-page complaint, Playoff PAC alleges that the bowls are not complying with their 501(c)(3) charitable status.  A 501(c)(3) is tax-exempt and is the designation given charitable organizations like the American Red Cross and Susan G. Komen for the Cure.

Playoff PAC co-founder Chad Pehrson had this to say about the filing:

“Playoff PAC’s review uncovered a disturbing pattern of BCS Bowl organizations using their charitable funds to enrich Bowl executives, pay registered lobbyists without disclosure, fund political campaigns, and heap frivolous benefits on Bowl insiders.  The BCS Bowls’ activities raise important concerns under federal tax laws and we anticipate that the IRS will give these issues due attention.”

Take a look at some of the practices Playoff PAC uncovered:

  • The Sugar Bowl’s top three execs received $1,225,136 in FYE 2009 on revenue of $12.7 million, meaning that just three people skimmed almost $1 of every $10 the Bowl earned.
  • Fiesta Bowl CEO John Junker received $317,717 in FYE 2009 for working just 21 hours per week from the Arizona Sports Foundation, the Bowl’s lead entity.  Mr. Junker’s total compensation package from all Fiesta Bowl-related entities was $592,418 for FYE 2009, nearly quadruple the CEO pay at similarly sized charities.
  • The Fiesta Bowl gave two Bowl executives $240,000 in unsecured interest-free loans, reportedly to pay for their personal memberships in a private golf club.
  • Sugar Bowl Exec. Dir. Paul Hoolahan received $645,386 in FYE 2009, a year in which the Sugar Bowl lost money despite receiving a $1.4 million government grant.  Mr. Hoolahan collected $25,000 more than the Rose Bowl’s top three executives combined.
  • BCS Bowls use charitable funds to fly Bowl execs and spouses first-class, pay private club dues, and foot the bill for employees’ personal income taxes.  The Orange Bowl, for example, spent $756,546 on travel in FYE 2009 for its employees.

I’m not a tax expert, but I’m guessing the bowls can argue these things are all part of your average compensation package for these types of executives.

Perhaps a little more difficult to explain are the undisclosed lobbying efforts uncovered by Playoff PAC.  The Fiesta Bowl reported that it did not engage in lobbying efforts on its federal tax return.  However, Playoff PAC uncovered $1.2 million going to one lobbying firm for “consulting” and at least two other known lobbying firms receiving undisclosed sums.  The Fiesta Bowl also registered with the Arizona Secretary of State as a “principal” for the past five years, a designation that would allow it to employ lobbyists to “attempt[ ] to influence the passage or defeat of … legislation by directly communicating with any legislator.”  In addition, it appears the Fiesta Bowl backed legislation that allowed it to keep its profits from a bowl held in a state-ownd stadium while taxpayers were burdened with the costs of the game.

While the Orange Bowl was also cited as having engaged in undisclosed lobbying activities, it seems the Fiesta Bowl has been continually pushing the limits.  Five Fiesta Bowl employees made donations to political campaigns and were seemingly reimbursed by the Fiesta Bowl.  Charitable organizations are not allowed to make political contributions, so this would have been a circumvention of the 501(c)(3) regulations.  This situation was first reported by The Arizona Republic and since the Secretary of State has opened a criminal investigation.

Playoff PAC hopes their IRS filing will show that the BCS Bowls are not charitable organizations in need of government assistance (in the form of tax exemption and government grants).

This article offers the personal observations of Kristi Dosh, and does not represent the views of her law firm or its clients. Any information contained herein does not constitute legal advice. Consult your own attorney for legal advice on these matters.

Is the BCS Fixed?

The BCS is fixed.  No, not as in repaired. Playoff PAC, which bills itself as the principal opposition to the BCS system, unveiled a new ad today showing how the BCS is fixed, as in rigged.

Playoff PAC notes that between 91 and 86 percent of BCS revenues are split between the six automatic qualifying (AQ) conferences and Notre Dame in a typical postseason. Perhaps you’re a doubter and those numbers seem implausible?  They come from the 2009-2010 BCS Media Guide.

In the past six seasons, the six AQ conferences took home $521 million more than the other five Division I conferences. Is that because the AQ conferences garner higher television ratings or boast higher attendance? It doesn’t appear that way.  Playoff PAC points out that twice in the past three post-seasons a bowl game featuring a non-AQ conference team posted the second highest ratings.  In 2010, the Boise State – TCU game had an 8.23 share, dwarfing the Iowa-Georgia Tech 6.8 share, and in 2009 the Utah-Alabama came in at a 7.8 share as compared to Virginia Tech and Cincinnati’s 5.4 share.

Although I agree with Playoff PAC’s general argument here, I do feel the need to point out that Boise State and TCU played in the Fiesta Bowl, which creates higher ratings than the Orange Bowl (where Iowa and Georgia Tech played) virtually every year.  And don’t underestimate the ratings power of the SEC in that Alabama-Utah matchup.

Back to Playoff PAC’s point, the system still creates unfair outcomes, as we all know.  One such example involves the 2009 Washington Huskies, who were playing in an AQ conference, and the Utah Utes, who played in a non-AQ conference.  The Huskies suffered a winless year while the Utes completed an undefeated season.   Yet, who brought home the bacon?  The AQ-conference Huskies, of course.

I think it’s clear to everyone except the BCS that a new system is needed.  I wish the Playoff PAC the best of luck with their campaign to open eyes and enrage fans and schools alike.

This article offers the personal observations of Kristi Dosh, and does not represent the views of her law firm or its clients. Any information contained herein does not constitute legal advice. Consult your own attorney for legal advice on these matters.