Important Clarification on University Subsidies to Athletic Departments

USA Today has released its annual report on college athletics finance. One category, “Total Subsidies,” always draws the most criticism. In USA Today’s explanation of its methodology, it defines this category as, “The sum of students fees, direct and indirect institutional support and state money. The NCAA and others consider such funds “allocated” or everything not generated by the department’s athletics functions.”

The definition provided by USA Today is 100 percent correct…however, it’s an area I’ve found to be misunderstood by other media members and fans alike. People generally understand the student fees portion. It’s the direct and indirect institutional support and state money portions that cause people to draw inaccurate conclusions. Generally speaking, those are not simply checks written by universities and state governments to cover shortages in the athletic department. In fact, with respect to direct institutional support, it’s almost always a reduction in expenses for the athletic department rather than incoming revenue.

I tackle this subject it in the very first chapter of my book on the business of college football, Saturday Millionaires. Since the entire chapter is available for free (here), it’s easiest to simply give you the relevant section here to educate you about direct institutional support.

Direct Institutional Support

Since out-of-state tuition is largely an up-charge, and not indicative of additional costs to the university, some universities provide tuition waivers to allow out-of-state student-athletes to be treated as in-state students. This can show up in a couple of different ways on athletic department financials: as a payment (a sort of refund) to the athletic department from the university or as a reduction in expense for the athletic department if the money is deducted before payment is sent to the university. Almost all athletic departments who receive these waivers use the former method, showing it as revenue categorized as direct institutional support.

For example, the University of Illinois planned to provide $920,000 in tuition waivers to the athletic department to ensure Title IX compliance for the 2011-2012 school year. Rather than a reduction in the athletic department’s scholarship expenses, these monies are reported as revenue into the athletic department from the university, under the direct institutional support category.

As mentioned at the start of the book, Georgia Tech is in a similar situation. The athletic association’s audited financial report shows $1,667,213 in institutional support for fiscal year 2011. Nearly $1.3 million of that reflects out-of-state tuition not charged to the athletic department – shown as revenue instead of a reduction in expenses. The remainder is the university’s share of the athletic director’s salary, as he is part of the university’s senior management team and reports directly to the university president.

Many commentators simply see monies attributed to direct institutional support and go no further. As you’ve seen, that money isn’t always a transfer of funds from the university to the athletic department. Is institutional support in this manner, especially given Goff’s “list price” theory, a negative reflection on an athletic department’s financial situation?

Similarly, state support is often misunderstood. Here’s the explanation from my book, Saturday Millionaires:

Government Support

Similarly, athletic departments which report government support are criticized without discussion of the funding being received.

Title IX presents additional complications when it comes to evaluating athletic departments. In the instance of University of Illinois, detailed above, tuition waivers are provided for female athletes and reported as direct institutional support. In addition, some state legislatures have decided to support Title IX by providing funding to athletic departments earmarked for women’s athletics programs. This can show up on a school’s NCAA disclosure as government support.

One of the most comprehensive state laws regarding Title IX compliance was enacted by the State of Washington. Under state law, institutions can grant tuition waivers amounting to up to a specified percent of total operating income. One percent of those tuition waivers can be dedicated to gender equity initiatives in the athletic department.

The specified percentage for University of Washington is 21 percent. Based on fiscal year operating revenue of $3.39 billion, the university could provide discounts and waivers of up to $711.9 million, $7.1 million of which could be for athletics. The total amount provided for athletics in fiscal year 2011 was $2.5 million.

Many other states have similar laws. In Illinois, state law allows for up to 1 percent of total tuition revenue at a public university to be used to support tuition waivers for female student-athletes. In Louisiana, state law allows for 50 tuition waivers per year for female student-athletes at public universities.

University of Oregon showed $959,779 in direct state/government support for fiscal year 2011 on its NCAA disclosure document. Over half of that represents funds forwarded to the athletic department from the state lottery. Under Oregon law, a portion of state lottery proceeds are allocated to the athletic departments at the seven public universities in an effort to reduce the need for athletic departments to be supported by the university’s general fund.

The athletic department cannot simply refuse these funds, and the university has no discretion to reallocate these funds. Is it the athletic department then that should be criticized for using state funds in its budget?

Florida A&M University recorded $263,036 in government support on its 2010 NCAA disclosure document. The athletic department confirmed those were funds received from the State of Florida for Title IX purposes. As is the case at Oregon, these funds cannot be reallocated by the university to other areas; these are funds directly appropriated by the State of Florida to the athletic department for a specific use.

Want to learn more about college athletics finance and why media reports are often misleading? Check out the first chapter of Saturday Millionaires for free here. The book is available through major retailers, and you can order personalized, signed copies for the cover price ($25) here.