The Biggest Misconceptions About The Finances Of College Sports

Last Updated on October 27, 2023

Analyzing the finances of intercollegiate athletics programs has become increasingly popular in recent years, particularly since the last round of conference realignment and the advent of conference networks.

I have reported on college athletics finance since 2009, and what I’ve learned led me to write a book on the subject, Saturday Millionaires: How Winning Football Builds Winning Colleges. However, I’m the first to admit that my understanding of the business side of college sports was deeply flawed in the beginning, and had it not been for a generous CFO with college athletics experience who took me aside, I’d probably still be confused.

I recently delivered a speech to the College Athletics Business Management Association entitled “Managing Financial Data in a Public Setting.” Speaking in front of CFOs, and other college athletics administrators who handle department finances, I shared the most common misconceptions (and mistakes) I find in the media and when speaking to fans.

Whether you work inside the intercollegiate sports industry or you’re a fan with healthy curiosity, I want to share these common misconceptions in the hopes of improving the publicly available information on this topic.

Misconception #1: All data is created equal

There are two primary ways in which the public can access the financials of athletic departments. The first is through a database created by the Department of Education. The benefit of this system is that it includes financial data for both public and private universities.

However, the disadvantages to this database are many. First, departments are not supposed to report a deficit, so you’ll find many athletic departments that appear to perfectly break even. The theory is that the athletic department wouldn’t actually operate in the red (when’s the last time you heard of an athletic department bouncing checks?), so they’re covering the losses somehow and are required to balance the numbers in the report. However, s

The second problem feeds the first: athletic departments aren’t supposed to report revenue that is generated outside of the sports it sponsors. For example, if an athletic department owns a golf course that is open to the public, it wouldn’t report the revenue from the golf course, even though it’s real revenue deposited in the department’s bank account.

Without going into all of the nitty gritty details, I’m simply say that the financial reports each department files with the NCAA are far superior. While they also have flaws (e.g., different schools may report items in different categories, making an apples-to-apples comparison difficult), they’re far more detailed and accurate. T

he biggest downside is that you can’t request these for private schools, and individual states may have laws that restrict their dissemination to in-state residents. Add to that the fact that you have to request each report from each school individually, and it makes gathering these reports labor intensive.

Misconception #2: Athletic departments should turn a profit

Athletic departments are often chastised over their finances — from being disparaged for not paying student athletes to being shamed for not being “self-sustaining” (more on this below). However, many reporters, analysts and fans approach the finances of college athletics in the same way they’d analyze a for-profit company like Coca-Cola.

Athletic departments are non-profit entities, either through their own designation or through that of their respective universities. No, they’re not charities in the sense we’re familiar with through organizations like the American Red Cross, but they fall under exemptions for either amateur sports or education.

Feel free to debate over whether athletic departments should be nonprofit institutions, but as long as they are the truth is that they have no incentive — or goal — to generate a profit. Technically speaking, they generate net revenue, not profit.

In the for-profit world, at least one of the goals of the corporation is to generate profits for shareholders. However, in the non-profit world there is no incentive to generate a profit. Instead, goals include fully funding scholarships to the full extent allowed by the NCAA, offering as many opportunities to as many student athletes as possible and other goals related to promoting safe and fair competition.

Misconception #3: Direct institutional support means the department isn’t solvent

Closely related to the profit mentality discussion is the idea of “direct institutional support,” generally described, and seen, by outsiders as a handout from the university to the athletic department necessary to keep it afloat.

While researching my book several years ago, I polled every FBS program in the country to learn more about the amount each reported under “direct institutional support” on their NCAA forms. Most of the money reported in that section fell into three categories:

  • Out-of-state tuition waivers: Most fans don’t realize that not only do athletic departments pay the university market rate for the tuition, room and board of its student athletes, but also the upcharge for out-of-state students. Since it doesn’t cost more to educate an out-of-state student, this is essentially a surcharge, and some institutions have made the decision to grant the athletic department a “waiver” that reduces the tuition down to in-state levels. Instead of being reported as merely a reduction in expenses, this is shown on the reports as revenue — even though it seems better described as the former. This is not money transferred from the university to the athletic department, even though it’s listed as revenue under the “direct institutional support” category.
  • Title IX tuition waivers: Under some state laws, a specified portion of total tuition revenue at public universities is used to support tuition waivers for female student athletes. Like out-of-state tuition waivers, this is a reduced expense that is reported as revenue under “direct institutional support.”
  •  Lottery funds: The other common form of “direct institutional support” I found was funding from the state lottery. For example, under Oregon law, a portion of state lottery proceeds are allocated to the athletic department at public universities. In some states, these funds are earmarked for Title IX scholarships, while in others it’s for more general use.

Misconception #4: The report tells the entire story

Each financial report is a mere snapshot in time. Because of this, it’s difficult to draw conclusions about the health or weakness of a department based on one report alone. I find it far more useful — and accurate — to study trends over a number of years.

The biggest issue with reporting based off one report is that the numbers can be skewed due to project-specific or one-time transfers. For example, it is not uncommon for a funds raised for long-term projects to be kept off the athletic department’s books (either within a separate development department or foundation/booster club) until the project is undertaken. Then the money will be moved over in a large lump sum when it’s time to develop the project. This can make it appear that the athletic department’s revenue surged in that year, when in fact it was money raised over the course of several years.

Misconception #5: Donations to athletics stay in athletics

One of the most surprising things I learned about the finances of college athletics was the existence of “gift assessments.” At nearly one-third of the schools I polled back in 2012 for my book, the university took a specified percentage of each donation made to the athletic department.

Some indicated it was to cover university overhead, or because of partnerships and shared resources between the university and athletics development offices, but the fact remains that the amount you see on the reports submitted the NCAA may be anywhere from 2-12% less than the amount donated, as the reported number reflected the donation after the assessment in the situations I researched for my book.

Misconception #6: The athletic department is the recipient of all licensing revenue

The last set of data that I’ve found to be misunderstood is licensing revenue. At many universities I polled, the university and athletic department split licensing revenue 50/50. So, even if the sweatshirt sold in the bookstore is specifically branded for the football program, that money is divided between the university and athletics.

Certainly there’s nothing wrong with that practice, but this category combined with the gift assessments can add up to quite a bit of revenue that is arguably generated by the athletic department but never actually hits its books (or its NCAA report).

As I expressed in my speech to CABMA, there is still a great deal of education around the finances of intercollegiate athletics that can be addressed. When I began reporting on this topic, athletic departments weren’t accustomed to providing these reports or being the subject of the analysis.

Given what a hot topic it’s become through conference realignment and record-breaking media contracts, the media and athletic departments alike have been forced into discussions around the topic, and I believe it’s been a learning process on both sides. I am thankful to all of the administrators who have taken the time to educate me about various pieces of the puzzle, and I hope to continue to pay it forward by sharing what I’ve learned publicly.

I originally wrote this piece for Forbes

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