This piece is the first in a series of related entries that I am doing to discuss the funding behind big-time college athletics. At a minimum, I intend to break down the articles along these lines:
(1) Introduction and Organizational Analysis (this entry):
(2) A Closer Look at the Numbers
(3) Athletic Dept finances across the ACC
(4) Knight Commission Report
For those that don’t know, the Knight Commission is apparently made up of mostly senile old men who hold varying views on college athletics, most of which can be summarized along the lines of:
- College athletics should be reduced to the intramural level.
- College athletics waste money that should be spent on “education”.
- No more money should be spent on athletes than general students.
- And a lot more stuff that I won’t bother to type.
So, we need a better understanding of athletic department finances before we can properly dissect the latest Knight Commission Report. The following is designed to build some common understanding and knowledge around athletic department finances.
EQUITY IN ATHLETICS
In the spring of 2004, rumors of ACC expansion first hit the news and shortly thereafter message boards all over the internet. The chief reason behind expansion was money – primarily from lucrative television contracts and the addition of a Championship game in Football. The rumors, facts, and speculation that unfolded that spring fueled my interest into the broader picture of the financing behind college athletics. Anyone that shares this interest should bookmark the website produced by the Department of Education — Equity in Athletics (EIA)
The large majority of the articles you will read focusing on college athletics come directly from the information recorded at EIA. The remaining articles come from press releases from the schools or conferences for varying reasons. For example, the various articles/commentaries written on Debbie Yow’s departure from Maryland have yielded some insights that we’ll address.
MISSING INFORMATION & ORGANIZATIONAL STRUCTURE
Brent McMurphy at Fanhouse did a very nice, three-part series on the finances in college sports that you should probably read sometime. His work implicitly presumed that all of the numbers reported by the EIA website were complete, consistent and uniformly prepared by the individual athletics department.
Unfortunately, McMurphy’s presumption couldn’t have been further from the truth. What you have to recognize, and what we will spend some time highlighting, is that information is only as accurate and complete as what the individual schools choose to report. There is NO consistent set of standards or normalizing process that is applied to the financial reports of different schools.
Some schools choose to report and show every item possible, while some schools – like NC State – appear to take a strategy of under-reporting as much as they can. (Surely you didn’t expect Lee Fowler to do anything but sandbag how the department compares to other schools? How in the world could NC State be asked to compete with others schools with such a smaller budget? Pay no attention to the numbers in the budget!)
Consider for a moment the major impact the organization and structure a University’s Booster Club has on financial reporting and attempts at apples-to-apples comparisons.
Did you know that many schools do not have a separate booster organization like we have the independent Wolfpack Club? Many schools’ booster and fundraising organizations are actual divisions within their athletics departments. That means that most of the revenue received in donations, and the corresponding expenses associated with the collection of that revenue all flows through the financial statements of some schools, while not necessarily being reported by others (like NC State).
Since this kind of financial reporting is not governed by “Generally Accepted Accounting Principles” a school can choose to take take two generally different approaches when reporting financial information: (1) attempt to report the most comprehensive and detailed view of the entire athletics endeavor of their university, or (2) share what could be a more narrow sliver of their entire athletics pie by focusing on just the ‘athletics department budget’.
One could make a case that anything the independent booster organization funds for the Athletics Department should be accounted for in revenue and corresponding expenses by the Department. But without some kind of normalizing accounting procedure or mandate, then that may not necessarily be the practice. A “budget” does not have to include ‘pass-through’ payments if someone decides to exclude pass through payments from the budget.
For example, there have been numerous press reports in past years showing that NC State’s Athletics Department budget was ~$10MM smaller than the next smallest department in the ACC. Obviously, that was horse-manure. But, it was a perfect example of this kind of accounting inconsistency and a perfect example of the kind of self-defeating political posturing and whining from Lee Fowler’s Athletics Department.
Those reports appeared to exclude scholarship expenditures for our athletes. Taking a very narrow view of reporting, the Athletics Department could choose to ignore that money because it was being funded by the Wolfpack Club, not the Department. Taking a more comprehensive view, the Athletics Department would include the scholarship payments of the Wolfpack Club as pass-throughs growing the revenue and expense line by the exact same dollar figure. So, a $35MM Athletics Department budget with zero profit was really a $45MM budget with zero profit. (But, why show the $45MM and make yourself appear to be on par with your competition? It would take away an excuse for your poor performance?)
While ^this accounting trick doesn’t appear to be applicable to the EIA data, consider the following for another example of how overall department financial reporting could be manipulated.
Pretend your booster club raises $20MM of annual donations where $16MM goes toward annual scholarships and $4MM is eaten by expenses and operating costs related to their duties. That $4MM of expenses (and corresponding donations/revenue) will be accounted for in the financial statements of departments that raise their own money, but not in departments where the booster club is independent like NC State. Boom! Your ‘department’ looks a lot smaller than others on a comparative basis while the comprehensive operations and athletic endeavors at the respective universities could be equal.
Next, add to that^ recipe the question of who ‘technically’ responsible for capital campaigns and the opportunity for wildly fluctuating financial reporting grows to incomprehensible proportions.
Get the picture?
We will have Part Two of this series coming soon.
Note: Jeff & other authors at SFN played a major contribution to this entry and not all comments here should be directly attributed to VAWolf. (We don’t like to get guys in trouble for things they didn’t say!