Financing College Sports – Part One (Major update & additions 10:30am)

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.

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.

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!

Part 2
Part 3
Part 4
Part 5

About VaWolf82

Engineer living in Central Va. and senior curmudgeon amongst SFN authors One wife, two kids, one dog, four vehicles on insurance, and four phones on cell plan...looking forward to empty nest status. Graduated 1982

ACC & Other AD & Department Editor's Picks NC State Administration Non-Revenue Required Reading Stat of the Day

13 Responses to Financing College Sports – Part One (Major update & additions 10:30am)

  1. packalum44 07/11/2010 at 11:09 PM #

    You didn’t take into account the athletics endowment. Just as I harp on our shitty academic endowment, I will also harp on how pathetic our athletic endowment is (compared to our neighbors especially!).

    Endowments fund scholarships with the interest earned off a donation. As you can imagine, it takes a lot of damn money to endow one scholarship – about 100,000 doneros (assuming 10 percent interest earned which is a standard assumption). But once you endow it goes on forever. Endowments are beautiful beautiful things. I forget what ours is but its several million. I’d guess 10-30 scholarships are funded in perpetuity.

  2. Plz2BStateFan 07/13/2010 at 8:26 AM #

    This series will need either explosions or pictures of Jessica Alba.

    Love your work though. Even if the water is so murky.

  3. VaWolf82 07/13/2010 at 9:25 AM #

    Unfortunately, this subject is neither exciting nor straight forward. There is alot of “stuff” that gets thrown around whenever finances are discussed. Some out the information is flat-out wrong or worse yet, deceiving. I don’t intend to add to the disinformation or over-simplified analyses like the series linked in the entry.

    I hope that everyone will stay with me as I try to lay out what we know in a sequence [hopefully] designed to outline what we know while minimizing inaccurate conclusions. There are no doubt facts and logical conclusions that I will miss as we go through this series. I’m hopeful that our readers will point these issues out as we go through this. I am not afraid to edit a piece to correct errors…or even delete the whole entry if necessary to put out the best analysis that we can produce with the available info.

  4. Sam92 07/13/2010 at 9:45 AM #

    Thanks for this article; packed with information. I find comparisons to our peers to be very interesting, if somewhat disappointing.

    I saw the $11MM spent on football in a sports illustrated “fanhouse” article not long ago – in a ranking where it was the lowest in the ACC.

    Maybe what it comes down to is that NCSU doesn’t have, and maybe never will have, as much money as UNX or other teams we compete with in the conference. But then again, maybe Debbie Yow can bring us forward in that respect.

  5. StateFans 07/13/2010 at 10:51 AM #

    If you were here earlier and are now confused…we’ve re-structured this a little and will be running some of those numbers again in our next entry. Based on reader feedback, we didn’t want these to go too long and risk turning off some of our readers.

  6. Plz2BStateFan 07/13/2010 at 1:56 PM #

    I think this paragraph summarizes the entire point of this piece for the most part.

    “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. ”

    While this doesn’t effect the actual amount of funds or how anything is spent, the fact that this was going on just shows everyone the kind of mentality that was/is going on in the NC State Athletic Department. The result is undermining the efforts of everyone in an organization like this.

    It is quite astonishing what this implies. And could refute most comments by public officials that Lee Fowler has an impossible task and still managed to do a great job. I assume this 10 Mill deal was part of that arguement.

  7. GoldenChain 07/13/2010 at 2:54 PM #

    Hey VA, forgive me if I overlooked it but you didn’t mention the new state law >>>>>> out of state athletes are now charged out of state tution (or will be starting the next cycle) and the boosters club has to pony up the difference!
    This has just happened in the last 30 days unless somehow its been changed back.
    This will have a big impact on the cost AND on the pressure to get more in-state talent for all the state supported schools whether D1, or 1AA.

    I’d be curious to know how other states deal with this.

  8. VaWolf82 07/13/2010 at 3:02 PM #

    I saw that about out-of-state tuition and it will be discussed later in the series. Please post any links to good articles that you have seen.

  9. WV Wolf 07/13/2010 at 4:00 PM #

    I agree on not reading too much into those EIA reported numbers. I remember looking at some of them a while back and there were a lot of numbers that didn’t always make a lot of sense, both for State and other ACC schools. I don’t remember too many specifics but I want to say there were pretty big discrepencies in revenues across ACC schools in “non-revenue” sports.

    Looking forward to the rest of the entries, should be interesting reading.

  10. BJD95 07/13/2010 at 6:57 PM #

    VAWolf had me at “senile old men.” Although I don’t feel right uttering that phrase in the college athletics context without a hat tip our own Bill Friday. Hi, Bill!

    Very much looking forward to the rest of this series. I find it fascination, as is always the case when VA digs into the numbers.

  11. GoldenChain 07/14/2010 at 8:38 AM #

    VA, this hasn’t been lost on Butch he already has 8 of the top 30 in-state kids committed for 2011.

    Football is where it will obviously have the biggest impact.

    From the fishwrap July 1st:

  12. hball57 07/15/2010 at 2:06 PM #

    Just a thought. Could this method of reporting be a protection for the athletic budget for a State University? If the Wolfpack Club is a seperate entity then the State Legislature cannot put their hands on funds directed towards the athletic department. Considering the set up of the University system, I would certainly worry about that. Which is also why the Wolfpack Club should be doing a lot of the construction projects for athletics. If the State budget is in trouble, I wouldn’t want a project that I contributed directly to be reduced or cut.

  13. VaWolf82 07/15/2010 at 3:35 PM #

    I don’t see how the state legislature could seize money from either the school or the athletic dept. If they could do that, then they could take it from the Wolfpack Club or from your checking account.

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