Whenever the national conversation shifts to further compensating student athletes or the fiscal health of college sports at large, a familiar talking point gets trotted out. Here’s an example, from a New York Times post by a former college athlete:
“A recent N.C.A.A. study determined that only about 20 of the 1,000 or so college sports programs in the nation were profitable.”
— Cody McDavis (@CodyMcDavis) February 25, 2019
Here’s the thing: no matter what the official NCAA records say, it isn’t true, for a lot of reasons.
Colleges dramatically overstate what they actually spend on scholarships.
If you pull up a school’s report on the USA Today or Department of Education databases, “scholarships” are generally listed as either the second or third largest expense, behind salaries and facilities. Tuition is expensive, and if you add up the sticker price for tuition, room, board, books, and more, you could be looking at more than $50,000 an athlete. So it’s easy to see how a school could list scholarship spending at over $10 million a season (in FBS, the median is around $6 million, per the NCAA).
That’s what it says on paper, but the school isn’t actually cutting checks like that.
As economist Andy Schwarz has explained several times, here for Vice, the athletic department is “paying” the school, using something called transfer-price accounting. But that isn’t an accurate depiction of the real costs.
This is true whether the department is called “Communications” or “Athletics.” If central school accounting says each full scholarship costs $50,000, then to the department head or Athletics Director (AD), it likely feels like a real cost. But to the school as a whole, unless forgoing that scholarship really increases total cash by $50,000, that’s not what it actually costs.
Currently, when athletic departments give a scholarship, they commonly get charged the full retail price (sometimes of an out-of-state student) regardless of the actual cost to the school of providing one more space at the school. The food and books provided probably costs half of what they charge. The real cost of tuition and dorm space is probably de minimis, unless by giving that space to an athlete, a paying customer is forced out. Except for very selective schools with tight space constraints, most of the expenses listed as part of an athletic scholarship are overstated and sometimes purely fictional transfer prices.
Scholarship spending does cost something, but unless giving a football player a scholarship means a full-tuition student can’t attend, the school’s not actually losing that entire 50 grand. Very few colleges are so full that they literally have to give up a chemistry major’s lecture seat every time they give a scholarship to an athlete.
If a school is trying to grow enrollment, which is the case for many FBS institutions, the actual scholarship cost, according to Schwarz, might be “pennies (or at least dimes) on the dollar of listed cost.”
Tons of other accounting tricks make this math really messy.
Every school’s situation is different, but looking at their accounting is a lot more complicated than just adding up the costs and revenues.
It’s messy. Administrators probably want it that way.
There’s also no real incentive for athletic departments to show a profit, which helps incentivize wild spending.
If you aren’t profitable as a business, you’ll have consequences. That’s not really true for most athletic departments.
That’s part of why coaching salaries have exploded and facilities are constantly renovated, (even if the research says it doesn’t even really help recruiting) and why reported accounting might show negative cash flows, even if that isn’t really the case.
Sports economist Dan Rascher said as much when he testified during the Ed O’Bannon trial. Schools are only spending so much because they feel like it has to be spent on something.
Rascher: What looks like schools aren’t making money on sports is actually schools spending $$ because there’s nothing else to do with it.
— Jon Solomon (@JonSolomonAspen) June 13, 2014
How many schools actually make money is a complicated question, but it’s certainly more than two dozen.
You’d really have to get into the weeds for multiple years of accounting to get the exact data, but it’s hard to imagine many schools that are getting massive TV contracts are not, practically speaking, either making money or easily capable of doing so.
For example, per the USA Today data, UCLA posts exactly the same amount in expenses ($104,106,646) and revenue. Even with the much-discussed struggles of the Pac-12 Network, it’s hard to envision UCLA not making money from athletics. Other major programs like Missouri, North Carolina, Virginia, and Virginia Tech have listed expenses higher than revenues in the USA Today database, numbers that are likely based more on transfer-price accounting than a true reflection of the athletic department.
My best estimate is that the vast majority of power conference schools and at least a few non power conference programs “make money” from athletics.
Some schools, fuzzy math and all, almost certainly don’t. I’ve argued a few of them should look at limiting expenses by dropping down a competition level. Others might argue that spending heavily on athletics, even if it won’t provide a financial return, is still worth it for other reasons, like engaging alumni or marketing the university.
Why does this matter?
It all depends on the context. If an athletic department “reports” a small loss on paper but is actually distributing plenty of money to other university departments, fully funds all scholarships, and pays out cost of attendance stipends, then maybe that only matters to accountants or lawyers.
But if schools try to plead poverty when it comes to providing benefits to students, then the math becomes problematic. If anybody is getting $50 million a year in conference distributions, like Big Ten schools are, and they’re trying to say with a straight face they’re too poor to do anything — whether that means hiring another baseball coach or better compensating athletes — they’re not being truthful. They have the money.
They’ve just making choices to spend it elsewhere or account differently.