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The business of college sports

June 20, 2013

An interesting confluence of articles got me thinking about the business side of EMU athletics. It’s something we’ve discussed here before, but not for a while, and it’s certainly worth taking a closer look.

Accounting for student fees

Currently, the NCAA requires institutions to treat student fees as a subsidy to the athletic department, in all cases. However, that ignores any actual benefit students receive in exchange for those fees. For example, students at the school up the road are able to buy 2013 season football tickets for $280 — $40 per game for seven games — which is heavily discounted from the $75 to $95 per ticket the school charges the public, or the roughly $400 (plus additional hundreds or even thousands in required “donations”) for public season tickets. To put it another way, every student there who buys a season ticket is getting a benefit of roughly $120, and costing the athletic department far more than that in lost revenue.

In an effort to fix this accounting problem, an NCAA proposal would would allow schools to count student-fee money corresponding to free or reduced-price student admissions as generated revenue…when they sell out games. Although this is a step in the right direction (that direction being proper accounting in college athletics), it will lead to a couple fairly predictable changes. First, the accounting change will increase the number of athletic departments (currently 23) that are considered “self-sufficient”, creating a further tease for more marginal schools to double down on athletic spending in an attempt to reach this financial upper echelon. Possibly more interesting, by drawing the line at game sell-outs rather than recognizing any subsidized student ticket use as generated revenue, this will create a strong incentive to most schools to reduce seating in their facilities.

EMU’s athletic budget

At the other end of the revenue spectrum from schools that would “benefit” (at least, on paper) from the proposed accounting change, we find EMU. According to the budgets approved by the EMU Board of Regents on Tuesday, the athletic department’s operating budget will receive a $9.24 million general fund subsidy, in addition to $7.1 million in athletic scholarships (also paid from the general fund). To put that another way, the more-than-23,000 students expected to enroll at EMU in 2013-14 will pay $692 to support the university’s varsity athletic programs. To put it another way, without that athletic department subsidy, EMU could not only avoid this year’s 3.75% tuition hike, they could actually drop tuition by 4% and still break even.

It’s probably worth noting, however, that although the football program’s $2.47 million budget is the largest piece of the athletic department pie, that sport represents an even bigger slice of the income. The department expects $1.68 million in revenue, mostly from football and men’s basketball, with an $1.55 million of income outside the operating budget coming from the football away games at Penn State, Rutgers, and Army.

The elephant in the room

All this is really just small potatoes, compared to the pending lawsuit by Ed O’Bannon against the NCAA. If you follow the business of college athletics, you probably know exactly what I’m talking about, but for the benefit of everyone, I’ll summarize the issues at hand.

O’Bannon played basketball at UCLA in the early 1990s. As a senior, he won multiple player-of-the-year awards, was a consensus first-team All-American, was the NCAA tournament MVP, and led the Bruins to the 1995 national championship. Although he went ninth in the NBA draft that year, he never established himself as a pro player, bouncing from team to team and league to league; he later commented that he “played for 12 different teams in at least six countries and for 15 different coaches.” The lawsuit stems from the NCAA continuing to profit from O’Bannon, and other former collegiate athletes, many years after they leave college, not only by continuing to sell actual game footage (think ESPN Classic) but also by licensing their likenesses to video game developers. O’Bannon alleges that, by requiring students to sign over rights to their names and likenesses in perpetuity if they want to play college sports, the NCAA has violated antitrust laws.

O’Bannon’s lawyers have asked the court to certify this as a class action lawsuit, on behalf of thousands of current and former college athletes, who (they allege) were coerced by the NCAA’s near-monopoly into signing over these rights. Whether or not this becomes a class action lawsuit, and whether or not the lawsuit ultimately succeeds, the O’Bannon lawsuit is unlikely to be the end of the matter.

Does the NCAA have a future?

The fact is that the NCAA, both itself as an organization and on behalf of hundreds of college athletic departments, has enjoyed several decades of having the best of both worlds. On the one hand, they have several highly desirable properties — college football and the men’s basketball tournament — which they have been able to exploit to the tune of millions of dollars a year; on the other hand they pay the top producers of those properties — star athletes in football and men’s basketball — a fraction of their value, preaching the virtues of “amateurism”.

It’s important to remember that amateurism is defined by the NCAA itself, and has been re-defined at will over the decades. Once upon a time, amateurism briefly meant no compensation at all, including athletic scholarships. Over the years this definition has gradually been stretch to include not only scholarships, room and board, extra academic services (e.g. tutoring), and book stipends. Over the last two years, the NCAA has floated the idea of allowing conferences to allow member schools to pay athletes up to $2,000 over and above all those costs. Clearly, the NCAA is comfortable going well beyond the bounds of any common-sense definition of “amateur”.

The problem posed by all this is that the NCAA’s official top tier — Division I Football Bowl Subdivision, once known as Division I-A — is already in a fairly tenuous situation. The gap between the real top, the schools of the Big Ten, PAC-12, SEC, Big XII, and ACC, and the lower end of the subdivision, the MAC, Sun Belt, and WAC, has never been bigger, and allowing conferences to pay athletes more will only increase that gap. Meanwhile, the O’Bannon lawsuit adds the spectre of market-based pay to top athletes as well as a potential need to break up the NCAA.

The obvious solution would be for top schools to leave the NCAA (at least for football) en masse, and to establish some sort of new semi-pro league. It would be a risky move, with the potential to create significant political problems, but it would resolve the issue of the divide within FBS (by increasing the divide), would resolve the “amateurism” issue, and mitigate any future antitrust concerns. I’m not saying that’s going to happen, but it would certainly solve a lot of the association’s problems.

4 Comments leave one →
  1. Kenneth Barna permalink
    June 21, 2013 2:08 pm

    Dear cmadler,
    I don’t understand why Eastern doesn’t raise prices to at least $15.00 for general admission. Eastern’s tickets have to be the cheapest in the league. At $15.00 a ticket, even with only 4,000 fans you would get $60,000. With just five home games, they would gross $300,000. Even Central and Western charge more at their places, and haven’t had the greatest success on the field recently.

  2. Ken permalink
    July 10, 2013 11:16 am

    I’ve said it before and I’ll say it again. I can almost see the NCAA further dividing Division 1A before there is a split like the one you mentioned. I see the potentional for a Division 1, Division 1A and Division 1AA (or whatever you want to call them). It would acknowledge what has been happening for years. Occasionally a team from the sub-tier of Division 1A will rise up and win but that is rare. It’s even rarer for a team like that to make one of the BCS bowls and generally when they do, somehow the cards line up for the worst possible matchup that they could get (see NIU last year).

    Actually, I think what you mentioned has been proposed somewhere. For instance, I could see the Big 10 (or whatever the hell you want to call them) forming a Semi-Pro league where the Universities license their name. I’m not sure how I would feel about that but it would definately end any of the pretenses of “student-athlete”.

  3. Fred Kru permalink
    August 21, 2013 4:49 pm

    One thing that must change is the way athletic scholarships are only for 1 year only and not 4 years. This leaves the vast majority of student-athletes at the mercy of their coach every semester to either keep them or cut them. Most of these student-athletes chose their college, and often said no to other options, with the idea earning a degree. But, when a coach can pull the rug out from under them for just about any reason (including injury, “attitude”, or because some hot-shot 17 year old or an athlete who told them NO a year or 2 before seems more interesting), the student is just not in a fair position to have any real control of their educational future. EMU and every college tries hard to call them all “student-athletes”, but any time it is convenient they, instead, treat these kids like nothing but a piece of meat.

    • cmadler permalink*
      August 21, 2013 8:08 pm

      To me it ought to go both ways. Allow schools to offer four (or 4/5) year scholarships, but if you take one, you’re committed for those years; no transfers, no going pro early, etc. Allow schools to continue offering 1-year scholarships also, but allow students to transfer any time their scholarship is up. (While we’re on the subject of transfers, students should get the option to transfer without sitting out any time they are subjected to a coaching change.)

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