Massive new TV contracts, fights over automatic qualification to the Bowl Championship Series, and huge donations have conspired to push to the back of the mind a fact that most people tend to either accept as gospel or challenge with force: that Division I athletics is not a profitable business.
Whether Division I athletics is profitable has been hotly debated, a debate that centers around one line item in a major Division I athletic department’s budget: institutional support. Institutional support comes in many varieties: student fees, not charging the athletic department tuition, an annual budget infusion, and even taxpayer support. The NCAA normally takes care to point out how few athletic departments would break even or make money without institutional support. Opponents disagree with removing this income as it is still income.
If we accept for the sake of argument that Division I athletics is not profitable, then there are no shortage of reasons why they are not profitable. Escalating salaries, capital projects, arms races, tighter budgets, reduced ticket sales and donations, and mismanagement are all some of the popular reasons.
But very rarely has it been asked whether a Division I athletic department should be profitable, or at least break even. When one argues that Division I athletics is flush with cash or just barely scrapping by, they are often arguing it in the service of a different point, like whether paying players is feasible or whether a school should be allowed to cut sports to comply with Title IX. Rarely is the question asked as a fundamental philosophy.
That question has been asked across the pond. In Europe, revenue gaps lead some professional soccer clubs to take a shortcut. The front office would load up on debt to buy better players, hopefully securing a lucrative Champions League place. When the club didn’t qualify for the Champions League, the team went into administration (i.e. bankruptcy protection), often being relegated.
In response, UEFA instituted Financial Fair Play rules. The regulations begin with detailed financial reporting and eventually will require teams to break even over a rolling three-year period to be eligible for European competitions (Champions League and the Europa League). Essentially, a club cannot spend more than it can bring in.
A similar situation has developed in Division I. As some athletic departments have sprinted away from the pack in terms of revenue and infusion of cash from donors, others have turned to riskier methods of financing a competitive Division I athletic department: cash from the university, either through general funds or student fees. A legitimate question to ask is whether Division I needs a set of financial fair play rules.
For those who believe a Division I athletic department should not require assistance from the university, financial fair play regulations would be wildly successful. If an athletic department had to break even to be eligible for NCAA championships or bowl games, a lot of athletic departments would start breaking even quite quickly.
The problem is that some of those athletic departments would break even by shedding multiple sports and cutting administrative staff. Since the success of football and men’s basketball often drive revenue, cuts there could decrease opportunities to grow revenue, and thus keep the department afloat or improve competitiveness.
Plus, some athletic departments simply could not generate sufficient revenue to break even in a reasonable amount of time. When an athletic department relies on institutional support for a majority of its revenue, growing outside revenue to cover the entire department is a project that could take a generation.
Finally, not all institutional support is created equal. If a department runs up a massive deficit and requires a bailout from the university, that’s an altogether different situation than if students vote to raise fees on themselves to support the athletics department.
So while a break-even requirement sounds like a good idea, it isn’t if you like the current state of Division I, a mix of diverse athletic departments all striving for elite competition, but going about it in very different ways. Less dramatic regulations like requiring fee increases to be voted on by students are more feasible. But if you require athletic departments to break even without any institutional support, the biggest effect you’ll get is a very different Division I.
The opinions expressed on this blog are the author’s and the author’s alone, and are not endorsed by the NCAA or any NCAA member institution or conference. This blog is not a substitute for a compliance office.