The Bottom Line: Observations and Arguments on the Sports Business

Part V. College Sports and Gender Equity

v College Sports and Gender Equity 230 College Sports: Surplus or Deficit? The NCAA publishes financial surveys of its 930-odd member schools every two years. The 600-plus schools in Divisions II and III run substantial deficits in their athletic departments. The 200-odd schools in Divisions IAA and IAAA also run large athletic deficits. But approximately three-quarters of the 110 "big-time" schools in Division IA report an athletic surplus, and the NCAA is not loathe to trumpet this apparent success. The front-page headline of the November 18, 1996, issue ofthe NCAA News read: "Study: Typical IA Program Is $1.2 Million in the Black." If the association wanted to leave a different impression, the headline instead could have read accurately: "Study: Excluding Institutional Subsidies, Typical Program Is $237,000 in the Red." That is, when you take away explicit subsidies from the university and the state, the average surplus is turned into an average deficit, and 52 percent of the schools are in the red. But the full story is considerably gloomier. Afew years ago, the Major League Baseball executive Paul Beeston described the chimerical nature of income reports for baseball franchises: "Anyone who quotes profits ofa baseball club is missing the point. Under generally accepted accounting principles, I can turn a $4 million profit into a $2 million loss, and I can get every national accounting firm to agree with me:' The same point applies to college athletics, with one exception. There are no generally accepted accounting principles. One ofthe favorite ploys ofprofessional sports teams' accountants is to use related-party transactions to diminish the apparent profits of the team. If the same individual or entity owns the franchise and related business entities (for example, the stadium or arena, the local television station, the facility- or concession-management firm, a beer company), the owner can alter the prices that one entity charges another to shift costs and revenues between them. Thus, Time Warner can pay its subsidiary the Atlanta Braves a below-market price for the right to broadcast Braves games on another subsidiary, WTBS, thereby lowering the Braves' revenues and WTBS's costs. The Braves' profits will shrink, and those of WTBS will grow. For Time Warner, it is money in one pocket or the other. College athletic departments have built-in related-party transactions for almost all of their costs. For instance, grants-in-aid (scholarships) for athletes can appear as an expense to the athletic department or the college financialaid office. Salaries for coaches can be assigned to the athletics budget or the faculty salary pool, or sometimes considered an off-budget item covered by Sports BusinessJournal, September 7-13, 1998 College Sports 231 the booster club. Debt service on facility construction can be paid by athletics , by the college's facilities' budget, or by the state. Maintenance, utilities, sanitation , and security for the sports facilities can go to athletics or the general budget. Expenses for the college band (uniforms, travel, conductor's salary, maintenance of and rent for practice rooms) can be attributed to athletics or the music department or considered off-budget and defrayed by booster funds. Likewise for rent and utilities for athletic offices; tutoring and special course sections for athletes; extra medical and health insurance expenses for athletes; facilities insurance; film and video costs; special meal preparation and scheduling for athletes; laundry for uniforms; phone, mail, and traveling expenses of athletic-department personnel; and much more. Consider the following examples. In September 1991, the Arkansas State Legislature, after experiencing years of dubious and variable accounting practices in the athletic departments of its various state campuses, passed a law mandating uniform procedures. One such procedure was to require all sports programs to take on a facility-maintenance expense equal to 10.65 percent of its budget (the average maintenance share at state colleges for all facilities). This change alone tripled the athletic department's facility expenses at one school and engendered a sevenfold rise at another. The law also limited the annual state athletic subsidy per school to $450,000. Unlike at many other Division I universities where facilities use is not charged to athletics, at the University of Massachusetts in Amherst some of the facilities expense is absorbed by the athletic department in the form of modest rental payments for the use ofthe Mullens Center arena. Yet when the direct operating costs of the facility...