Friday, January 3, 2014

Getting Athletics Accounting Straight

The Missoulian reported this week that Montana University System college athletics “generated $50.2 million in revenue and turned a $571,331 profit in 2013.” That’s pretty good news. It’s nice to know that at a time when college and university budgets are tight, classes are being cut, and salaries are lagging,  sports programs are generating enough revenue to cover their expenses, have some money left over, and be self-sustaining.

But alas, it isn’t really so.

The Missoulian got its figures from a report by Frieda Houser, the university system’s accounting and budgeting director, and while the sportswriters got the numbers right, they got what the numbers mean wrong.

Case in point is that $571,331 of “profit.” Houser calls this tidy sum the “excess of total revenues over total expenses,” and while that might sound a lot like “profit,” it isn’t. Profit for a private business is what is left over after all the revenue generated by sales of goods and services is reduced by all the expenses (rent, wages, contracted services, utilities, borrowing costs, and so forth) that have to be incurred to produce whatever is being sold in the first place. In the case of professional sports teams, for example, revenue comes from ticket sales, television rights, merchandize (think NFL gear), and, increasingly, luxury boxes.

What Houser calls “revenue,” however, includes a whole lot of money that is not generated by athletic programs from these kinds of sales, or from contributions from fans. Instead the money comes in the form of “student fees,” “direct institutional support” and “indirect facilities and administrative support,” all items that are considered, in the world of NCAA financial reporting, to be subsidies. For Montana university system sports as a whole, those subsidies total $27.8 million. That’s 56 percent of $50.2 million in total revenue for all sports reported by Houser. If athletics in 2013 had had only the revenue it could generate for itself through contributions and sales of tickets, broadcast rights, sponsorships, advertising and the like, the profit reported by the Missoulian would have become a loss of $27.3 million.  By that measure, at any rate, athletics are certainly not self-supporting.  They are, instead, a drain on university system financial resources.

For what it’s worth, Montana is not alone here. Every year Division I colleges and universities all over the country report revenue and expense figures to the NCAA, and every year, almost every program in the country reports that a significant share of its revenue comes from subsidies. On the flip side, very few programs “turn a profit” and are self-supporting.*

For a lot of folks – who believe that successful teams add luster to a school’s reputation, attract more students, and inspire more alumni giving – there’s nothing amiss here. Subsidies are simply the price the institution has to pay to enjoy the benefits of a successful program. For others, subsidies, astronomical coaches’ salaries and new stadiums are evidence that institutional priorities have run off the rails. But no matter what side of that debate you come down on, you’ve got to agree that there’s no point arguing in a vacuum of information.**

We are not well served by chipper press accounts of profits that aren’t really profits or revenues that come largely out of the hide of students or other university programs. Surely when we attend athletic events we should know that the taxpayers are helping pay our way. When we pay our taxes, we should know that some of the money is going to support athletic programs that can’t support themselves. And when the campus and Missoula communities engage in a full blown debate about academic priorities, as they are doing right now, the dollars going to athletics should be part of the conversation.

* Click here for a USA Today summary of the athletics finances of 227 Division 1 schools.

** For a careful and balanced analysis of who wins in the tug of war between athletics and academics, see this report by the Delta Cost Project.

1 comment:

  1. The irony is the perverse incentives it creates. Some would consider the "profit" as a sign of successful investment by the university and beg for more subsidies. But, perhaps an equally ill-advised position is that it indicates the subsidies are set too high and should be trimmed back, perhaps by the Board of Regents.

    Further strangeness is in how it motivates the Athletics Department to act. Raising too many funds from tickets sales, merchandise, and commercial underwriting (which might all be otherwise considered good things) makes the 'profit' too large and too noticeable, drawing attention away from other markers of a successful athletic program (eg. on-the-ground performance, classroom performance, good behavior, etc.)