For athletics, revenue up but profits stagnant

For a majority of U.S. collegiate athletics departments, subsidies help cover their budget deficits.

Brian Edwards

Sell-out crowds, prime-time games and increased revenues don’t equal profitability for the University of Minnesota’s athletics department.
Mirroring a nationwide trend, the University athletics department ran a deficit last year, according to a recent study by the National Collegiate Athletics Association.
Only 20 Division I schools’ revenues in the nation covered their expenses. The rest — including the University — required institutional funds to balance the financial gap.
While University administrators dispute the idea that the school subsidizes the athletics department, experts say the school allocations are inevitable.
As revenues for the University’s athletics department have almost doubled in the last decade, so has its spending. 
Last year, the school’s athletics budget surpassed $100 million. In 2003, the department raked in about $45 million with inflation. In 2013, that figure was about $90 million.
The school’s athletics ran a deficit for both years, according to the NCAA, which calculates profitability by excluding revenue and expenses from sources outside the athletics department. 
In 2013, the school’s athletics department reported a nearly $2 million profit, but in reality operated at a loss of about $6 million, according to NCAA measures. 
Andrew Zimbalist, a sports economist at Smith College, said athletics programs often aren’t profitable because they don’t have the incentive to make money like other businesses do.
“Teams get kudos for winning,” he said, “not for making money.”
When athletics program revenues grow, that money goes toward increasing teams’ chances of winning by building new facilities, paying coaches higher salaries and upgrading equipment, Zimbalist said.
The University’s financial reports and a report by the Chronicle of Higher Education show that the school subsidized the department with about $8 million in 2013 and about $7 million the following year.
Between 2010 and 2014, the school gave an average of about $7.6 million, according to the Chronicle of Higher Education.
Still, Tom McGinnis, chief financial officer of the University’s athletics department, said it’s misleading to categorize the money the department receives each year from the school as a subsidy.
“That’s an allocation we receive from the University,” he said. “Just like every other unit on campus.”
McGinnis said the money is given at the beginning of the year and worked into the athletics department budget before spending is decided upon. Room, board and tuition aid for athletes incur some of the largest expenses, he said.
“Overall, the philosophy of the department is to be good stewards with the money,” he said.
The University’s athletics department allocation dates back decades, when the state provided about $3.5 million to fund women’s athletics, said University Chief Financial Officer Richard Pfutzenreuter.
The amount provided to the department has grown with inflation and isn’t solely based in those original principles, he said.
“Each year, [the athletics department is] subject to budget discussion,” Pfutzenreuter said. “Their budget goes up and down; the allocation will change.”
One area where McGinnis said the school needs to stay competitive with other Big Ten institutions is coaches’ salaries.
Coaching salaries, along with facilities spending, are some of the fastest-growing expenditures in athletics departments nationwide, said Amy Perko, executive director for the Knight Commission on Intercollegiate Athletics.
Since 2008, the median amount for coaches’ salaries nationwide has gone up about 45 percent, while spending on debt services for facilities rose nearly 124 percent, she said.
While athletics programs shouldn’t be expected to be profitable, an increased disparity between athletics and educational spending is troublesome, Perko said. 
According to the Knight Commission, the University spends about $12,300 on instructing full-time students — a 6 percent drop since 2008.
From 2008 to 2013, the University’s athletics spending per athlete has risen by about 70 percent; football spending per scholarship player has grown by 105 percent.
Perko said the cost of health insurance and medical treatment can help explain some of the increased spending.
Concerns over in athletics department spending can be traced to a 1984 U.S. Supreme Court case, NCAA v. Board of Regents of University of Oklahoma, which handed television rights to colleges instead of the NCAA, Zimbalist said.
He said the ruling upped colleges’ and universities’ desire to competitively keep up with each other’s spending.
Limits on the amount an athletics department spends or incentives to lower costs could help curb growing collegiate athletics spending, Perko said.
“Education is under greater pressure to be transparent,” she said. “Athletics are not immune to that.”
Regent David McMillan said it doesn’t seem like the athletics department has a plan to achieve a balanced, sustainable budget and that board members may need to examine it.
Regent Michael Hsu said he would be interested in closer scrutiny of the athletics budget, especially considering the recent misspending discovered in an internal audit released last week.
“I think the financial audit was very good, and it opened our eyes to some things that were happening that I don’t think anyone knew about,” Hsu said. “We owe it to our state.”