The Value of Funding Athletics

It is said that a cynic knows the cost of everything and the value of nothing. Even those most cynical regarding athletics must recognize that there can be tremendous value to an institution from its intercollegiate athletics program, with very little net cost.

Athletics has become a powerful economic and social force in society. Today in America, beyond prep school, sports represents an industry spending $194.6 billion annually (Street and Smith's Sport Business Journal, 30 December 2002). "I think sports takes hold culturally because it's a common thread that everyone can relate to," says Mark Cuban, owner of the NBA's Dallas Mavericks. "A kid with blue hair and their granddad can watch or go to a game together, or sit at the dinner table and have something to talk about.... [S]ports creates a common element we all can connect to."

It is uniquely American that athletics has grown up with our institutions of higher learning (Cowley, 1999). Aside from a few rowing or rugby traditions, Europe's (and the rest of the world's) athletics scene is dominated by club and professional sport. In America however, for better or worse, intercollegiate athletics has become a part of an institution's basic operational program. In this paper I will offer a brief look at the value of college sports, and argue that the money spent on intercollegiate athletics at schools such as the University of Montana and Montana State University is money well spent.

There is little doubt that intercollegiate athletics can help to shape the lives of its participants (Sage, 1998; Chandler and Goldberg, 1990; and Priest, 1999). One of the basic arguments for the equal inclusion of women in intercollegiate athletics is that college athletes are much more likely to be successful in leadership positions after college (Ryan, 1989; Pascarella and Smart, 1991), and to exclude women is to exclude them as future leaders. However, I would agree with those who claim that if the personal development of 250 student-athletes were the only outcome I could expect from athletics, that challenge could be solved much more economically than with what the typical institution spends on its athletics program.

What is it about intercollegiate athletics that would encourage schools to invest millions of dollars in the enterprise? What do they get for their money? And, is intercollegiate athletics a worthwhile investment? The answers to these three questions are somewhat complex. However, the simple answers are tradition, expectation, and a branding effort; it depends; and, it depends.

To answer the first question, we must consider that so much of what we do in modern society is a product of our history, traditions, and what is expected of us. As a public school, the lead institutions in a state, a university is simply expected to offer an intercollegiate athletic program, just as it is expected to have choral groups and thespians. There is no overwhelming imperative to have performing choral groups and thespian companies. And, there is no overwhelming imperative to have athletics; but it is what we do. It would be difficult indeed, and possibly politically impossible, for any school or conference unilaterally to abandon over 100 years of tradition of varsity sports on college campuses in America. A word of caution regarding this argument for intercollegiate athletics, however. Nothing is forever, and I am not suggesting that the wisdom of how we sponsor these programs on a modern campus should not, from time to time, be reconsidered. At least it is important that the decision makers on and off campus understand just what athletics can and cannot deliver to the school. In addition, it is important to understand thoroughly the dynamics of financing this operation.

However, it is not merely tradition that compels institutions to sponsor intercollegiate programs. Institutions of higher learning in America are highly political entities. We would like to think otherwise, but schools have learned that they must compete in the marketplace for the hearts and minds of the public. Institutions compete for students, State favor and funding, as well as research money. Essential to competing is a marketing effort, and key to that marketing effort is the establishment of "the brand." A brand is the pervasive concept of who you are, constantly reinforced in the mind of the public you deal with. Competitive athletic programs that are ethically run, include legitimate students, and are financially efficient, provide some of the most effective branding statements about a university (Koch, 1983). Successful athletic programs have been linked to enrollment increases (Murphy and Trandel, 1994) and an increase in SAT scores of the applicants (Brooker and Klastorin, 1981; Mixon, 1995). A football bowl win or NCAA basketball championship appearance can have the effect of as much as a 40 percent increase in alumni donations (McCormick and Tinsley, 1987; Baade and Sundberg, 1996). If athletics is an effective marketing tool, and it is also an expectation of our institutions, it is no wonder it continues to exist on university campuses.

Tradition, expectation, and branding then will have guided a university's choice to sponsor intercollegiate athletics. Now consider the answers to the final two questions about what universities get for their money and whether it is worth the investment. The answer to both of these questions is, as previously stated, "it depends." It depends because the answer is different for each school. Even institutions that would appear to be similar in size and mission, such as the U of M and MSU, may have very different solutions to similar, but usually subtly different, challenges.

One myth to clear up is that collegiate athletics is about "making money." Only an estimated 30 institutions in the entire NCAA make money in a "net earned income" sense ("earned" revenues versus expenses). Of the more than 1,000 members in the entire NCAA, only those 30 can operate without subsidy from the institution (Zimbalist, 1999; Fulks, 2002), and none of these 30 are in the Big Sky Conference. When you hear an athletics director say that the program "finished in the black," what this usually meant is that expenses did not exceed budget. Likewise when a "deficit" is reported, that is much more likely to be a budget overrun or revenue shortfall, than a true statement of earned revenues versus expenses.

I have advised many university presidents that financing an athletic program is a lot like downhill skiing. It may be counter-intuitive, but to be successful at skiing, you must lean downhill to gain control. Similarly, an institution must fund an athletic program adequately in order to gain control and to reach a financial equilibrium where athletics is a positive force for that school for almost zero net cost. Under-funded programs tend to become non-competitive, and are tempted to become unethical in both their practices and the students they attract. Under-funded programs can also be very expensive in the long run, because they do not generate sufficient funds to reach any equilibrium. One fact that is constant: you may have a "good" program, and you may have a "bad" program--but you will always have a "visible" program, and I am quite serious when I advise an institution's president that the school would often be better off with no program than to run a negative one.

There are three keys to running a financially successful athletics program. They are determining the level at which the institution competes, the league it competes in, and the amount of resources allowed the program.

The level at which a university competes is determined by the locus of influence it wants to impact with its branding effort. Is it a locally focused institution, a regional institution, or a national institution? Underestimate the influence and the branding efforts are ineffective; overestimate the influence and it can go broke. In the NCAA, Division I-AA football (and schools are defined in the NCAA by the level of football played) is a regional enterprise with some national exposure, and a good fit for institutions like the U of M and MSU. Division I-AA allows UM and MSU to remain in Division I for all sports. This is important because they then can maintain a national branding presence, which is then a match for their academic programs.

Division I-AA then allows the two institutions in Montana to offer football as a less expensive proposition. Twenty-two fewer grants-in-aid and four fewer coaches than in I-A can be a critical funding factor within an athletic program. It should also be remembered that the additional 22 grants for I-A football would, as a commitment to gender equity, necessitate an additional 22 grants on the women's side of the department with the additional coaches and programs to support those grants. Also, I-AA schools are not bound by minimum requirements, as are I-A institutions. These requirements were first written in order to define universities that have the means to compete at the I-A level. However, as some institutions have reached beyond their means in the scramble to be I-A, these same requirements are now "breaking the banks" of those same schools.

Finally, Division I-AA simply does not have the million-dollar coaching salaries or quasi-professional athletes; it is a level of play dominated by student-athletes who still go to school and graduate. For example, the most recent cohort comparison of graduation rates reveals that at UM, there is a 59 percent graduation rate for student-athletes compared to a 40 percent gradation rate for the general student body. The four-year average at UM was 50 percent for the student-athletes and 40 percent for the general population. The same cohort comparison showed that student-athletes at MSU graduated at a higher rate than the general student body population, 50 percent to 43 percent, and over the last four years the student-athletes graduated at a 55 percent rate while the general population was at 40 percent. (2002 NCAA Graduation Rate Report).

The second key to running a successful program is the selection of the league in which to compete. As the saying goes, "location, location, location." All successful intercollegiate activity is regional in nature. Of course, there are national championships in sports, but day-in and day-out, fans are interested in their regional rivals. The conference a school competes in should be a collection of like-minded institutions within a regional geographic footprint. Both the University of Montana and Montana State University have been approached in the past regarding moving to I-A and leaving the Big Sky Conference (U of M currently meets all of the new I-A attendance standards). Both have declined these overtures primarily because the leadership at each university understands the dynamics of funding at the I-A level and the value of regionality. The Big Sky Conference is a good fit for both institutions. Conversely, the Big Sky was not a good fit for a school such as Cal State Northridge, and as Commissioner I encouraged them to explore a different profile and league in which to compete.

Finally, the resources a university spends on sports should allow its program to be run in a competitive, ethical manner. There will always be those counting the dollars spent on athletics and worrying about how that must be affecting other programs at the institution. What those advocates tend to ignore is that unlike most programs funded from general fund sources, there is indeed a direct financial return to the university from an athletic program. The university itself is by far the largest vendor doing business with an athletics department. And although not all money spent with the university is entirely profit for the institution, the net cost of an athletics program is not near as great as it first appears.

I believe that there is a financial equilibrium that can be established on a campus in which a university reduces its net cost of athletics to nearly zero while maintaining a highly successful athletics program. All programs at a university cost money. The choral groups cost money; the theater company costs money; and the history department costs money. The test for athletics is how much does it really cost in net terms and what is your return in terms of tradition, expectation, and particularly branding?

Let me use the following scenario to illustrate my point. Here is my pitch to a president of a university to support intercollegiate athletics:

This is the profile at UM (Big Sky Conference, 2003 biennial Revenues and Expenses Comparisons) and this is the "equilibrium" you can achieve when an institution makes good decisions about its athletics program.

These are interesting times for intercollegiate athletics. The list of institutions making money is shrinking, but the amount of money they are making is growing. Inflation within an athletic department due to the rising tuition costs is compounded by reductions in general fund support. There are new I-A criteria that may very well begin to exclude the "pretenders" from I-A. It may very well be a watershed time for conference membership changes. I welcome this reappraisal of conference membership, as I believe there are a surprising number of institutions and leaders who have made critical mistakes regarding the funding of their programs. Most of these mistakes are made either in trying to reach beyond what they are as institutions, or under-funding their athletics programs. Both mistakes lead to dissatisfaction with the amount of money the institution is spending on their program, as well as dissatisfaction with the outcomes of their program.

Within the Big Sky Conference there is, however, a sense of calm. There is real value to the programs in the Conference.

The goal of every university in the Big Sky Conference is to have an athletic department that brings tremendous value to the institution at a very low net cost, and they have, for the most part, succeeded.

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The Value of Funding Athletics: Cost is Everything if Value is Nothing