Financing College Sports – Part Two

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Written by VAWolf, posted by SFN:

In the first installment of this series, we set the framework of how to look at financial reporting in college athletics with the following statement:

Information is only as accurate and complete as what the individual schools choose to report. There is NO consistent set of standards or normalizing process that is applied to the financial reports of different schools.

[snip]

Since this kind of financial reporting is not governed by “Generally Accepted Accounting Principles” a school can choose to take take two generally different approaches when reporting financial information: (1) attempt to report the most comprehensive and detailed view of the entire athletics endeavor of their university, or (2) share what could be a more narrow sliver of their entire athletics pie by focusing on just the ‘athletics department budget’.

You pretty much have to read the first installment before you can move ahead and take a closer look at some of the EIA reported numbers:

(1) SALARIES & COACHES’ COMPENSATIONS – If you drill down through NC State’s section of the EIA website, you will discover that the salaries paid to head coaches of ALL men’s sports totals $1,710,945.

If you’ve paid attention to news reports and various articles here at SFN, you would know that the total compensation packages of coaches can vary wildly from what is contractually owed/paid to them by the actual University. Jeff’s article on How Coaches Are Paid, is recommended so you can catch up on how compensation packages for head coaches are frequently structured (especially at large public institutions).

Obviously, only a small portion of Coach O’Brien and Coach Lowe’s total compensation are direct expenditures of the Athletics Department and are therefore being reported at EIA. (For those that need a refresher, here is a summary of their total compensation packages from 2006.) Thus it is reasonable to conclude that only the money paid directly from the athletic dept budget is being reported at EIA for NC State.

The key point in this discussion is the realization that what is being shown as “Total of Head Coaches’ Salaries” is in fact missing a lot of “stuff”. Which then poses the next question – what else is missing from other line items and entries at EIA?

(2) BUDGET PHILOSOPHY – Let’s look at quick summary of the expenses reported for NC State athletics recognizing that when 40% of your operating expenses are filed under “miscellaneous”, you aren’t going out of your way to provide detail and transparency on expenditures.

  • Doesn’t $3M dollars in revenue from the ‘non-revenue’ sports sound high to you? If you download the .csv files from the EIA website, you will see that there is revenue reported for each and every sport. My conclusion is that this revenue from non-revenue sports is the scholarship money transferred from the Wolfpack Club to the athletic dept and then to the university. In a recent interview, Debbie Yow confirmed that the scholarship funding is paid to the athletic dept from the Wolfpack Club. Combining the two pieces of information justifies including the scholarship money into our FB revenue estimate
  • ‘Unallocated revenue’ of $10M is in the same ball park as what the ACC distributes to each school. This ACC-distributed revenue comes from TV contracts, bowl game revenues, and NCAAT appearances. The ACC evenly distributes the revenue generated from these sources listed above among all 12 schools. After looking at these numbers for several years, I’m convinced that this is where State reports the money received from the ACC.

Take a quick look at some numbers reported by our conference and academic peers from Georgia Tech. For the 08/09 academic year, GT reported the following grand totals for expenses and revenues:

Grand Total Expenses – $48,061,053
Grand Total Revenue – $48,061,053

Amazing, huh?

Obviously money is being transferred INTO the GT athletic dept or OUT OF the athletic dept through those “miscellaneous” categories. Which raises the questions…where is the money going? Or where did the money come from?

For years, Maryland reported the exact same thing that GT reported this year – revenue & expenses magically balanced to the nearest dollar. Debbie Yow’s financial performance at Maryland can be summarized from recent articles by the following bullets:

  • Balanced athletic dept budgets for 16 years
  • $180MM worth of upgrades and renovations to facilities
  • Cut athletic department debt from $51MM to less than $7MM

It seems reasonable to conclude that Yow took the surplus from each annual budget and combined that with some other form of revenue like donations to pay down the athletic department’s debt obligations while at the same time upgrading facilities. One could therefore conclude that the financial picture for Maryland athletics may have been much better than what you would conclude from just the numbers presented at EIA.

(3) SCHOLARSHIP COSTS – Since it looks like scholarships are being reported, we need to calculate what the Wolfpack Club pays for scholarships. Using the unduplicated number of athletes from EIA and the total academic expenses, we get:

Men – $3.1MM for 330 athletes = $9,495 each
Women – $2.0MM for 201 athletes = $9,827 each

Since the per athlete cost is skewed by walk-ons in the participation numbers, we can justify rounding off scholarship funding at $10,000 each.

(4) FOOTBALL REVENUE – Let’s look at the numbers we know, make some ball park estimates on those that we don’t, and see what what we think football revenue should be. Here are the sorts of things that could be attributed to revenue just from football: Game Day tickets – regular tickets; Club Seats; Luxury Suites; Profits from concessions; Parking passes; ACC TV Contract; Payments for Lifetime Seating Rights; Payments from Wolfpack Club for scholarships.

The NCAA reports that State ranked 36th in the country in 2008 attendance with a total attendance of 396,658 for a seven-game average of 56,665. So we’ll use this to break down revenue:

5000 students per game (SWAG) = $0 tickets
955 club seats at $1700/seat = $1.6M
50 suites (max 18/suite) at $50,000 average = $2.5M
50,000 tickets at $40 ea for 7 games = $14M
85 scholarships at $10,000 ea = $0.85M
10,000 parking passes (SWAG) at $100 ea = $1.0M
Concessions profit of $5 for each of 55,000 per game = $1.9M

Which gives us football revenue of $21.9M compared to the reported revenue of $21.7M. (Not bad if I do say so myself.)

But what about LifeTime Rights (“LTR”) for seats? I couldn’t find anything about how many LTRs have been sold, but let’s take another SWAG:

35,000 LTRs at average cost of $2000 (low) over 10 years = $7M per year.

I understand that the LTRs are essentially pass-through revenue to cover financing for expansions at Carter-Finley and the RBC Center, but that would not preclude it from being reported as revenue on the top line followed by interest expense in expenditures and principal paydown’s on the cashflow statement.

That looks like a lot of money that is simply not showing up in the EIA numbers. And if the LTR revenue is not showing up, then it’s a pretty good guess that the capital expenditure that LTR’s are funding doesn’t show up either.)

While I have been known to defend my conclusions to the death ;-), these numbers include quite a bit of speculation. If you have any data to show that any of these football numbers are far off, I would appreciate it if you would share the info in the comments or by e-mail if you wish to remain anonymous. (I’m sure that Derek will get any e-mail responses to me.)

CONCLUDING THOUGHTS
I think that it is pretty obvious that full-disclosure is not what you will find at Equity in Athletics. (But it’s almost the only information we have on athletic department budgets.) I am reminded of a quote from TOB that I will steal and reword:

The numbers found at EIA are a lot like a bikini. What they reveal is interesting, but what they conceal could be vital.

So when you want to tackle something like analyzing the finances of major college sports, you need to be really careful with the conclusions that you draw…especially when comparing one program to another. But even though we don’t have the complete picture, I think that there are still some things of interest to fans, alumni, boosters, and taxpayers that warrant further discussion. In Part 3, we’ll take a look at how the numbers from EIA look across the ACC.

I make no promises on when the remaining entries will appear, but my goal is to completely finish before Labor Day and hopefully by the end of the month.

Part 1
Part 3
Part 4
Part 5

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10 Responses to Financing College Sports – Part Two

  1. Alpha Wolf 07/15/2010 at 5:39 PM #

    This is excellent, in-depth information for anyone who is really interested in college sports and how they work.

    Well done!

  2. tractor57 07/15/2010 at 5:59 PM #

    It has always been obvious that different schools report athletics financial information in widely divergent ways.
    Kudos to the author for trying to smoke out the whole truth.

  3. LRM 07/19/2010 at 8:52 AM #

    With work like this, Va is going to give bloggers a good name.

  4. BJD95 07/19/2010 at 12:07 PM #

    Yes, indeed – send this link to every college sports nerd that you know. Just fascinating stuff.

  5. VaWolf82 07/19/2010 at 12:49 PM #

    send this link to every college sports nerd that you know

    That sounds like a left-handed compliment. 😉

    Part 3 (Finances across the ACC) is scheduled for Wednesday.
    Part 4 will devoted to discussing NC State’s finances and probably won’t be finished until next week.

  6. acc 10k 07/19/2010 at 12:55 PM #

    I would guess there is a fairly significant error in what you are assuming about “academic expenses.” I don’t see where those numbers came from (I looked back three times and it isn’t in this post) but I’ll assume they are correct, and that they do include scholarship costs. But in fact there are nothing like 330 full scholarship men’s athletes at NC State. As you noted, there are a lot of walk-on’s. And outside of football and basketball, the vast majority of “scholarship” athletes get less – often MUCH less – than a full scholarship.
    We know an in-state full scholarship costs something like $12-13,000, so obviously that $10,000 mark doesn’t work. But it would be more correct to say you just can’t pin a number down that works for all sports, simply because the two biggies work entirely in full scholarships (and a few walk-on’s) while all the other sports are a real hodge-podge. At least retrospective data doesn’t get into the issue of in-state vs. out-of-state, because for the past 5+ years (but not going forward) out-of-state full scholarship students got the in-state tuition rate. At any rate, for football, you used 85 students, which is the number of scholarships, not the roster size with walk-ons, so you should use the actual cost of a full scholarship there.
    The other possible issue here (again, I didn’t see where the “academic” expense number came from) is that the line-item may represent more than just scholarship costs. Without real budget data, it’s easy to believe that this includes all the costs for academic support. That would be full-time salaries for multiple people, plus all the part-time tutors, plus possibly the facility costs for wherever the academic support takes place. It all depends on whether the goal is to make the number look as big or as small as possible. Maybe they want to make it look like the “academic” portion of the athletic budget is as big as possible, and add all this and more. Or maybe they are trying to make the total athletic budget as small as possible and hide all these personnel in some general university “academic support” heading, even though quite clearly there are a lot of people (and a lot of money) 100% devoted to the academic progress of athletes.
    None of this is to quibble at all with the general points made. This is a great series.

  7. wufpup76 07/19/2010 at 1:07 PM #

    Very good work. Reading through the first two entries, it’s hard to see where you can draw any solid conclusions about anything reported. I was not aware of this prior to these entries, so kudos to you.

    The impression that I’m left with is that athletic departments have ways of making the numbers appear as they wish them to, not how they actually are. Am I off base with this impression?

    Thanks for your work.

    No you’re not off base at all. Even though they are not complete, the numbers at EIA are worth discussing for no other reason than so many articles get written about them. But we are going to dig through some more numbers in this series and try and fill in some more blanks. But this series would be a lot shorter if I was going to be able to fill all of the blanks in.
    VaWolf82

  8. VaWolf82 07/19/2010 at 1:16 PM #

    I would guess there is a fairly significant error in what you are assuming about “academic expenses.”

    Error? – I prefer “simplification”
    Significant? – I don’t think so

    Scholarship value was calculated as follows:

    Men – $3.1MM for 330 athletes = $9,495 each
    Women – $2.0MM for 201 athletes = $9,827 each

    The $3.1M/2.9M is what is reported at EIA as “Athletically Related Student Aid.” I assume that this covers tuition, dorms, meals, and books. If it doesn’t, then these male/female numbers are completely meaningless.

    330/201 athletes are the unduplicated athlete totals from EIA. This number will include walk-ons as well as partially funded athletes. Thus the $10,000/scholarship is low…but is close enough for the purposes that I used it for.

    The apparent revenue reported for scholarships is obviously a very small part of the revenue picture for FB. If I used the total number of FB players (118) and the average male cost ($9,495), then that one line item would change from $0.85M to $1.1M. (Note that $1.1M would also match your total of 85*$13,000) This small change would have no effect on our exercise to figure out what is being reported as “FB Revenue”.

    Using the maximum number of scholarships allowed for each sport, it would be possible to get a better estimate of the per scholarship cost. But until coaching salaries and travel expenses are better defined, then I just can’t see any reason to go to that effort. I would rather have better numbers on parking and concessions revenue than just tweaking the scholarship number.

  9. choppack1 07/19/2010 at 2:04 PM #

    One thing that I find frustrating to no end is when some college egghead says, “college sports w/ its’ salary growth is not sustainable.”

    And that’s true – if you look at an entire athletic department. However, it’s an outright lie if you look at football and men’s basketball. The growth in these areas – is definitely sustainable. They basically “feed” the rest of the sports which operate at a huge loss.

    A more correct statement would be “Title IX has helped make an already unsustainable excercise even more unsustainable.”

  10. hball57 07/19/2010 at 2:11 PM #

    I would think different universities have different agendas for their reporting. For example, given the political climate and the economic situation in teh State of North Carolina, it may be advantageous to keep some items seperate between the University and the Wolfpack Club. Other schools make the student aid arm a part of the athletic department, so their numbers are intermingled.

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