Archive for February, 2011

“You dropped it! You pick it up!”

February 2, 2011

There was a stir a couple of months ago when I pointed out that university research is by and large a money-losing proposition.  There are some ways to fix that, but, in the end, it all boils down to an institution’s mission.  Most universities expect professors to engage in scholarly activities, but externally sponsored research is a different proposition.

The number of research universities–that is, universities whose missions explicitly incorporate research, knowledge creation and economic impact–is quite small.  Even among AAU schools–a club that styles itself as the premier  association of universities “distinguishing themselves by the breadth and depth of their research programs”–sponsored research is an afterthought for many.  The bottom line is that for most colleges and universities research is mission creep. Sponsored research is driven in part by a mistaken belief that research funds are an effective way of supplementing operating budgets.

But it is not the only upside-down belief system at work in American universities.  There is a persistent argument in higher education circles that intercollegiate athletics is somehow good for a university. Big-time college football and basketball are unquestionably great entertainment.  There is simply no other way to explain a jam-packed 100,000 seat football stadium in middle of an otherwise deserted prairie. It is spectacle that translates well to television, too.

So it is not surprising that there are millions of enthusiastic supporters of collegiate athletics–fans proudly flying the colors of the local team from the antennas of their SUVs–who know literally nothing else about the institutions on which they lavish so much praise and attention.  They may not be alumni, parents, or students, but they are nevertheless  invested in the fortunes of their teams. They may not be able to name a single academic program offered by their favorite school, but they know the pedigrees, strengths, and weaknesses of every assistant coach.  It is the main reason that most university presidents think that intercollegiate athletics is a positive force for the university. The common phrase among presidents is that it is a “front porch” that “only expands the potential donor base and does not compete with academic fund raising.”

If that were true, it would be great for all.  The public gets to invest in higher education. The schools get a new source of revenue and the opportunity to advertise their academic programs to a new and otherwise unreachable audience. Applications go up.  Scholarships pour in. Everyone wins.  The problem is that university presidents know differently. The president of a major research university once showed me an email message he had just received from an alumnus:

…I don’t care about academics at all. And I don’t want you spend any of my money on it. The ONLY thing I care about is winning football games. And if you can’t get that right, I am not going to give you another penny.

It was not an unusual letter, and it depressed him. But I don’t think he read the same significance into it that I did. College athletics and the business of running a university are not synergistic.  Failure in athletics has an enormous negative financial impact on the university, but then so does success.

On October 7, 1916, John Heisman coached Georgia Tech to a 222-0 route of Cumberland College. Neither team made a first down. Tech scored on every possession.  Cumberland gained a total of 22 yards. The Cumberland players were mainly ringers from local farms and factories who–because Cumberland had disbanded its football program– were recruited specifically to play this game. The pounding must have been fierce. Late in the game the Cumberland quarterback fumbled the ball, and it landed in front of a Cumberland lineman. The quarterback yelled, “Pick up the ball!” The lineman yelled back, “You dropped it. Pick it up yourself!”

There is cosmic significance to both the game and the panic-laced exchange between the doomed Cumberland players.  Intercollegiate athletics is set up to insure lop-sided outcomes.  Not necessarily on the playing field, but on university ledgers. College sports is also a financial game where there are lots of fumbles, but it is in no one’s best interests to pounce on them. If you are not on the winning team–and there are not many of those–you are going to take a financial shellacking. And even if you are on the winning team, it may not turn out so well for you.

It has been known for a long time that the financial model underpinning major college sports is crumbling. A 2009 report of the Knight Commission concluded that

It is clear that the question for many presidents…is not whether the current model is sustainable but given the forces at work, how long it can be sustained.

Some powerhouse programs do indeed make money. Georgia Tech runs one of the most profitable football programs in the country. Despite spending $1,250 per student, its football program turned a $9.35 million profit last year, but Tech is operating in rarefied atmosphere.  A recent report of the NCAA on revenues and expenses for Division I intercollegiate athletic programs shows why. Only about half of the 119 bowl-eligible football programs make any money at all. With so many media agreements with so many conferences, covering so many holiday bowl games, this seems impossible, but it is nevertheless true.

The major bowl games—the so-called Bowl Championship Series games– generate tons of money, and that money is spread around to the other schools in the conference.  So are the losses.  And there is a lot of red ink among the 34 post season bowl games. Bloomberg News recently reported on the “You pick it up!” outcome for the Big East Conference:

Rutgers University celebrated its 8-4 record last football season with a trip to the St. Petersburg Bowl in Florida. Big East Conference schools got stuck with a $740,000 bill.

The Big East revenue sharing agreement also spreads bowl losses from South Florida ($428,000) and Connecticut ($430,000) across the remaining schools according to a formula that conference does not make public.

But that still leaves 60-70 football programs that operate in the black, and those programs—like Georgia Tech’s—surely generate enough money to help cash-strapped university budgets,  don’t they?

They don’t even come close. Net income from major sports does not go toward engineering scholarships or new language labs. It helps to offset other athletics expenses. According to the NCAA, 88% of the programs at bowl-eligible schools lose money.  The median loss in 2009 was $10 million.  The NCAA also noted an alarming trend. The number of profitable programs shrank from 25 in 2008 to 14 in 2009 and the revenue gap between profitable and unprofitable programs grew.

The University of Florida operates one of the most successful intercollegiate athletics programs in the country.  Those programs collectively lost $5.4 million in 2008-2009. Where do those losses go? Universities hate to use the work “subsidy” but that is exactly what happens in big-time college sports. The losses are subsidized by other sources of revenue, and, as I pointed out in my last post, American institutions have no new sources of revenue.

Some of those subsidies are tied up in not very obvious ways with university balance sheets. Building costs, for example, tend to be lumped together in capital fund raising campaigns. It is a conceit that -–however convenient—has a big impact on academic programs and students. A professor interviewed by the Knight Commission asked the obvious question:

What’s the justification for a public university directing sixty percent of its capital expenditures over an entire decade toward a non-academic auxiliary unit whose annual budget is only eight percent of the entire university?

The financial reporting for athletics is as opaque as it is for research.  The NCAA is aware of this and had been pushing hard for standard accounting practices, but that would make life difficult for those institutions that want to spin the wheel, hoping for a jackpot.

I was browsing college basketball games last weekend, when I stumbled onto a public service announcement from one of those 119  FBS schools. It was an ad touting a new $50 million basketball complex bearing the name of a prominent local family. I sat up.  “I know that name!” The donor had been courted for a new academic building just a few years before.  Not only was there going to be another $50 million spin of the wheel, it had come at the expense of an academic program. Some front porch.