In the Pacific 12, profit-and-loss is eclipsing wins and losses
The clock is ticking, less than a year until the Pacific 12 Conference starts collecting on its historic $3-billion television contract. The largest broadcast deal ever negotiated by a college league, it will pour hundreds of millions into the member schools annually.
And it cannot come a moment too soon.
A sluggish economy has left athletic departments across the Pac-12 scrambling to cover costs, and some barely afloat, according to records acquired by The Times.
Cash-strapped programs at California, Arizona State and Oregon State needed “allocated revenues” to balance their budgets last year. That meant taking $10 million or more from university coffers, student fees and state funds.
Sports at all 10 of the conference’s public schools — USC and Stanford did not have to share records — received allocated revenues in some amount. Even relatively robust programs at UCLA, Oregon and Washington got more than $2 million each.
Critics see a problem with diverting any money from classrooms in an era of budget cuts and tuition increases. “It would be great if we had an athletics program that didn’t have to cost so much,” said Michael O’Hare, a professor of public policy at Cal. “Maybe there would be money left over for actual students.”
The Pac-12 reflects a national trend, with only 22 of the 120 largest NCAA athletic departments showing a profit in the 2010 fiscal year. These numbers explode the myth that big-time college sports generate big profits.
Even with more TV dollars on the way, a fundamental question arises.
“At the heart of the issue, does the athletic department have a legitimate place on campus like everyone else?” asked Rodney Fort, a sports economist at the University of Michigan. “That is the debate that everyone should have.”
Each year, a U.S. Department of Education website posts financial data submitted by college teams nationwide. The oft-quoted numbers can be confusing.
They lump allocated revenues with money that athletic departments earn through television contracts, ticket sales and donations. For the 2009-10 school year, these numbers seem to suggest that every school currently in the Pac-12 broke even or turned a profit.
But NCAA members compile another, more detailed report available by request, one that reveals most athletic departments in the Football Bowl Subdivision, the highest level of competition, do not make enough to cover costs.
“That report gives us a fairly complete picture,” said Dan Fulks, an accounting professor at Transylvania University in Kentucky who helps the NCAA analyze the numbers. “Our goal is to determine the true cost of athletics.”
Four types of allocated revenues are crucial:
•Student fees, including assessments or registration fees paid along with tuition.
•Direct government support shows state and federal dollars earmarked for athletics. The Oregon teams receive proceeds from their state’s lottery.
•Direct institutional support includes money from general and discretionary funds as well as tuition waivers that cover athletic scholarships.
•Indirect support includes the cost of athletic facilities and services — light bulbs, groundskeeping, etc. — supplied by the university at no charge.
At UCLA, students pay a registration fee that goes into a pool and is appropriated by committee. In 2010, $2.7 million went to help the athletic department meet its $61.9-million budget. Beyond that, the university contributed only $60,000 in direct support.
A different scenario played out at Cal, where a $12-million deficit prompted officials to eliminate or demote five sports last fall. All five were ultimately preserved with help from donations.
Still, athletic spending remains a sore point on campus. As Brian Barsky, a computer science professor, said: “The UC system had a $650-million budget cut this year. Ultimately, it is a matter of priorities.”
Other schools that relied heavily on allocated revenues in 2010 included Oregon State ($11 million), Arizona State ($10.3 million) and Pac-12 newcomers Utah ($8.6 million) and Colorado ($7.3 million).
Washington State’s athletic department needed $9.3 million to cover costs, including general funds to pay for compliance staff and employee benefits. With a small population base in rural southeastern Washington, Athletic Director Bill Moos said the Cougars cannot generate nearly as much revenue as USC, UCLA and other large-market programs.
“That’s a big deal,” Moos said. “There has not been a level playing field through the years.”
Pay to play
On most Pac-12 campuses, athletic spending falls in line with a national average that sees universities devoting 3% to 4% of their total budget to sports. It might not seem like much, but the dollars add up.
Last year, conference athletic budgets — which are publicly available — ranged from $32.7 million at Utah to $75.7 million at USC and $81.7 million at Stanford.
“Maybe 20 years ago, spending was at 1.5%,” said David Ridpath, an assistant professor of sports administration at Ohio University. “What if it gets to 10%? When do we say no mas?”
At Cal, critics insist that general funds should go to education or even a recreational sports program that serves thousands of students, not just elite athletes. Ridpath, a former wrestling coach, agrees that spending policies should change.
“It all started for the sound mind and body, but we’ve lost our way,” he said. “Now it’s this commercialized, para-professional enterprise.”
In doing research for his book “Big-Time Sports in American Universities,” Charles Clotfelter examined mission statements from 52 major universities and found only five that mentioned athletics. Still, the Duke professor sees another side to the debate.
“These are very smart institutions,” Clotfelter said. “They wouldn’t be doing something so consistently if it didn’t make sense to the university.”
Supporters of the current system point to intangibles — a sense of community when students and alumni gather for games, the way a winning team can help publicize a university and attract more applicants. They suggest that comparing costs from school to school can be tricky.
Each campus charges a different tuition, so each athletic department must pay different amounts for scholarships. The size of the department also matters — Cal offers 29 men’s and women’s teams, Oregon only 19.
Oregon State President Edward Ray calls athletics “a tremendous dividend to the university.” Sports programs represent 7.8% of his total budget.
“As an economist, I like free better than anything,” said Ray, who serves as chairman of the NCAA executive committee. “But if I’m talking about six or seven cents on the dollar, that doesn’t strike me as a terrible place to be.”
It was the summer of 2010 when Pac-12 athletic directors gathered with Commissioner Larry Scott to discuss organizing the new conference into divisions. But first, the smaller schools wanted to talk revenue sharing.
Under the old television contract, universities in large media markets earned millions more each year.
“A group of us raised a stink,” Moos recalled. “It made no sense to determine how we were going to divide the conference until we determined how we were going to divide the money.”
Before taking over at Washington State, Moos spent more than a decade turning Oregon into a juggernaut, in large part by cultivating a relationship with Nike Chairman Phil Knight, an alumnus. In recent years, Knight has given tens of millions to the Ducks.
Other small-market schools have no such benefactor. So, by the time Scott persuaded Fox and ESPN to join forces on the new TV deal, Moos and his colleagues had already won an important concession: Equal revenue sharing.
Beginning next fall, each school will receive about $15 million annually, according to numerous sources. The payout will increase to $21 million after a few years and eventually climb into the upper 20s.
(Utah won’t start collecting until 2012-13, and then will receive a partial share for two years under terms negotiated when it joined the conference.)
Schools such as Arizona and UCLA, which generated $5 million to $7 million from television last year, will see an initial $8-million to $10-million increase. Other schools — Washington State made only $2.7 million from broadcast rights last year — will receive a much larger bump.
As Steve Smith, the director of accounting for Utah’s athletic department, put it: “That money will help them put out some fires.”
Save or spend
Looking ahead, some administrators see their athletic departments remaining frugal, using new revenue to settle old debts. If everyone in the Pac-12 follows suit, Ray says, “virtually all of our programs will move toward financial self-sufficiency over the next five or six years.”
But not everyone has the same vision.
John Perrin, senior financial officer at Arizona, predicts a shopping spree, with schools building new facilities and spending more on top-name coaches.
UCLA must pay off its ongoing $136-million Pauley Pavilion renovation. USC, which declined to give financial details, is building the $70-million John McKay Center — with football offices and training areas — as well as adding teams in women’s lacrosse and sand volleyball.
Washington State, which worries about competing against richer opponents, has big plans, too. Though some debts will be repaid, plans are underway to upgrade the aging football stadium, build an operations facility and add teams.
“We’re looking at getting all of our programs healthy,” Moos said. “So we’ve got some catching up to do.”
No one interviewed for this story predicted that any of the impending television windfall will funnel back into university general funds, at least not in the near future.
That leads Fulks to believe the debate over big-time college sports will persist, even as increasing television money potentially allows 50% or more of the largest athletic departments nationwide to break even. He sees the issue in terms of revenue and expense, a simple equation.
“People should know the true cost,” he said. “At that point, they can decide if athletics are worth it.”
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