b1702 The Economics of Intercollegiate Sports (2nd edition) b1702_Sample 23 October 2013 2:46 PM Sample Chapter 6 1 2 The Athletic Department 3 4 and the University 5 6 7 8 Simply put, success in … football is essential for the success of Louisiana 9 State University. 10 1 — Mark Emmert, former LSU Chancellor, now NCAA President 2 3 There is an arms race in college sports … the only thing worse than 4 being in an arms race is not being in the arms race. 5 6 — Bob Bowlsby, University of Iowa Athletic Director 7 6.1 Introduction 8 9 In his presidential address to the 2005 NCAA convention, Myles 20 Brand referred to the “spending spiral” for athletics programs at DI 1 institutions (see Box 6.1). He voiced concern about the growing 2 trend of athletic departments becoming financially independent 3 from the university and he stressed that athletics “must be fully 4 integrated into the educational mission” of the university. President 5 Brand’s comments reflect the main concerns of this chapter: the 6 apparent unrestrained growth in athletic department budgets, the 7 consequences of that growth, and the proper relationship between 8 the athletic department and the university. 9 30 6.2 Growth of the Athletic Department 1 2 While operating expenditures of athletic departments at DI univer- 3 sities are a small percentage of total university spending (usually 4 in the range of 1–4%), they have grownfaster than university 5 36XX 1 bb1702_Sample.indd1702_Sample.indd 1 110/23/20130/23/2013 22:57:05:57:05 PPMM Sample b1702 The Economics of Intercollegiate Sports (2nd edition) b1702_Sample 23 October 2013 2:46 PM 2 The Economics of Intercollegiate Sports (2nd edition) 1 2 Box 6.1. Excerpt from NCAA President Myles Brand’s 3 2005 address. 4 … this mounting financial problem threatens the integrity of the 5 university. When the public — both local and en masse — begin 6 to believe that the value of the institution is to be measured by 7 the success of its athletics teams, the core mission of the univer- 8 sity is threatened. The central role of the faculty is ignored in 9 favor of winning the big game or recruiting the next young man 10 with athletics star potential. And the ability of the university to 1 successfully educate and push forward the boundaries of 2 knowledge and the creative arts is compromised. 3 The popular view is that you have to increase spending to 4 increase wins, and you have to increase wins to increase rev- 5 enues. However, a major NCAA-funded economic study 6 released last year shows no correlation — at least over the 7 medium term, that is, about a decade — that this view is cor- 8 rect. The study found no correlation between increased 9 spending and increased winning or between increased win- 20 ning and increased revenues. 1 But these data and results have made little difference. The 2 spending spiral has not abated, and the strong if mistaken 3 belief that spending more than your competitors will lead to 4 increased winning has propelled athletics departments to 5 increase expenditures … no matter the facts. The behavior is 6 irrational in light of the available evidence, but there it is, 7 nonetheless. 8 From a practical perspective, it doesn’t work. About 40 of 9 the approximately 325 Division I institutions claim that they 30 operate athletics in the black. I am skeptical. When all the 1 costs are taken into account, including facilities and physical 2 plant, academic support, grants-in-aid partially absorbed by 3 the general fund, and hidden subsidies, I suspect the numbers 4 that genuinely balance expenses with revenues is not much 5 more than a dozen. 36XX Source: Brand (2005). bb1702_Sample.indd1702_Sample.indd 2 110/23/20130/23/2013 22:57:05:57:05 PPMM b1702 The Economics of Intercollegiate Sports (2nd edition) b1702_Sample 23 October 2013 2:46 PM Sample The Athletic Department and the University 3 expenditures as a whole (Brady and Upton, 2005).1 From 2005 to 1 2010, athletic spending at public four-year institutions increased 2 faster than tuition. At Division I Football Bowl Subdivision 3 (DI-FBS) schools, athletic spending has increased by 50% over that 4 time, more than twice the rate of increase for academic spending 5 (Desrochers, 2013). 6 Athletics budgets are increasing because athletics directors and 7 coaches are convinced that greater spending results in greater 8 sports success, which then causes an increased flow of revenues to 9 the university. The problem is that if the other schools are doing the 10 same thing, then they will have to increase the budget even further 1 to have the anticipated effect. As universities attempt to outspend 2 one another, an arms race occurs. 3 As noted in Chapter 2, it is not just athletic directors and 4 coaches who advocate bigger sports programs; many university 5 presidents also favor increased investment in athletics. The latter 6 believe that greater investment in sports causes undergraduate 7 enrollment and the academic quality of entering students to 8 increase. In addition, alumni donations are expected to increase 9 with athletic success. Thus, athletics is thought to generate reve- 20 nues to both the athletic department, through sources such as 1 increased ticket and merchandise sales, and to the university, from 2 increased undergraduate enrollments and donations. 3 For anecdotal evidence to support this view, consider the foot- 4 ball programs at Boise State University and the University of Texas 5 at El Paso (UTEP). Boise State officials claimed that, because of 6 media attention received during their 11-0 record in 2004, applica- 7 tions by out-of-state students rose 20%, donations to the university 8 foundation rose, sales of university merchandise at the bookstore 9 increased 66%, and season ticket sales for football increased 30 1 1 According to Orszag and Orszag (2005, p. 2), approximately 3% of a DI-A univer- 2 sity budget was spent on athletics in 1997. By 2001, spending on athletics had 3 increased to approximately 4%. It is important to note that their estimates did not 4 include capital (i.e., facilities) spending. Desrochers (2013) reports that athletic 5 spending increased at least twice as fast as academic spending on a per capita 36XX basis from 2005 to 2010 in all three Division I subdivisions. bb1702_Sample.indd1702_Sample.indd 3 110/23/20130/23/2013 22:57:05:57:05 PPMM Sample b1702 The Economics of Intercollegiate Sports (2nd edition) b1702_Sample 23 October 2013 2:46 PM 4 The Economics of Intercollegiate Sports (2nd edition) 1 2 Box 6.2. The Taj Mahal syndrome. 3 The race to construct and upgrade facilities to make a school 4 more appealing is not limited to athletics. A new science 5 center may attract aspiring premeds, and future economics 6 majors may be excited about classrooms with smart boards on 7 all four walls to draw and upload graphs. While these facili- 8 ties can enhance the academic experience, what happens 9 when other schools respond by offering the same thing? And 10 what about facilities that are not directly related to academics?A 1 2012 article in the New York Times noted that “some colleges 2 and universities have also borrowed heavily, spending money 3 on vast expansions and amenities aimed at luring better stu- 4 dents: student unions with movie theaters and wine bars; 5 workout facilities with climbing walls and “lazy rivers”; and 6 dormitories with single rooms and private baths. Studies have 7 shown that spending on instruction has grown at a much 8 slower pace. Amid increasingly intense competition for better 9 students and higher rankings, college administrators across 20 the country during the last decade have deployed a relatively 1 simple strategy borrowed from the movies: if you build it, 2 they will come. Construction started in college campuses were 3 32.6 million square feet in 2008, the highest in two decades 4 and up from 12.1 million square feet in 1990, according to a 5 2010 study by McGraw-Hill Construction. Construction 6 declined after the financial crisis but is beginning to recover, 7 McGraw-Hill officials said (Martin, 2012).” 8 9 30 1 roughly 60% (Buker, 2005). According to UTEP, three winning sea- 2 sons, and a trip to the Houston Bowl in December 2004, helped 3 contribute to a six-year increase in enrollment from 14,695 to 19,264 4 (Adams, 2005). However, as noted by Dr. Brand and others, the 5 actual benefits to most schools may be less than the amount 36XX invested in athletics. bb1702_Sample.indd1702_Sample.indd 4 110/23/20130/23/2013 22:57:05:57:05 PPMM b1702 The Economics of Intercollegiate Sports (2nd edition) b1702_Sample 23 October 2013 2:46 PM Sample The Athletic Department and the University 5 Faculty members, arguing in terms of misplaced priorities and 1 opportunity costs, often criticize the special status granted to 2 sports and the size of athletics budgets relative to other depart- 3 ments. They suggest that an emphasis on sports can compromise 4 the educational mission of the institution, as well as its reputation.2 5 They also point out that every dollar from the university’s budget 6 that supports the athletic department is one less dollar for aca- 7 demic programs. Expenditures that increase academic quality may 8 have an even greater effect on enrollments and donations than dol- 9 lars spent on athletics. This opportunity cost argument has become 10 especially powerful at public universities where reduced support 1 from state legislatures has placed schools in a financial bind.3 2 One prominent faculty critic is Murray Sperber, a former 3 Professor of English at Indiana University, now retired.