Ignorance Is Not Bliss Regarding Spending on Athletics

By Richard Vedder*

Amidst fiscal problems requiring growing austerity in higher education, intercollegiate athletic programs still continue to grow, despite increasing subsidies coming from college/university general funding. What do students think about this?

To answer this question, my colleagues Matt Denhart and David Ridpath (also a professor at Ohio University) surveyed about 1,000 students at Ohio University, which is a member of the Mid-American Conference and is a fairly typical mid-quality state university. Their results, just published by the Center for College Affordability and Productivity (which I direct) in Ending the Arms Race: A Case Study of Student Athletic Fees, are very revealing. They find that:

• Most students severely underestimate the amount that their fee payments to the university subsidizes intercollegiate athletics (ICA);
• a majority felt that their were other sorts of extracurricular activities deserving of subsidy support more than ICA (but which, in fact, receive far less support);
• Fewer than 7 percent of respondents felts ICA reputation was “important” or “extremely important” in their enrollment decision—a majority thought it was “extremely unimportant;”
• Over 35 percent of students attend no sporting events, despite having to pay $765 in fees to support ICA, about 8 percent of their total charges;
• On average, each surveyed student paid indirectly well over $150 for each athletic event attended.

In short, most students are relatively indifferent about sporting events, are ignorant of the costs, and not in favor of as high athletic subsidies as they are being charged. I would suspect if the same questionnaire were given to their parents, the preference to scale down ICA subsidies would be even more pronounced.

The CCAP study will be criticized on two major grounds. First, it is not representative of students at Ohio University, and second, Ohio University is not representative of American higher education in general. The first criticism is largely bogus, I suspect, while the second one may be correct, but the CCAP study points to the need for more research.

My reading of the study suggests the sample selected, while clearly is not random (although all students were invite to participate—not all did), was probably pretty representative of the student body. For example, the typical number of sporting events attended annually for the sample (the mean was about five) seems to be pretty close to that for the student body as a whole. Looking more broadly, the Denhart/Ridpath results are quite consistent with those reported on a similar survey at the University of Toledo, suggesting the findings are probably representative of a broader body of schools than just Ohio U. Still, the study points out the need to explore this at schools where the subsidization of athletics is less (Ohio U. is well above average regarding subsidization of ICA). Denhart and Ridpath want to do this, and I hope funding is secured to allow that to happen.

Two questions arise. Why is this university, and probably others, spending far more on ICA than its customers (and almost certainly their parents, not to mention the school’s faculty) want? Two, what can and should be done about it?

Successful university presidents (in the sense of being popular with high job security) stay in office by raising lots of money and bribing various interest groups—by giving students a low workload and access to booze and sex; giving faculty low teaching loads and the freedom to teach what they want (more or less) for decent pay; and giving alums good success in ICA, along with nice new facilities to visit while on campus. Unfortunately, in their zeal to satisfy one group (alumni and perhaps trustees) with fairly high quality ICA (although ironically, Ohio U.’s success can at best be termed “modest” in recent years), presidents have created increasing unrest with other constituent groups angry about the continued high ICA budgets amidst falling budgets elsewhere in the university and rising costs to students.

With respect to solutions, this is like the arms race during the Cold War. One side is not going to unilaterally disarm. All parties need to sit down and impose limits—maximum size budgets (with accounting procedures uniformly defined), for example. “All parties” could be a grouping as small as the university presidents of a single athletic conference, but more likely would require even bigger disarmament deals—say, involving presidents of all BCS schools, all Division II schools, etc. (The cost explosion is present at Division II and III schools as well as the Division I institutions, if NCAA statistics are to be believed.)

The worst part of all of this the lack of transparency. Often students, faculty, major donors, etc., are in the dark as to the finances of ICA, and even what they are paying. Often this is accompanied by misleading statements by administrators on the alleged benefits of ICA, almost always grossly exaggerated. Increasingly universities are spending large parts of their budgets on things unrelated to the core academic mission. Whether universities should be in the entertainment business (e.g., ICA), food and lodging business, etc., is highly dubious to me. Institutions that focus with a laser beam on one or at most two tasks are more successful, I think, than those trying to be all things to all people. The new CCAP study needs to be replicated by others to strengthen the hand of those wanting athletics disarmament.

*This post originally appeared on the "Innovations" blog of The Chronicle of Higher Education on January 31, 2011.

The College Athletic Cost Explosion Spreads to Divisions II & III

By Richard Vedder*

As we, at last, come to the end of the 35 college football bowl games, I would note that part of the expense of producing these ball throwing contests was incurred by the students and their parents currently attending college through tuition or activity fees. I always knew intercollegiate athletics was a huge financial activity at the top football/basketball schools like Texas, Ohio State, USC, and even Duke (see this recent report on the topic), but not at the generally smaller, lower athletic budget schools such as the non-flagship state universities and even private liberal arts colleges. New NCAA data suggests this is flatly wrong.

A new NCAA report on revenues and expenses of Division II schools (of which there are 309) reveals the following:

• Division II athletics spending for schools with football rose 10.6 percent a year from 2004 to 2009, not much less than the 11.49 percent annual increase for top Football Bowl Subdivision teams;

• Even Division III (of which there are 444) schools with football saw spending rise nearly 45 percent even after adjusting for inflation;

• Division III teams without football saw total athletic spending more than double in five years;

• Athletics spending in Division II now constitutes nearly 6 percent of the total institutional budget at a typical school;

• The share of athletic expenses coming from generated revenues fell from 17 to 12 percent at Division II schools with football from 2004 to 2009.

The NCAA would have one believe that Division II athletic spending is rising no more than total institutional expenditures, which seems dubious to me as I read the data, although admittedly there was a spending spree in all of higher education in most of the period under discussion. An argument for athletic spending at Division 3 (and to some extent, Division 2) schools is that it is an important student recruiting device: at some liberal arts schools, 30-40 percent of students are on some intercollegiate team, and the figure is 10 percent or so at some Division 2 schools (as opposed to well under 5 percent at most FBS powerhouses). But the data suggest the cost of all of this has been very high, contributing to the tuition fee explosion at many schools.

The numbers in the information given out about the NCAA report are a bit sketchy, and no doubt there are accounting issues in assessing revenues and expenditures. For example, the data provided seem to be median figures instead of means (averages). I suspect because of skewness in spending, the means are greater than the medians. It would appear, however, that total athletic spending at the Division 2 schools well exceeds one billion dollars a year, and probably two billion dollars annually for Division II and III combined. I am wondering if our obsession with promoting sports is having a dual undesirable effect of downplaying the academic purpose of schools while all the while adding importantly to the cost explosion. There are schools that have recently announced they are adding football, which strikes me as an incredibly dubious move in these times of budget stringency. Perhaps it is time for the federal government to remove tax exempt status for donations to the non-academic activities of colleges and universities.

*This post originally appeared on CCAP's "Higher Education and the Economy" blog at Forbes.com on January 11, 2010.

University Financial Crises: Lessons From Ancient Rome

By Richard Vedder

In ancient times, the Romans engaged in enormous building programs, particularly in Rome itself, which they largely financed by raiding the provinces for tribute. Rome started to fall when the marginal costs of maintaining the empire began to exceed the marginal revenue extracted from it, coupled with excessive spending in Rome, under direction of emperors of dubious quality such as Nero.

Sounds pretty similar to American higher education. Vast spending and empire-building in the 1970s through 1990s was partially financed by taking tribute from taxpayers and private philanthropists. In the last few years, though, tribute collections (taxpayer support) became more limited while the spending on a lavish capital (i.e. the university campus) continued relatively unabated. Rome built the Colosseum shortly after Nero’s disastrous rule, late in the first century A.D., and the “bread and circuses” approach to appease restless masses did not stem the decline: It actually accelerated it.

Fast forward a couple thousand years to American college campuses. Like in ancient Rome, stadium-building and other forms of bread and circuses today (climbing walls and luxury dorms) are hiding an increasingly rotten institutional setting that often suffers from both mission failure and excessive spending. Most colleges and universities have not clearly articulated what they want to do, have done a crummy job of even measuring what they have accomplished, and have viewed university resources as something that need to be spent in a way to minimize discontent from alumni, administrators, and occasionally students and faculty—rather than to achieve a well defined academic goal.

I was reminded of all of this in the last week or two at my own university. Like most states, Ohio is having huge budget problems, and my university likely faces sharp (15 percent or more) reductions in state subsidy payments in the coming couple of years. Prospects are great that staff will be discharged, programs will be eliminated, etc. Already I am told that my telephone probably will have to go, and if I want to talk to anyone more than a few feet away, I will have to pay for it myself. But is the university really engaging in austerity programs, looking for new models to teach more cheaply, lower costs of auxiliary services, etc.?

Maybe, but actions speak louder than words, and the reality is that it is actually accelerating spending on what is apparently its top priority: intercollegiate athletics. (Under the current president, the academic reputation of Ohio University has sagged, falling more than 20 positions in the U.S. News & World Report rankings in just 6 years. Never mind: The path to success, we are told, is being very good at throwing balls).

Our moderately decent football team managed to win eight games and get into the least prestigious of the bowl games, the iconic R+L Carriers New Orleans Bowl—one of 35 bowl games this season. Attendance was allegedly 29,159, but most observers I know guessed the number at much less (and there were at least 43,809 empty seats in the Super Dome). Ohio University was correctly worried that hardly any students would attend, which would be embarrassing, so they offered several hundred students transportation from several Ohio cities, lodging (at a Hilton hotel), tickets, etc.—all for $40. This promotion cost the university conservatively $150,000, more than the annual subsidy of its highly regarded Ohio University Press, which will probably close because of declining university support.

Our team got slaughtered in a lopsided contest, and beyond having to heavily subsidize students to attend, it costs the university to participate—as opposed to major bowls, like the Rose Bowl, where participants reap millions in revenues.

But that is not all. We are told we cannot “reach the next level” in athletic greatness without a new indoor practice facility, so, voila, a $10-million grant for a “multipurpose” facility (translation: indoor football field) has just been announced from a wealthy alum who obviously has been conned into believing the bread-and-circus approach to greatness. No doubt, had that facility existed, my university would have lost to Troy State by maybe only 10 points instead of more than 25.

Meanwhile, funding for other politically correct but otherwise dubious smaller projects continues, including replacing a “sustainability coordinator” whose main claim to fame was advocating that we eat locally grown organic foods, which is a bit hard in a area with very little farming and poor soil.

Across the country, schools are following the Emperor Nero approach of overbuilding, overspending, and ignoring reality (a cautionary note: it caught up with Nero, who died at the age of 30 after a reign of but 14 years). The University of Michigan, in the midst of high double-digit unemployment and declining state-subsidy support, spent an amount approaching a good hunk of the annual GDP of some small poor nations on making its stadium bigger and providing more comfort for the über-rich attending football games. At some schools, where academics gets more than lip service, the spending is for superstar faculty who rarely see students; at others, for sumptuous facilities, to create a country club El Dorado around those boring things called classrooms, libraries, and laboratories.

Will this continue indefinitely, or will sanity and realism finally reach the academy? Already, cash-flow problems are forcing schools to furlough staff, reduce salaries (University of California), and the like out of desperation. But is this the beginning of a true rationalization and restructuring of a bloated enterprise that has been for far too long accountable to no one? I don’t think so—not without more fundamental organizational reforms—but stay tuned.

This post originally appeared on the "Innovations" blog of The Chronicle of Higher Education on December 21, 2010.

The Cam Newton "Scandal"

by: Matthew Denhart

Rumors have swirled furiously that Auburn University's standout quarterback, Cam Newton, and his family solicited money from Mississippi State University during the recruiting battle between the two schools for his services. Accepting payments (beyond allowable tuition and room/board scholarship money) is of course prohibited by the NCAA, which is conducting an investigation and has even brought in the FBI to help.

This whole saga has missed the wider issue, namely to what extent rules baring players from being paid are themselves justified. As I argued in an Op Ed for the Wall Street Journal with Richard Vedder in 2009, athletes like Newton are grossly exploited by their colleges and should be allowed payment in the first place.

Sandy Baum and Michael McPherson, writing for the Chronicle's Innovations blog, are spot-on in their commentary on the contradictions surrounding the student athlete payment question. They point out that the NCAA's practice of setting salary caps for student athletes across member institutions should be an antitrust violation. Their criticism of Congress's free pass to the NCAA is sharp, saying:

"After considerable thought, we have been able to come up with only one persuasive explanation of the favoritism shown in allowing colleges to agree on limits to athletic merit awards, in contrast to non-athletic merit awards, where the free market is supposed to reign: the people who make, interpret, and enforce the laws in the U.S. really, really like high-end (dare we say semi-pro) college athletics."

Baum and McPherson continue and argue that the rules put in place by the NBA and NFL that place age restrictions on athletes to enter their drafts are "conspiracies in the restraint of trade." They are correct to suggest that these restrictions should be eliminated, giving athletes the decision whether college attendance is in their best interest. Doing so would be:

"unambiguously bad for university athletic departments’ bottom lines and coaches’ salaries, and unambiguously bad for professional teams (who might find themselves creating their own minor leagues and actually paying the players in training to learn the game)."

All the commotion over Cam Newton misses the larger point that the rule he has allegedly violated is unfair to student-athletes and potentially arguably illegal. The real scandal here is that the NCAA is allowed to violate anti-trust law to exploit the labors of young athletic talents, and that point needs more attention.

No Leadership from the NCAA on "Slimming Sports Spending"

by: Matthew Denhart

CCAP's "25 Ways to Reduce the Cost of College" report was highlighted last week in an Inside Higher Ed (IHE) article by David Moltz. In his article, Moltz nicely summarizes for readers the main points of our chapter calling on universities to "End the 'Athletics Arms Race'."

Some of the more prominent recommendations to cut athletic costs include: reigning in out-of-control coaches' salaries (especially in the sports of football and basketball), reducing the number of available scholarships, leasing out athletics facilities when not in use, and decreasing season lengths and travel distances. Many of the recommendations have been echoed by other groups, such as the Knight Commission in its latest report "Restoring the Balance: Dollars, Values and the Future of College Sports."

Many of these recommendations would require the cooperation and leadership of the National Collegiate Athletic Association (NCAA). However, the NCAA's initial reaction to our report is not encouraging. When asked for a reaction from Moltz, here's what NCAA spokeswoman Stacey Osburn had to say of the report:

"The overall context should be considered here... When looking at the median amount for FBS schools, approximately 1 percent of overall university budgets is allocated to athletics. For other Division I schools, the median was less than 4 percent of overall school budgets."

This comment reeks of indifference and is indicative of the NCAA's resistance to pursue necessary reforms. What's more, the figures cited to justify this indifference are very misleading. Sure, the median subsidy of athletics for all FBS schools is fairly small, around 1%. However, within the FBS, this percentage varies greatly by conference. As the graph below shows, in the Big 10 only 0.16% of university budgets go to subsidize athletics. Yet, in the poorer Mid American Conference (MAC), subsidies make up over 5% of the schools' overall budgets (see this CCAP study for more on the regressive athletics tax). At some schools this percentage is even larger. For example 10.5% of total core expenditures at SUNY Buffalo go to subsidize athletics. At another MAC school, Eastern Michigan, the figure is 7.9%.


The most important issue, of course, is how these subsidies--which the NCAA simply casts aside--affect students. The startling reality is that at many schools, students foot much of the athletics bill directly through student fees. Overcoming a serious lack of transparency, USA Today has gone to great lengths to show how massive these fees can be (see this table). The table below lists several institutions with the athletics fee each charges per year:

Longwood University	$2,022
Norfolk State	$1,440
College of William and Mary	$1,422
Virginia Military Institute	$1,362
Old Dominion University	$1,133
James Madison University	$1,114
Radford University	$1,077

Note that the schools above are not in FBS conferences. However, even many FBS schools charge high student fees to subsidize sports. Here are a few examples:

Ohio University	$765
University of Virginia	$657
Bowling Green State University	$650
SUNY Buffalo	$474
University of Northern Illinois	$453

Over the course of their 4+ years in college, students at many schools will have paid thousands of dollars to prop-up unprofitable athletics programs, regardless of their personal interest in sports. Our report laid out several realistic measures that could help save money while maintaining athletics. The NCAA arrogantly brushed it off, implying that there is no need to pursue cost-cutting measures. I think many students who are footing the bill would disagree. It's time the NCAA shows some real leadership for a change, but I'm not holding my breath.