Writing Assignment

Writing Assignment

 Prompt: After reading the chapter, article, and Scripture assigned, write a two-page paper that discusses what type of business structure encompasses most of the professional sports teams? What were the main concerns presented in the article reading? Considering the previous reading of the textbook, what are some factors that should have been considered in the financing of PETCO Park? Integrate Christian concepts according to the Scripture reading.Requirements: Minimum of 2 pages; APA format. Minimum of 3 reference 

 
Chapter 4(Fried et al. textbook)

“College Sports 101” article 

1 Peter 2: 13-4 and Zechariah 3:7 

October 2009

Table of Contents

About the Report ………………………………………………………………………………………………………. 2

Using this Report ………………………………………………………………………………………………………. 2

About the Authors ……………………………………………………………………………………………………… 2

Introduction ………………………………………………………………………………………………………………. 3

Chapter 1: Background ………………………………………………………………………………………………. 6

Chapter 2: Expenses …………………………………………………………………………………………………. 9

Chapter 3: Revenues ……………………………………………………………………………………………….. 13

Chapter 4: Construction in college sports: an arms race? ……………………………………………… 16

Chapter 5: Title IX and Olympic sports ……………………………………………………………………….. 18

Chapter 6: Cost containment, then and now ……………………………………………………………….. 19

Chapter 7: Commercialism ……………………………………………………………………………………….. 21

Chapter 8: Myths and intangibles ………………………………………………………………………………. 23

Chapter 9: Conclusion ……………………………………………………………………………………………… 25

References …………………………………………………………………………………………………………….. 27

Page 2 Knight Commission on Intercollegiate Athletics

About the Report

This report offers an overview of the business and economic landscape of intercollegiate athletics, with a particular focus on the Football Bowl Subdivision, the top competitive tier of the National Collegiate Athletic Association. It is designed to help policymakers, academic leaders, and other interested parties understand both the economic forces that shape decision making in athletics and the financial consequences of those decisions for higher education as a whole. It also is intended to provide background and context as the Knight Commission considers solutions to the problems presented here.

Using this Report

The graphs in this report use data reported by institutions directly to the NCAA. Median values are used in some grants to represent the typical experience or value within each grouping. However, in some cases, the figures use the average values in order to accurately represent several expense or revenue subcategories within an overall total. The years noted in the graphs are fiscal years. For example, the reference to 2007 in many graphs represents Fiscal Year 2007, which would be the 2006-7 academic year Unless otherwise noted, the dollar values presented in graphs showing trends over time represent nominal dollars, meaning that they are not adjusted for inflation. Operating expenses are used to separate the 119 FBS institutions in 2007 into 10 groups (deciles), with approximately 12 institutions in each group. Debt service is not considered a part of operating expenses and is noted separately in Figure 4a. In some of the graphs, there are zero values for the medians. This means that the schools in at least the bottom half of the grouping reported zero values for that particular category.

About the Authors

The project was supervised by Amy Perko, Executive Director of the Knight Commission on Intercollegiate Athletics. Jay Weiner (www.jayweiner.com), a journalist based in St. Paul, Minn., who has specialized in sports business and other off- the-field issues for past three decades, is the author. Welch Suggs, consultant to the Knight Commission, served as primary editor of the report. Dennis Kramer II, Graduate Fellow for the Commission, provided editorial assistance. Graphics and the website were designed by Widmeyer Communications. Significant editorial feedback and data review was provided by Andrew Zimbalist, Robert A. Woods Professor of Economics at Smith College. Scott Hirko provided editorial assistance and created special design features. Jeffrey Orleans and Donna Lopiano also provided editorial comments on early drafts. The Knight Commission would like to thank the National Collegiate Athletic Association for its assistance with assembling data for this report. In particular, Todd Petr, Director of Research; Bernard Franklin, Senior Vice President; and Jim Isch, Interim President and Chief Financial Officer, were helpful and supportive of the project throughout its development.

College Sports 101 Page 3

Intercollegiate athletics at the country’s most prominent colleges and universities has become a multi-billion dollar enterprise. It involves not only institutions of higher education, but also television networks, apparel manufacturers, advertisers from all sectors, and above all, millions of fans and donors. Now, almost all state flagship universities, many regional institutions, and some private research universities maintain teams in the Football Bowl Subdivision (FBS) of the National Collegiate Athletic Association (NCAA), formerly Division I-A. At these institutions, athletics are a focal point for universities and their communities. Tens of thousands of fans (and at a few institutions, over a hundred thousand) come to cheer on football teams, with smaller numbers flocking to men’s basketball and other sports. Team logos and nicknames are recognized coast-to-coast, branding their institutions for people who could not find the university on a map. Donors give munificent sums to fund athletic scholarships or construct stadiums. A handful of the most visible athletics programs can afford to spend more than $80 million annually on their operations, thanks to such donations as well as ticket revenue, royalties from championship events, licensing and sponsorship revenue, and broadcast rights. Indeed, most fans and observers of college sports believe that the majority of athletics departments generate large net sums of money for their institutions. A 2006 survey sponsored by the Knight Commission on Intercollegiate Athletics found that 78 percent of Americans polled believed athletics programs were profitable (Knight Commission on Intercollegiate Athletics, 2006).

In fact, the vast majority of athletics programs reap far less money from external sources than they need to function. Virtually all universities subsidize athletics departments

through general fund allocations, student fees, and state appropriations, and the NCAA estimates in a given year that only 20 to 30 athletics programs actually generate enough

external revenue to cover operating expenses. Institutional subsidies to athletics can exceed $11 million, according to data provided by the NCAA. With costs in athletics rising faster than in other areas of university operations, it is not clear how many institutions can continue to underwrite athletics at their current level without allocating significant funds that could be used for teaching, research, service, student services, or other core functions. The economic downturn has exacerbated these financial pressures, but the problems with the economic structure of big-time intercollegiate athletics go much deeper than the current circumstances. Among the primary issues:

l The wide gap between wealthy conferences and struggling conferences is growing wider, deepening a class structure even within the ostensible “big time.” Among the eleven conferences with teams in the bowl subdivision, the richest league’s members generated approximately fourteen times as much revenue as those programs in the poorest conference in 2007, according to data provided by the NCAA.

l No matter the size of an athletic department’s budget, over the past decade

Introduction

“The extraordinary visibility of big-time programs and the pressure applied by all of the agents involved in college sports require a heightened level of vigilance on the part of institutional decisionmakers and policymakers.”

Page 4 Knight Commission on Intercollegiate Athletics

expenditures have been rising dramatically every year and much faster than revenue is growing.

l At many institutions, athletics budgets are rising more quickly than educational budgets, and the subsidies provided by institutions to their athletics budgets are rising more quickly than both.

The finances of intercollegiate athletics always have been one of the core concerns for the Knight Commission on Intercollegiate Athletics. In its 1991 report Keeping Faith with the Student-Athlete, the Commission called for the development of a “one-plus-three” model for the governance of college sports—the “one” being presidential control, and the “three” being academic integrity, fiscal soundness, and a system of accountability (Knight Commission on Intercollegiate Athletics, 1991). In most of these areas, there are notable signs of progress. Presidents now act as directors of the NCAA’s Division I and the organization as a whole. There are metrics for academics designed to hold individuals, teams, and institutions accountable for retention and graduation rates. A detailed certification process for athletics that has served as a quiet accountability mechanism on individual campuses is now in its third cycle of institutional reviews. Obviously, there are problems remaining in each of these areas, but on the whole, the landscape has changed considerably since 1991. However, finances remain an intractable problem, particularly given the growth of athletics expenses in big-time sports. As this report will show, this intractability has many roots. One of the key ones may be a lack of a common understanding or willingness to address the national dynamics that lead to decisions that exacerbate the economic problems in intercollegiate athletics, and the goal of this primer is to provide that common ground in the hopes of engaging academic leaders and policymakers. This report is focused on intercollegiate athletics. However, policymakers must

recognize that the challenges and trends in college sports, particularly at the nation’s top universities, mirror situations across campus. Universities subsidize all manner of programs, both academic and auxiliary, that do not generate revenue. Costs have been rising inexorably at all institutions, to the dismay of state legislators, federal officials, and tuition- paying parents. Observers of higher education have raised concerns about institutional investments in areas such as applied research focused more on technology transfer than on the production of basic knowledge, as well as about programs designed to drive higher margins of tuition revenues, such as executive MBA programs. In such circumstances, the question of what is and isn’t appropriate must be answered by the institution’s administration, faculty, governing board, and to some extent its accrediting agency. With regard to athletics, the extraordinary visibility of big-time programs and the pressure applied by all of the agents involved in college sports require a heightened level of vigilance on the part of institutional decisionmakers and policymakers with an interest in higher education. This report is organized into the following chapters:

l Background: How has the business of college sports evolved over the century and a half since colleges first fielded teams?

l Expenses: Where do big-time athletics programs spend money? How much of a department’s budget does coaches’ compensation represent? Are expenses growing more quickly than revenue?

l Revenue: Where do athletics departments get the funds they need to operate? How do these sources vary from institution to institution, or conference to conference? Which revenue streams are growing most quickly, and at which universities? How much are universities paying to subsidize their athletics programs?

l Construction in college sports: Is there an “arms race” among programs that spend

College Sports 101 Page 5

more on facilities in hopes of increasing revenue and attracting top-flight high school athletes?

l Cost-containment: What are colleges doing to cut costs? Are such cuts window dressing, or do they fundamentally affect the nature of college athletics? What roles do leaders such as college presidents, conference commissioners, and NCAA officials play in this process?

l Title IX and Olympic sports: As budgets get tighter, how will the business model of big- time athletics address gender equity and the maintenance of non-revenue sports?

l Myths and intangibles: How do intercollegiate athletics really affect donations, prospective student applications and the quality of prospective students? Does more spending lead to greater athletics success and increased revenue?

l Commercialism: Where are universities blurring the line between collegiate and professional sports to keep their programs viable?

l Conclusion: What will happen to athletics departments and their universities if the business model of big-time intercollegiate athletics persists in its current form? What are the biggest threats?

To assist in the preparation of this report, the NCAA provided a report on financial data compiled from member institutions. The 119 member institutions in the Bowl Subdivision in 2007 were ranked by total athletic expenditures that year and divided into ten groups of 11 to 12 members. From these deciles, median values for a wide range of revenues and expenses were calculated. The results demonstrate the wide range between the “haves” and the “have-nots.” Intercollegiate athletics arouse the passions of millions of Americans, particularly during the football and basketball seasons. In its consideration of the issues outlined here, the Knight Commission’s goal is to help develop a model of college sports that is sustainable at the top rank of American colleges and universities without compromising their core missions or exploiting the student-athletes who participate in them. This is a complicated and daunting goal, but the intent of this primer is to help those who care about college sports to understand the challenges facing the enterprise, especially at this critical moment.

Page 6 Knight Commission on Intercollegiate Athletics

At present, more than 2,000 colleges and universities field intercollegiate athletic teams. There are a few small collections of institutions, such as the National Small College Athletic Association and the United College Athletic Association, but the three primary organizations are the National Association of Intercollegiate Athletics (287 members), the National Junior College Athletic Association (roughly 527 members), and the NCAA, which has 1,075 active and provisional member institutions. The NCAA is divided into three divisions—I (336 active and provisional members), II (294), and III (445). Each division has its own rules for institutional eligibility and requirements for teams and programs. Division I itself has three subdivisions. The top level, the Football Bowl Subdivision, consists of 120 institutions competing in big- time football, where colleges award up to 85 full grants-in-aid to football players, must have minimum attendance standards, and must field teams in football and at least 15 other sports. This report is primarily concerned with this group. The next level, the Football Championship Subdivision, has 118 members, and is distinguished from the Bowl Subdivision primarily because its members compete in a 16-team football championship playoff, while the Bowl Subdivision members compete for slots in more than 30 bowl games.2 The third group, known simply as Division I, consists of 98 active and provisional members that do not field football teams. In addition to sponsoring championships and maintaining rulebooks for its sports, the NCAA mandates an extensive system of rules and regulations governing ethics and conduct

for athletes, coaches, athletics administrators, and institutions. Enforcement of these rules happens through self-reporting and, in significant situations, an NCAA investigative

group. Additions and changes to the rules must undergo a complex legislative process that differs from division to division.

As will become evident later in this report, even the top level, the

Bowl Subdivision, has its own pecking order, and this has significant implications for its members. This complex hierarchy got its start in 1852 in a race between crews from Harvard and Yale on Lake Winnepesaukee in New Hampshire, and business considerations were present from the start. The event was designed to promote the Boston, Concord, and Montreal railroad and a new resort built on the lake, and it attracted a crowd of spectators from Boston and New York. (Harvard won.) (For more information, please consult Mendhall’s The Harvard-Yale Boat Race, 1852-1924, and the Coming of Sport to the American College [1993]). Baseball, track and field, and, somewhat later, basketball and football got their start as student clubs that were eventually taken over by university administrations desirous of regulating sometimes-dangerous events, promote events that would interest alumni, and, of course, win. The National Collegiate Athletic Association was formed in 1906 and began sponsoring national championships in 1925. College athletic events became massively popular in the last two decades of the 19th century and only continued to grow, particularly in the Northeast, but also in the Midwest and the South. Despite the

Chapter 1. Background

“To the reality of burgeoning budgets and growing deficits, of heightened commercialism and aggressive marketing, add the layer of the global recession of 2008-09 . . . This has put big-time college sports in the eye of a perfect storm of economic challenges.”

College Sports 101 Page 7

enthusiasm of crowds that often equaled the largest of those today, criticisms of the enterprise also came early. What we now know as the Ivy League was the biggest of the big time in those days, and, for example, the University of Pennsylvania’s student-run Athletic Association was $6,600 in debt by 1894, turning to the university’s alumni to bail it out. By 1906, the Athletic Association had an administrative staff that reported to no one and a budget of $141,000. In 1922, in debt from a trip to the Rose Bowl, the university tore down Franklin Field and built a new, 54,000- seat stadium in its place. Four years later, the university added an upper deck. Penn financed the expansion and a new basketball arena with a bond issue that raised $4 million. The salaries of football coaches were seen as a particularly egregious expense; a survey of 96 coaches in 1929 found that the highest paid salary was $14,000 per year while the median salary was $6,000 (taking inflation into account, that $14,000 would be worth about $175,000 in 2009 dollars). Both salary figures then were higher than comparable figures for full professors, and roughly equivalent to those of deans. Additionally, alumni often schemed to pay players under the table for their services, according to a report published by the Carnegie Foundation for the Advancement of Teaching (Savage, 1929). The commercial enterprise of intercollegiate athletics continued to expand over the course of the 20th century. The NCAA began sponsoring championship events in

1925, with the men’s basketball tournament commencing in 1939. By the 1960s, the NCAA controlled regular-season football television broadcasts, doling out proceeds on a broad basis to universities from “Game of the Week” contracts. In the 1980s, however, the football powerhouses challenged the association’s monopoly on televised regular-season football. The Board of Regents of the Universities of Georgia and Oklahoma sued the NCAA and in 1984 won a landmark case that gave colleges control over regular-season television contracts, and by extension other revenue not tied to NCAA-sponsored events.

Live, televised college football, the court ruled, was a unique product that consumers desired, just like professional football on television. The NCAA could pass and enforce some rules that were non- commercial in nature, such as scholarship limits and requirements that athletes were amateurs, but it had no right to restrict its members’ opportunities to make money from televising football games. Since this decision, the financial stakes have grown enormously, both for regular-season contests and for championship events, driven in part by

the growth of the television market for college athletics, both on cable and the major networks. The Southeastern Conference divided $16 million in revenue among its members in 1990; in 2008-09, the league distributed more than $130 million (Southeastern Conference, 2009). In pursuit of similar opportunities, nearly all of the athletics programs and conferences in the top tier have

Figure 1:

Big-time football equals bigger budgets Budget differences in the three Division I subdivisions, 2007

$45m

$40m

$35m

$30m

$25m

$20m

$15m

$10m

$5m

$0

Overall FBS Means

Overall FCS Means

Overall No Football

Means

This figure shows that FBS institutions support their athletics budgets primarily through external revenues, such as ticket sales, donations and broadcast rights. The other institutions in Division I rely primarily on institutional funds to support their programs.

Data source: NCAA

Internal Revenue

External Revenue

Operating Expenses

Page 8 Knight Commission on Intercollegiate Athletics

The differences between the universities in the conferences with automatic BCS bids and other leagues go far beyond this formulaic distinction. Most of the institutions in the “have” conferences have historically been the most prominent in their states or regions, enjoy deep and wide fan bases, and can command television contracts, bowl-game agreements, and ticket prices to support vast enterprises. Particularly in the Northeast, Midwest, and West, they have maintained large athletics departments with gymnastics, lacrosse, rowing, and soccer teams in addition to more-traditional sports like baseball, basketball, swimming, tennis, track and field, and wrestling. The “have-not” conferences tend to consist of newer, smaller, and more regional institutions that lack these resources and opportunities. Nonetheless, their leaders and constituents desire the visibility and the prestige associated with big-time college sports, and must supplement the revenue they can generate from athletics with substantial internal funds to “keep up with the Joneses” in the elite leagues. To the reality of burgeoning budgets and growing deficits, of heightened commercialism and aggressive marketing, add the layer of the global recession of 2008-09, which has affected state appropriations, private giving, and enrollment at most colleges and universities. This has put big-time college sports in the eye of a perfect storm of economic challenges.

been rearranged over the past two decades as colleges have tried to make the best television deals: The SEC grew from 10 to 12 teams; the Big Eight acquired four members of the Southwest Conference to form the Big 12; the ACC reached far beyond its Tobacco Road roots to create a league stretching from Boston to Miami; and most recently the Big East reached out to acquire the University of Cincinnati, DePaul University, University of Louisville, Marquette University, and the University of South Florida in 2005-6. The NCAA has maintained control over the logistics and revenue for its championship events, and specifically uses money from the Division I men’s basketball tournament to fund the majority of its operations, other championships in all three divisions, and a large payout to its membership based on various formulas. The NCAA has signed contracts that exceeded $16 million a year in 1981 for rights to the tournament, $140 million per year in 1989, $216 million per year in 1994, and $545 million per year on average under the current contract with CBS. In the 2000s, two groups have emerged among Bowl Subdivision institutions. The top group is the true “big time,” and consists of universities belonging to the conferences whose football teams are granted automatic access to the Bowl Championship Series, which consists of the BCS championship game as well as the Fiesta, Orange, Rose, and Sugar Bowls. These conferences are the Atlantic Coast, Big East, Big Ten, Big 12, Southeastern, and Pacific-10 Conferences. The champions of these six leagues are granted automatic and lucrative slots in this top tier of bowl games, and four at-large teams are selected from these conferences as well as the others, Conference USA and the Mid-American, Mountain West, Sun Belt, and Western Athletic Conferences. The conferences with automatic BCS access have guaranteed annual revenue from these games, while the other leagues receive revenue contingent on their teams qualifying according to a complex formula.

College Sports 101 Page 9

As noted above, universities in the Football Bowl Subdivision sponsor football and also must fund at least 15 others sports, and most universities actually sponsor significantly more. Some athletic departments have more than 250 employees, including coaches, administrators, academic advisers, marketing and ticket sales personnel, videographers, and sports medicine staff. Some have as many as 900 student-athletes on their men’s and women’s teams, with an average of 493 per institution. One of the primary ways in which university athletic programs are distinct from professional sports is that the labor cost of the athletes involved is largely fixed. An athlete participating in football, basketball, women’s gymnastics, women’s tennis, or women’s volleyball receives a scholarship equivalent to tuition, room, board, books, and mandatory fees. Athletes in most other sports receive partial scholarships. Universities are not required to award all the scholarships permitted in a given sport, and most do not fully fund grants in all the sports they offer. There are no requirements for facilities, spending, or any other expense category as it relates to a particular sport. Division I athletic programs operate as semiautonomous units within the university enterprise, but they share commonalities with both academic and auxiliary enterprises. Attached to their universities, they report to their central administrations. Some athletic “associations” are separately-incorporated 501(c)(3) not-for-profit corporations. They offer academic services to student-athletes,

much as academic units do to students as a whole. They simultaneously serve student- athletes and also mandate their participation in particular activities without compensation

beyond a grant-in-aid. This is not dissimilar in form to on-campus jobs such as those of residence hall assistants or graduate assistants, but is different enough to prompt debates about whether student- athletes constitute an unpaid labor force. The median budget for athletics

programs in the Football Bowl Subdivision is about $40 million, but that number is deceiving. There is a wide gap in spending

$90m

$80m

$70m

$60m

$50m

$40m

$30m

$20m

$10m

$0

In 2007, the Football Bowl Subdivision consisted of 119 institutions, with athletics budgets ranging from approximately $10 million to over $100 million. To capture the differences in scale and scope of these institutions, they are divided into 10 deciles of approximately 12 institutions each and ranked by total athletics operating expenses. This figure shows the median athletics operating budget for each of those deciles. There are very large gaps between the top two groups and those immediately below, and relatively smaller gaps among the bottom five groups. This shows the “class system” emerging in intercollegiate athletics, separate from conference grouping and institutional philosophy.

Data source: NCAA

Figure 2a:

Breaking down big-time sports Distribution of operating expense budgets, FBS athletics programs

1 2 3 4 5 6 7 8 9 10

Median Budgets

Chapter 2. Expenses

“The myth of the business model – that football and men’s basketball cover their own expenses and fully support non-revenue sports – is put to rest by an NCAA study finding that 93 [of the then 119 FBS] institutions ran a deficit for the 2007-08 school year, averaging losses of $9.9 million.”

Page 10 Knight Commission on Intercollegiate Athletics

from the very top programs to the bottom. If we split big-time athletics programs into 10 deciles of 12 institutions based on expenses, the median budget for the lowest decile was $14 million in 2007 and the median budget for the top decile was $83 million. The highest spending categories for the average athletics program includes the following:

l Salaries and benefits, especially coaches’ salaries (32 percent of total expenses);

l Tuition-driven grants-in-aid—or sports scholarships (16 percent);

l Facilities maintenance and rental (14 percent);

l Team travel, recruiting and equipment and supplies (12 percent combined);

l Fund-raising costs, guaranteed payments to opponents, game-day expenses, medical costs, conducting sports camps and other miscellaneous costs (12 percent).

The greatest challenge facing universities and their athletics departments today is dealing with the rapid rise of expenses. Athletics expenses are growing at an annual rate approaching 7 percent, according to a variety of studies (For more information, see references to Cheslock, Fulks, and Orszag and Israel at the end of this report.) At the same time, revenues are not keeping up. In 2009, the National Collegiate Athletic Association published a report that found median operating spending for athletics increased 43 percent between 2004 and 2008, but median revenue generated by athletics programs grew only 33 percent over the same time period (Fulks, 2008). In another telltale spending reality a few years earlier, the NCAA reported in 2005 that athletic expenses rose as much as four times faster than overall institutional spending between 2001 and 2003 (Orszag & Orszag, 2005). There are two key challenges facing athletics programs when it comes to cost reduction. First, athletic programs cannot control university tuition and fees, which determine the cost of scholarships. Second,

they have not controlled salaries, particularly coaches’ salaries. Between 2005 and 2007, total coaches’ salaries in the top decile of big-time programs increased by 25 percent, according to the data supplied by the NCAA. A separate study from the NCAA found that for head football coaches alone, in the period from 2004-2006, the median salary across the top tier of major athletic programs increased by 47 percent, by 20 percent for head women’s basketball coaches, and 15 percent for head men’s basketball coaches (Fulks, 2006). The Chronicle of Higher Education reported that University of Southern California football coach Pete Carroll, at more than $4 million per year, was the highest-paid employee of any kind at any private university in the nation in 2007 (Brainard, 2009).

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