Saturday, November 27, 2010

Pac 10 Faces Both Revenue and Expense Pressure

With his recent decision to suspend Tennessee Head Men’s Basketball Coach Bruce Pearl eight games, Southeastern Commissioner Mike Slive demonstrated once again why he might have the most powerful job in college athletics. We would be remiss though not to include Jim Delaney, Commissioner of the Big 10, as a part of any conversation about power and college athletics; even Big 12 Conference Commissioner Dan Beebe, who has survived a tough fall, would still have a seat at the table of any major decisions in college athletics. Let’s not forget, though, their counterpart to the West, Pac-10 Conference Commissioner Larry Scott, who in just over a year on the job has positioned his conference as a major player in conference realignment, recreated a brand that was in need of a transformation, and now appears to have set up the Conference for a major television rights deal. The question is can Commissioner Scott not only generate new revenues, but create an environment of fiscal responsibility among future Pac 12 members? These days both sides of the equation must be met for him to be considered among the most powerful people in college sports. This is no simple task, however, because his efforts to move the Conference forward and restore the Pac-10, has been slowed by a number of recent challenges.

In Scott’s short time at the Pac-10 he has witnessed one of its most powerful members, USC, get knocked around by the NCAA, the dream of a super conference Pac-16 get temporarily shelved and reestablished as the Pac-12, and the University of California drop athletic programs. Perhaps no one in intercollegiate athletics is dealing with the volatility of the industry more than Larry Scott. With the Pac 10’s past accomplishments and the current football success of the University of Oregon it is easy to become very optimistic about the prospect of making the future Pac 12 a nationally known brand. Certainly the idea of a strong, vibrant conference with incredible financial potential is possible. Nonetheless, not all may see the addition of Utah and Colorado as beneficial but rather as a compromise to the failed attempt to add six Big 12 schools. In fact, when taking a closer look at the Pac 12 Conference, it appears that many schools are state universities struggling to overcome major budget deficits. Thus, it might be wise to hold off on our judgment of Mr. Scott and his place among the heavy hitters in college athletics until we see how he and the conference members handle the potential financial windfall.

Judgment of his vision of the new Pac 12 should not be based merely on the ability to market a new brand in order to increase television revenue but on how the additional television revenue will be spent. More specifically, a positive rating for the Pac 10 Commissioner should be given when the new monies obtained help the budgets of its poorest members and possibly create a new level of financial efficiency in college athletics. A closer look at the issues of the Pac 10 membership indicates that the members are collectively headed to a financial crossroads and are in need of strong leaderships at the institutional and conference levels.

The Television Deal

The television deal is obviously very important and has the opportunity to be extremely lucrative. Recently, Bruce Pascoe of the Arizona Daily Star provided projections by Navigate Marketing of Chicago that suggested if the Pac 12 incorporated a television media rights model similar to the Big 10, revenue could be as high as $172 million dollars, more than triple what the conference earns now.

A new television deal, along with the new conference split and the promise of shared television revenue, should help schools such as Washington State, Arizona and Arizona State, with a major boost to the athletic department revenue. Ideally, these decisions would put all of the Pac 12 schools in a stronger financial position. However, television revenue sharing cannot be the only solution to digging the membership out of financial debt. A collective attitude change toward financial spending needs to happen, and now presents a perfect opportunity.

Back to the Future (2006)

Television money, although getting much recent media attention because of the major jump in revenue, is not new found money. In 2006 the Pac 10 signed a 6 year contract that pays the conference $125 million for football and $52.5 million for basketball from ABC/ESPN and $97 million from Fox for football. At the time, this was a television deal that was certainly competitive and should have helped the conference membership with a much needed revenue boost. Yet, during this time period expenses have increased at a rapid rate and many schools in the Pac 10 have not been able to operate in the black. A quick reaction might be to blame the recent recession; and although that has had a major impact on college athletics, it is not the sole problem. The major problem that has been consistent in college athletics is that as schools bring in more, administrators spend more. The Chronicle of Higher Education’s Libby Sander's blog entry addresses the long history of athletic departments’ pattern of using new revenue sources to bail programs out of a financial deficit, rather than adding to a financial surplus. In the article, Bob De Carolis, Athletic Director at Oregon State, highlights this point by saying, “I got in this business in 1979. Cost containment was on the table then, and it’s on the table again [now]…Every four or five years,” he said, “we [athletic departments] find some sort of revenue nugget that helps us.” In this case, the nugget appears to be television revenue.

Around the same time the Pac 10 was signing the current television deal, an interesting and still relevant article appeared in the August 2006 CFO Magazine. The article discusses the business habits of athletic directors and quotes Iowa State's Athletic Director Jamie Pollard about the environment in which decisions are made:

"In college sports, the bottom line is a championship, and everyone else goes home unhappy." He says this drives athletic departments to spend everything they can to further that goal. "They could stand up and say, 'This is insane, I'm going to stop it,' but they would get fired." College ADs are under pressure to do everything they can within the rules to win, says Pollard, including spending all of their resources. Anything less means they didn't try hard enough.

Spending all of the resources to remain competitive would explain how Pac 10 programs find themselves in the current financial deficit. Take for example two Pac 10 programs, the University of Washington and University of California at Berkeley, were listed in the 2006 CFO Magazine article as 2 of the least profitable athletic departments in the country (Washington was running at a deficit of $2.2 million, and Cal had almost an $8 million deficit). Over the last 5+ years, many Pac 10 schools, including Washington and Cal, have not been able to take advantage of increased revenue earned via television contracts, BCS Bowl payouts, and other additional sources of revenue, and thus, remain in debt.

Still in Debt

The end result is that the past Pac 10 television deals, although not as lucrative as a new Pac 12 deal, did not create a financial surplus for most members. In August, Jon Wilner of the San Jose Mercury outlined the necessity of increasing additional revenue through a new media rights deal in order to support struggling athletic departments’ budgets. He states that the additional dollars from a new television deal could bring much needed revenue to the Olympic sports and stabilize the growing debt. Wilner writes, “That windfall, while generated by the football programs, won’t be used specifically for the football programs. Rather, it will bolster ailing athletic department budgets and preserve that which the conference holds near and dear to its heart: the so-called Olympic sports.”

Skeptics might find it hard to believe that the additional monies would go toward digging out Olympic sports. Assuming that a television deal does happens and schools are able to increase revenue, it is likely that expenses at each school will increase just as quick, if not quicker. The bottom line is that although the television deal would be a significant increase, it will still leave a revenue shortfall when compared to other BCS conference television deals such as the Big Ten or SEC. One would have to assume that the conference expansion and the ongoing arms race is going to cause all Pac-10 schools to spend more than what they currently have, especially when competing for BCS Championships. Washington athletic director Scott Woodward summed up this thought in the Wilner article by saying:

“We cannot compete with the Big Ten and the SEC if we don’t close that gap. We cannot afford to pay top coaches, or build facilities. All this emphasis on souping up our brand — it’s all about staying competitive.”

Interestingly enough, it sounds like the anticipated television money is already earmarked for increasing coaches’ salaries and building new facilities. Recent history suggests that additional dollars generated have not gone to reducing the debt of the Olympic sports, but rather to increasing budgets of the potentially profitable sports, football and men’s basketball. Supporting the revenue generating sports such as football and men’s basketball only makes financial sense, as Woodward states, in order to stay competitive. From a broader athletic departmental point of view, the majority of the Pac-10 schools have struggled financially to maintain the heavy burden of the arms race in football and basketball, in addition to the growing expenses in other nonrevenue Olympic sports. Even if additional monies come into the department, there will most likely still be a financial shortfall at many Pac 12 schools, unless major financial restraint is implemented or athletic departments continue to rely on state money to reduce annual debts. This thought may explain why the Chancellor’s Committee on Intercollegiate Athletics at Cal Berkeley made such drastic decisions.

Chancellor’s Committee on Intercollegiate Athletics

The Chancellor’s Committee on Intercollegiate Athletics chose to eliminate sports and put a limit on future institutional dollars used to support athletics, rather than wait for the television pot of gold that appears to be coming to Berkeley and other Pac 12 campuses. The reality is that Cal, like many other schools, has been at these crossroads before, as recently as 2006. Increased dollars from a new and exciting revenue source, especially a source as public as television revenue, typically will raise expectations of success at these campuses, forcing an increase in expenses to keep up with the Arms Race, only to realize later that the department has far outspent revenues.

Examining the Report of the Chancellor’s Committee on Intercollegiate Athletics, the decision to become more fiscally responsible by cutting sports, placing a limit on future institutional dollars, and holding the Chancellor and athletic director personally responsible is unprecedented, considering all of the recent publicity highlighting the future revenue that is just around the corner. These cuts may indicate the only realistic decision for Cal if they hope to remain competitive in football, basketball and what is left of the prestigious Olympic programs. The members of the Committee made a clear decision not to wait for the anticipated television revenue to address the financial debt, because they do not believe it will address the problem.

The report states:

“However, notwithstanding the possibility of substantial new revenues beginning in 2013, we note that the general upward pressure on costs, the scope of the program, and the increased operating costs of the retrofitted and improved stadium (estimated at an additional $2.4M) will result in a significant short- and probably intermediate gap between costs and revenues. Indeed, an expanded Pac 10 could lead to increases in travel costs, as well as further fuel for the arms race, discussed below; the rumored division into North and South groups could also make ticket revenues more volatile.” (p.4)

The report also indicates that the financial problems of the athletic department should not be solved with the continued reliance on student fees and institutional dollars. One very important solution the Committee provides, among others, is a very specific order calling for “Chancellorial leadership in the Pac 10 and NCAA.” Specifically, the Committee is calling on University of California at Berkeley Chancellor Birgeneau to assume a major leadership position not just on campus, but within the Conference and even within the NCAA to reduce spending. However, rather than ask Chancellor Birgeneau to be a part of change, the Committee wants him to lead the change, even if it means he would act alone.

“Chancellor Birgeneau can and must be the first move in an attempt to slow athletics spending. He is exceptionally well-positioned to do so, first, because of the national leadership for which he is so well recognized; second, because of his membership on the Executive Committee of the Pac 10; and third, because he has already, through appointing this Council, taken significant steps to unite his local constituencies behind him.” (p.11)

But Cal is not the only Pac-10 school that is facing financial scrutiny, perhaps just the most recent and public. Arizona State athletics is also facing a multi-million dollar deficit. The University of Oregon’s expenses are rapidly increasing and Oregon State was close to $6 million dollars in debt. Washington State athletics, operating with the smallest athletic budget in the conference, is falling further behind the larger budgets in the Pac 10 and the University of Washington athletics made adjustments to respond to the massive state cuts.

Fast forward to 2015 and perhaps we will be able to read about how the Pac 12 Conference television revenue and the fiscal responsibilities of leaders such as Chancellor Birgeneau and Larry Scott allowed the Pac 12 to become a model of good business practices. At that point, maybe we will read articles labeling Larry Scott as the most powerful man in college athletics, not because he negotiated the largest television contract but because he directed the Pac 12 Conference into financial security.

This posting was authored by Tony Weaver, Assistant Professor of Sport and Event Management at Elon University. Tony has agreed to occasionally provide research summaries. Prior to teaching at Elon, Dr. Weaver was an athletic administrator at Iona College, Siena College and the University of North Carolina at Greensboro.

Thursday, September 2, 2010

Refocusing on Financial Restraint

After a summer of reading about the potential revenue generated by conference realignment, and watching school after school negotiate behind the backs of their current conference members one realizes how quickly agendas change in college athletics. Most recently, BYU added to the chaos by declaring its football independence and becoming a member of the West Coast Conference in all other sports. It was less than two years ago that many in higher education, including college athletics, preached about the impact of economic recessions and restraint on spending. Yet, attention to cost cutting measures has been trumped by the appeal of bigger and better conferences and chasing revenue.

Perhaps the most recent report by Daniel Fulks will remind us yet again that Division I schools are spending more in an effort to maintain even higher athletic standards, in particular relying on institutional dollars to support growing budgets. The response by some schools has been to pursue larger revenue streams through television, sponsorship and fundraising, rather than remain focused on where to cut. However, the issue of financial sustainability still remains a large problem for most Division I athletic programs due to the fact that the revenue just cannot keep up with expenses. In an effort to not just restate the problems, a dedicated focus on practical, cost cutting solutions appears to be needed. Some of these solutions below have been implemented by athletic departments across the country and rightfully deserve more attention.

Gather More Information

As discussed in a previous USI post, the issue of transparency will remain at the forefront of college presidents and the NCAA office. In the past, many believed that college athletics has operated in an environment of “secrecy”, even to the point where those working in the industry can be unaware of the financial decisions of their NCAA competitors. Over the last year, Winthrop Intelligence has provided a solution to athletic departments across the country by creating several online databases filled with accurate and timely data specific to Division I athletic programs. Why is this important? Athletic departments can use these data to make sound financial decisions, perhaps saving thousands of dollars on decisions related to coaching contracts, game guarantees, and sponsorship rights. The provision of usable data to athletic directors without the need for wasting time and energy trying to gather old data could be a lifesaver for athletic departments. An article in Athletic Business highlighted one example of a Pac-10 school saving $50,000 on a potential game guarantee. Perhaps even more beneficial is the fact that the database allows a user to not only compare financial data, but go deep into the contracts of coaches, administrators, sponsorship agreements, and game contracts to pull out the details of multi-million dollar decisions. Putting good data in the hands of the athletic director provides much needed leverage for better financial decisions.

Other opportunities also exist for the NCAA and athletic departments to continue gathering data by relying on the expertise of scholars to provide analysis, including financial analysis. The financial reports generated by Dr. Fulks has brought several issues to the forefront and allowed professionals to gain a more comprehensive financial picture of Division I athletics; kudos to the NCAA and Dr. Fulks for their on-going work. NCAA research staff members Todd Petr and Thomas Paskus wrote in an article appearing in the Journal of Intercollegiate Sport, "The study of intercollegiate sport is a discipline that would likely benefit substantially from an enhanced commitment to sharing research data." Similar to the business plan of Winthrop Intelligence, these data need to get to the hands of the decision makers.

Let the "Haves" Go…They Can Always Raise More Money

If nothing else, conference realignment and the additional information from the Fulks report has taught us that more schools are in the “have-not” group than perhaps the public may have imagined. As the Big 12 started to break-up, reports surfaced that suggested schools like Kansas, Kansas State and Missouri, were going to be left out because of limited football revenue potential. Imagine a school like Kansas, a major Division I brand, being labeled as “not good enough” or a "have-not".

That label, in higher education and particularly in college athletics, can be devastating. Avoiding membership into that category can be a great motivator to administrators, coaches, players, and fans. Just last week supporters at Boise State were asked to dig deeper into their pockets for a new football stadium in order to maintain their position in the Top 25 and avoid the future descent back into mediocrity. Chadd Cripe details Boise State's impressive rise to become one of the best football programs in the country. But, according to the administration, Boise State still falls short financially and thus the request for donations. Is it reasonable to think that donors can support the school’s ambitious future? Is it possible that the donors of Boise State could come together and build a stadium? Sure, but at what point does the well run dry? Financially, the donor base at most Division I schools cannot maintain the pace set by athletic funds at schools like Alabama, Florida and Texas, which annually could bring in close to $15-30 million more than a school like Boise State. The disparity in philanthropic giving to athletics is staggering and one that is very difficult to overcome, and for some reason continues to escape the attention of the public. Maybe it is time to let schools whose donors can consistently raise well over $30,000,000 annually for athletics run free.

Conference Mandates

In July 2009, Boston College athletics director Gene DeFilippo and former Arizona athletics director Jim Livengood stated that "the only way to slow down the arms race in college sports is to do it through NCAA mandated change." However, what major financial changes have been made in that time? Rather than waiting on the NCAA, conferences need to continue cost cutting measures. Conferences offer a manageable number of schools with similar profiles and thus could be the most realistic place where financial control can take place. Asking individual schools to take the lead on spending restrictions could be placing athletic directors and coaches at an unfair competitive advantage, which could cost employees their jobs. The reality is most athletic administrators or coaches are not going to sacrifice something that their competitors still have. This environment has created a helplessness that has made its way to college presidents who have stated that they are limited in their cost controlling role. Ironically, it appears that some presidents are right in the middle of the conference realignment chaos, which could raise more questions about their “powerlessness”.

Alone, financial restraint appears impossible, however as a group, perhaps financial control could become possible. It is true that conferences may be put at a disadvantage against other conference schools but the bottom line is that financial restraint needs to happen. Over the past year, conferences have discussed, and in some cases implemented, simple cost cutting measures such as hotel stays for home games, media days, size of coaching staffs and tournament participation and NCAA gifts. These changes, if implemented need to remain; if they are being discussed, they need to be implemented.

Financial Responsibility Includes All Departments, All Programs

Frequently the media and the general public focus on the financial data of prominent sports such as football and men's basketball, the perceived cash cows. But all Division I programs, revenue and non-revenue sports, men's and women's, need to be added to the conversation of financial responsibility. At this point, we have too many Division I teams that just cost too much, including basketball and football programs (see recent moves such as the University of New Orleans and Centenary College, reclassification to Division III, as well as Northeastern and Hofstra football programs). Although it would be an unpopular move to reclassify to a lower level division or cut programs or scholarships (legal issues could also arise), it may be a necessity. In a time when tuition continues to rise at a rapid rate and student fees continue to be tapped, a reexamination of all programs (as well as the mandatory Division I requirement for sponsoring 14 sports) needs to be put on the table.

Based on the current financial model used by Division I schools (relying on, at best, 2-3 programs generating money, while the other 12+ programs lose money) the pursuit of a sustainable budget is nearly impossible. At some point, schools will just not be able to keep up - maybe now is that point. As Dennis Dodd reminded us last year, "It [the business model] works at Ohio State and Texas. It doesn't at New Mexico State, Florida International and most everywhere else."

Even through all of the glamour of conference realignment, most Division I schools and conferences need to remain focused on reducing expenses, spending wisely and establishing long term projects that are grounded in good financial security. Although the article does not establish any groundbreaking ideas, it can serve as a gentle reminder that the goal of economic stability for most remains on the expense side.

This posting was authored by Tony Weaver, Assistant Professor of Sport and Event Management at Elon University. Tony has agreed to occasionally provide research summaries. Prior to teaching at Elon, Dr. Weaver was an athletic administrator at Iona College, Siena College and the University of North Carolina at Greensboro.

Thursday, August 26, 2010

Nebraska and Conference Realignment: Beyond Television Revenue

After reading Pat Forde’s article on ESPN about Nebraska football, I began thinking that perhaps the biggest winner in the conference realignment shuffle is the University of Nebraska. The obvious advantage to the move to the Big Ten is the television revenue; however, as Tom Osborne is quick to point out, there are other interesting advantages to the realignment. In an article in the St. Louis Post-Dispatch, Osborne highlights three additional advantages to the move:

1. The increased exposure from the Big Ten Network could help recruit students on a national level
2. Nebraska could better compete in outdoor sports such as baseball and tennis against their Northern competition
3. Significant academic opportunities, including opportunities for more research funding

As a faculty member, the last advantage interested me the most for several reasons. First, and not surprisingly, this benefit did not receive as much national attention on the sports page as television revenue and championship games. Second, I continue to reexamine the idea that athletics helps academics. Certainly the value of a successful athletic program has many advantages, but does it directly help the academic reputation of the institution? The idea that an athletics decision (such as moving conferences or upgrading a new athletic facility) could improve academics is not a new revelation created by the Nebraska administration. Although many scholars dispute this claim, it is one that administrators still use to justify major support to the athletic department. In the case of the University of Nebraska, the idea that academics could see rewards from the move to the Big Ten is one that many people at UNL believe to be true. Why? The biggest reason is the new relationship with the Committee on Institutional Cooperation (CIC). The CIC is essentially an “academic Big Ten Conference” or a consortium of Big Ten schools and the academically prestigious University of Chicago. Similar to an athletic conference, the CIC is a formal relationship that allows the 12, soon to be 13, schools to collaborate on projects and share resources as a group rather than operate as an individual campus. Sound familiar? It should – it is a similar model to their athletic colleagues at the Big Ten and the development of the Big Ten Network: Leveraging opportunities through strength in numbers. But does this work on the academic side of the institution and could this benefit Nebraska?

The answer is ‘yes’ it does work for the current members of the CIC and one would think it could also work for the University of Nebraska. The benefit of the CIC, as stated in the 2008-09 Annual Report, is connecting “people with resources and opportunities, enhancing the distinctive strengths, assets and expertise of each member university.” Some interesting results of the collaboration stated in the annual report show that the membership has gathered over $6 billion in funded research, saved a combined $5.9 million in purchasing, $6 million in library savings, and $19 million in technology savings for 2008-2009, and provide incredible learning opportunities for students through programs such as the Travelling Scholar Program.

Supporters of the move point directly to the improvements of Penn State since joining the Big Ten and the CIC in 1990. Specifically, Adam Smeltz refers to statistics included in the U.S. News rankings that “show Penn State-University Park graduation rates went from 57 percent in 1990, when the university joined the Big Ten, to 85 percent in 2008. The average University Park freshman's SAT score is up, too -- between 1,100 and 1,300. Before 1990, the average had been just below 1,100.” Certainly other factors contributed to the growth of Penn State over the last 20 years but as the article suggests one cannot ignore the importance of the move to the Big Ten and the invitation to the CIC.

Perhaps more important than the tangible research dollars and projects that may develop, the CIC has provided the University of Nebraska with a public relations victory among the rest of campus and beyond. In a recent article in the Lincoln Journal Star, Ellen Weissinger, interim senior vice chancellor for academic affairs at UNL is quoted as saying, “I’m about as happy as I’ve been in my 24 years at UNL because of what it says of the Big Ten’s perception of the premiere status that we’ve achieved academically.” In addition, the University’s press release highlights several opportunities, with one of them being the ability to attract high-caliber faculty and to “open doors to new investors, entrepreneurs and others interested in expanding regional and national markets.”

Conference Realignment by the Numbers

One of the measuring sticks of “academic success” is the U.S News & World Report Best College Rankings. Using the recently released 2011 listings, a quick analysis indicates that the University of Nebraska will be associating itself with what many would consider a more prestigious group of schools. Or as John Nichols, a Penn State associate dean and former faculty senate president said in a recent article in the Omaha World Herald, “Simply put, it’s [the Big Ten Conference membership] very fancy company.”

U.S. News & World Report Big Ten Rankings

U.S. News & World Report Big Twelve Rankings

Currently, UNL is ranked 104 in the National University category, which would be much lower than any school in the Big Ten (the lowest Big Ten member is Michigan State at 79). All the schools in the Big Ten are considered to be “more selective”, with Northwestern and Michigan listed as “most selective”. Also consider that the affiliation with the CIC puts UNL in the same circle as the University of Chicago, considered by the 2011 rankings to be the ninth best National University in the country. That is exceptional company, considering the Big Twelve has no school listed higher in the National University category than the University of Texas at 45. In terms of selectivity, the Big Twelve schools are all listed as “more selective” with one school, Texas Tech ranked at 159, listed as “selective”.

While the University of Nebraska may have in fact joined the Big Ten because of football and television revenue, athletic departments and conferences across the country should pay close attention to the perceived benefits to the academic side of the institution. Time will tell if the Big Ten move was advantageous to the Cornhusker athletic department as well as the rest of the university, however it appears that embracing the change to the Big Ten could pay big dividends.

This posting was authored by Tony Weaver, Assistant Professor of Sport and Event Management at Elon University. Tony has agreed to occasionally provide research summaries. Prior to teaching at Elon, Dr. Weaver was an athletic administrator at Iona College, Siena College and the University of North Carolina at Greensboro.

Thursday, July 1, 2010

College athletics in 2010: The Intersection of Conference Realignment and Transparency

The following post authored by Tony Weaver is the second entry in a series that will examine the role of conference realignment strategies of universities. The long term financial implications of conference realignment could be the key to financial stability and success for some schools, and have drastic revenue limitations for others.

In the midst of the conference realignment chaos that appears to have taken over the state of Texas, Richard Justice reminds us of the “other” schools that participate in Division I athletics in Texas. His blog caught my attention for a couple of reasons. One, it reminded me that although the massive realignment did not happen the way Justice hoped, schools outside of the Big 10, Pac 10, and Big 12 are going to be impacted by any realignment, now and in the future. And two, Justice briefly touches on a former football powerhouse, Southern Methodist University. He describes Southern Methodist University as “a model program of a realistic vision and a beautiful on-campus stadium”. While this may be true the model program has not been built without some concerns from members of campus, particularly concerns related to the increasing dollars budgeted to athletics and the lack of financial transparency from the SMU administration. As the thought of conference realignment remains in the minds of many athletic directors across the country, including schools like Houston and SMU, members of the Knight Commission have brought to the forefront the issue of transparency and financial accountably. On June 17th, as the media and most Division I athletic departments remained focused on the impact of conference realignment and played out multiple scenarios, the Knight Commission released the most current report titled Restoring the Balance: Dollars, Values, and the Future of College Sports. In the report, the Commission focuses on the area of financial transparency. However, the latest report is not the first time transparency in college athletics has been addressed. In fact, one of the leaders in the call for greater transparency has been the president at SMU, R. Gerald Turner.

When I read Justice’s article about conference realignment and SMU, I thought about an editorial in the Washington Post in December of 2009 written by SMU’s President R. Gerald Turner and William E. "Brit" Kirwan, chancellor of the University System of Maryland. At the time President Turner and Chancellor Kirwan wrote that “The real crisis facing college athletics is the sustainability of its business model, which is on a path toward meltdown.” The editorial continued, “We recognize that change can come only from collaborative actions, some of which may prove unpopular on some campuses. The first step will need to be true transparency regarding athletic spending.”

Transparency in higher education is a hot topic and not limited to just athletic departments. Similar to SMU, other athletic departments have been asked to produce financial, academic and athletic data, despite the fact that athletic departments already release a tremendous amount of financial data, especially in comparison to other departments on campus. To begin with, financial data such as high profile coaches’ salaries, sponsorship agreements, and NCAA revenue distributions and other forms of revenue generation find their way to media outlets. In addition, each institution provides information to the Office of Postsecondary Education of the U.S. Department of Education on an annual basis that allows the general public an opportunity to view the budgetary priorities of an athletics program. The available data however is presented with a “cautionary note” and perhaps does not answer every question but it certainly does address some issues of transparency. Over the years the data has become more detailed however each school has their own way of reporting the data.

The Knight Commission argues that the “real long-term progress in athletics financing across all NCAA Division I institutions requires the availability of clear, comparable, and complete financial data, together with strategies to improve accountability”, which I believe to be true. However, there can be a downside to financial transparency. The reality is that more data also means more information which in some cases could be used to actually quicken the pace of the ongoing “Arms Race”, not slow it down. Imagine if all athletic constituencies, coaches, administrators and yes, even boosters, knew exactly how much their arch rival was spending or how much the new facility cost or how much the athletic director was making. On one hand, data would allow constituents to hold the administration accountable for dollars spent. But, data gathered could be used as an ongoing benchmark highlighting exactly how much the completion is spending and where they are spending. Budget comparisons would be an ideal way to show why more money is needed, not less. For example, look at the escalation of coaches’ salaries. A major part of the reason why coaches’ salaries have escalated so quickly is because everyone knows what coaches are making. Contracts have become very transparent, yet that has not stopped the escalation, but rather they have been used as a guideline for the next salary negotiation. If additional financial information was readily available (which in many cases, it is) wouldn’t that just add to the Arms Race? Yes, it would create more accountability, but does it really stop anyone from spending?

Transparency at SMU

Since President Turner’s article in December 2009, the Daily Campus at SMU has examined the issue of transparency at SMU (see Hidden on the Hilltop below), and in particular the athletic department. SMU’s athletic budget is facing scrutiny for major increases in their athletics budget since 2006, and thus members of the community are calling for more access to financial information about athletic spending. But wasn’t the increases in athletic spending somewhat predictable and to the “trained eye” very transparent? SMU, the university not just the athletic department, is making a push to win. That is precisely why President Turner hired a proven athletic director in Steven Orsini from the University of Central Florida in 2006. Since Orsini’s hire SMU has rebuilt facilities, programs and coaching staffs, most notably hiring head men’s basketball coach Matt Doherty and head football coach June Jones; both of whom were head coaches at other high profile Division I programs. The only problem is that men’s basketball and football have not won at a consistently high level – yet. Although basketball continues to struggle, football finished last season with 8 wins, won the Hawaii Bowl and received a vote for the final USA Today Top 25 vote. These are certainly respectable results, but not necessarily when compared to the type of money being spent and the recent success of in state football rivals such as Texas Tech and TCU, programs that have recently received national attention for big wins in football.

Currently, SMU loses money on athletics…a lot of money, and apparently more than many other schools across the country; but another side of the SMU’s story needs to be told. Not everyone is disappointed with the direction of SMU athletics and President Turner. In fact, in an article that appears in the New York Times in December 2009, alumnus and writer Joe Drape praises President Turner for his leadership in making great improvements, including improvements with the football program. A few days later, Dr. Stanley Katz, a former trustee at SMU and currently professor at Princeton University wrote that it is “good to have SMU back”. More recently, the athletic department posted a press release highlighting their record setting fundraising efforts, an impressive mark in a tough economy for a small private school with a checkered past and no major recent victories on the resume.

But, major victories could come, perhaps as early as this fall. Keep these two dates in mind: Sunday September 5, 2010 and Friday, September 24, 2010. Why? On September 5th SMU will play Texas Tech in Lubbock on ESPN and on September 24th SMU will play host to preseason Top 10, TCU, also on ESPN. Imagine if SMU can win one or even both of those games and go on to a successful 2010 football season. Does transparency and their $19 million debt remain an issue or does the idea of bowl games and conference realignment make the pages of the Daily Campus?

Although conferences have stated that for now realignment is done, most believe that this stop is only temporary. As conferences begin to add schools again, SMU could be a school that eventually benefits from such moves. As Justice points out, they have made major moves to rebuild their athletic program and would provide a large media market (Dallas is Number 5).

Even if the desire to know more about spending in college athletics increases, it probably will not change the financial landscape. Currently, we have enough data to understand that even when a school like SMU wins football and basketball games, the school will probably not generate enough revenue to cover the cost of running an athletic department. Yet, athletic departments continue to go further into debt with the hope that future gains could come from a big football win or an invitation to a more prestigious and perhaps more financially lucrative conference. As issues such as financial transparency (what is) and conference realignment (what could be) continue to intersect, administrators will be left with yet another difficult decision of cost containment and accountability or investing in prestige and national recognition. If the past is a predictor of future decisions, prestige and national recognition will win.


Hidden on the Hilltop:

Part One

Part Two A

Part Two B

Part Three

The author of this posting was Tony Weaver, Assistant Professor of Leisure and Sport Management at Elon University. Tony has agreed to occasionally provide research summaries. Prior to teaching at Elon, Dr. Weaver was an athletic administrator at Iona College, Siena College and the University of North Carolina at Greensboro

Wednesday, June 16, 2010

Conference Realignment Strategies

The following post is the first in a series that will examine the role of conference realignment strategies of universities. The long term financial implications of conference realignment could be the key to financial stability and success for some schools, and have drastic revenue limitations for others.

At the moment, there are only 3 schools that have realigned. They are:
University of Nebraska: Will leave the Big 12 Conference and will join the Big 10 conference
University of Colorado: Will leave the Big 12 Conference and will join the Pac-10 Conference
Boise State University: Will leave the Big 12 Conference and will join the Mountain West Conference

However, the biggest news coming from conference realignment is not the schools that have left, but one that decided to stay: The University of Texas has decided to stay in the Big 12 Conference. Why?

Andy Staples from sums it up perfectly. Two very important points that need to be highlighted:

1. Pay attention to the apparent deal that the University of Texas will receive from the Big 12 Conference regarding television broadcasting rights. If reports are correct, the University of Texas will generate between $20-$25 million in television rights and be able to start their own television network. This could be a dangerous precedent, as this deal clearly gives the University of Texas leverage on future conference decisions. It could also be a model for other top-tiered schools to use when they wish to explore the possibility of conference affiliations.

2. Conference realignment is not over. There is money to be made in conference realignment. In Commissioner Beebe’s white paper, he points out that more media partners will enter the bidding war for college football, which should drive the market price higher. As conferences negotiate television rights deals, the overall goal for each conference is the ongoing need to make their market more attractive to the media partners. Reducing their market share or remaining flat would certainly jeopardize a conference’s ability to generate more revenue through larger television contracts.

Conferences have been able to increase its market share as regions get bigger. This is a strength that Big 12 Conference Commissioner Beebe also highlighted in his white paper, as he compares the South, where the Big 12 schools are located, to the North, where the Big 10 schools are situated. He states “For any institutions evaluating membership in the Big Ten, I hope full consideration is given to linking the future with a part of the country that is losing population and tax base relative to the Sun Belt. In addition, disconnecting with the Sun Belt region may result in removing significant contact with a region where many alums and fans reside, not to mention a fertile recruiting ground for students and student-athletes. I don’t proclaim to be an expert, but in looking at the long-term positioning of an institution, it seems that its best linkage is to the South and West.”

Finally, market share also increases when you attract new schools from previously untapped parts of the country. The strategy of attracting new markets appears to be the current plan for increasing revenue among conferences such as the Pac 10 and Big 10. The Pac 10 is reportedly interested in adding the University of Utah, which along with the University of Colorado, would extended their reach further east into Salt Lake City (# 31 TV market) and Denver (#16 TV market).

Depending on future decisions related to conference realignment, additional issues may arise. In the past, conference realignment has created a trickledown effect, causing a wider divide between the haves and have-nots of college athletics. Dr. Karen Weaver highlights this point in her guest column published in the Indianapolis Star. Kirk Wessler of the Journal Star also presents an interesting solution for the “basketball schools” that always seem to be powerless during these transitions. Time will tell if college athletics, or specific types of athletic programs, are doomed. Regardless of the type of institutions, the financial implications of realignment appear to be real.

This posting was authored by Tony Weaver, Assistant Professor of Leisure and Sport Management at Elon University. Tony has agreed to occasionally provide research summaries. Prior to teaching at Elon, Dr. Weaver was an athletic administrator at Iona College, Siena College and the University of North Carolina at Greensboro.

Thursday, March 25, 2010

Salary Update

This posting was authored by Tony Weaver, Assistant Professor of Leisure and Sport Management at Elon University. Tony has agreed to occasionally provide research summaries. Prior to teaching at Elon, Dr. Weaver was an athletic administrator at Iona College, Siena College and the University of North Carolina at Greensboro.

With coaching changes happening at a rapid pace, it is time to give some financial updates from the previous post, the Salary Dilemma. A majority of schools below have decided to hire new coaches at a higher salary than their predecessor. Other schools are still in the process of hiring, yet have made it known that they will be putting more resources into the basketball program, including higher coaching salaries.

Two questions arise when examining these situations:

First, does coaching turnover really make a difference? Many have questioned whether some of these current schools can ever win due to other factors such as recruiting budgets, facilities, and the competition in their league. Using two examples from below, DePaul in the Big East and Fordham in the Atlantic 10, suggests the problems may run deeper than solely the coach. Since joining the Big East in 2005-2006, DePaul has an overall record of 60-155, and a conference record of 23-84. Fordham left the Patriot League in 1995 to join the Atlantic 10 and has also struggled. Since 1995, Fordham’s overall record is 132-266, and the A-10 record is 63-161. They have gone through three coaches since the 1995 season (Nick Macarchuk, Bob Hill, and Derek Whittenburg) and only have two winning seasons in the Atlantic 10 (2005-06, 2006-07).

Second, does a new coach deserve a higher salary than his predecessor? It appears to be a given. The quick answer is that market demand drives the salary higher, but more longitudinal research needs to examine if increasing the new coach’s salary actually helps build a better program.

Fulks (2009) indicates in the 2004-08 NCAA Revenues and Expenses of Division I intercollegiate athletics program report (free download) that one of the largest expenses at the Division I level is salaries and benefits. At the BCS level, salaries and benefits make up 33% of total expenses; at the FCS level, salaries and benefits make up 31% of total expenses; and in the Non-football level, salaries and benefits make up 32% of total expenses. Of course, this line item includes all athletic department salaries and benefits, and certainly athletic departments employ many people which would lead to a large line item. However, at a majority of the institutions the highest paid athletic department employees are coaches. Perhaps administrators could reconsider the amount of money and the length of contracts given to new coaches and spend more efficiently on other areas that could address underlying issues. One could argue that until other departmental areas are addressed, any coach would have a difficult time winning, regardless of their salary.

Mid-Season Firing, New Hire:

At UNC Wilmington, former head coach Benny Moss was fired during the year after a disappointing start to the year. His contract runs through 2012-2013 at $170,000 annually. However, according to Brian Mull with the Wilmington Star News, UNCW is ready to hire a coach with head coaching experience and will pay between $225,000-$250,000 annually.

The Board of Trustees at Fordham University voted to increase the men’s basketball budget in February and then yesterday hired Tom Pecora for $705,000 annually. This salary would place him the top tier of the Atlantic 10 Conference men’s basketball coaches.

DePaul fired Jerry Wainwright in January and now promises to increase the salary for the next coach and possibly address the issue of a new arena. Although the school has not named a new coach, it appears athletic director Jean Lenti Ponsetto is interested in top level coaches.

Keeping their coach (for now):

Penn State and Rutgers decided to keep their men’s basketball coaches for the upcoming season despite poor seasons. Ed DeChellis of Penn State currently makes approximately $650,000/year and is under contract until 2013-2014; however, the Penn State faithful seem to be running out of patience. Fred Hill survived another year at Rutgers, perhaps putting off the inevitable. Tom Luicci of the Star Ledger details Hill’s contract, highlighting the financial hit Rutgers would take if the school fired Hill.

Quick fire, quick hire:

With three years remaining on his contract and a $1.5 million buyout, Jeff Lebo was fired from Auburn University. Lebo was quickly hired by East Carolina University and Auburn hired former UTEP head coach, Tony Barbee.

Holy Toledo:

Gene Cross resigned at Toledo and walked away from the remaining $700,000 on his contract. Before he resigned, Cross was the highest paid employee in the athletic department.

Keep an eye on:

Similar to their conference foe DePaul, it appears administrators at St. John’s and Seton Hall are also willing to pay good money for their next coach.

Iowa fired Todd Lickliter after only three seasons, because Gary Barta, the Iowa athletic director, “felt he couldn't afford to bring him back for a fourth”

Oregon did not renew the contract of Ernie Kent and now is in the midst of a national search.

A New Contract:

What is the value of beating Kansas and going to the Sweet 16? Northern Iowa and Ben Jacobson have agreed to a new 10-year deal that will increase Jacobson's annual salary to $450,000 starting next season, with annual raises of $25,000.

Thursday, March 11, 2010

The Salary Dilemma: A Major Investment in College Athletics

This posting was authored by Tony Weaver, Assistant Professor of Leisure and Sport Management at Elon University. Tony has agreed to occasionally provide research summaries. Prior to teaching at Elon, Dr. Weaver was an athletic administrator at Iona College, Siena College and the University of North Carolina at Greensboro.

It seems every year during and after football and basketball season, coaching salaries at “major” Division I schools become an issue, and this year appears to be no different. In January, Dr. Andrew Zimbalist recently brought up the point again during the NCAA Scholarly Colloquium on College Sports, asking the NCAA to pursue an antitrust exemption to regulate salaries, which would put limits on the amount of money a coach can receive. The greatest benefit of such a move would allow the NCAA to control an expense that appears to be unregulated by individual schools due to “market demands” and the need to attract and retain highly successful coaches. Ideally, this would provide a level playing field among schools eliminating the need to outbid each other for the next high profile coach. If this were to work, coaches may be more apt to stay in one school and eliminate the quick exits that have become all too familiar. However, this option does not appear to be a valid possibility due to legal issues. Jim Isch, the NCAA's interim president, and Jeff Orleans, former Ivy League executive director, feels that it would not be in the best interest of college athletics or higher education to pursue legal action limiting salaries. The NCAA history of restricting salaries cost the association dearly in the late 1990’s when it tried to restrict assistant coaches’ salaries. Implementing control over how universities spend money can be incredibly difficult due to restraint-of-trade laws and the competitive environment of higher education and college athletics.

Past scholars have attempted to address this issue but have had little to no success of making any significant impact (at least based on the continuous rise of coaching salaries). Even during a recession, attempts to control salaries have been limited to a select few positions at schools that have seen across the board salary reductions. More common has been the continued practice of pay increases, contract extensions or hiring new coaches at a higher salary than their predecessor. The decision to invest in a coach is based on the expectation that your program will win, and in some cases win big, resulting in an increase in revenue for the program and the institution. Such was the case in January of 2007 when the University of Alabama hired Nick Saban to a staggering eight year, $32 million guaranteed contract. At the time the record breaking contract created a large public outcry to control coaches’ salaries. Since then, Alabama went on to win 2010 BCS National Championship Game, and Saban received a contract extension. Another article connects the Saban contract to perhaps the most important bottom line for measuring a coach’s contract: an increase in revenue. In 2008, the University of Alabama football recorded a profit of $38 million. And, according to the USA Today, head coaching salaries for Division I football coaches continued to rise.

Why? Sandy Barbour, athletics director at the University of California at Berkeley, captured the essence of the salary dilemma within the context of college athletics while discussing the contract of Cal head football coach, Jeff Tedford and his $2.8 million a year contract:

"If we let him go because we're not willing to pay market, we'll pay a huge price. Because I don't know that we can go out and find another coach with that combination of skills and (academic) emphasis."

However, not every coach hired brings championships or winning seasons to their respective institutions; meaning some critics could view the large contract as a poor investment. For every Alabama, there are hundreds of schools that have invested in a program that does not produce championships and increased revenue. Administrators seem to be reacting quicker to the “mistake” by firing coaches before their contract expires and now more frequently during the middle of the season.

Finally, with the recession hitting higher education hard over the last 2 years, it appears the salary issue is receiving media attention for other athletic department jobs as well. Recently, media attention has been given to the increase salaries for assistant coaches and athletic administrators, positions that in the past may have escaped the focus of the public and the media. Most constituents have come to realize that the head coaches of major football and basketball programs get paid very well. However, other positions in athletic departments have started to come under scrutiny for their high salaries and large contracts. Higher education administrators, especially athletic directors, will continue to have to make tough salary decisions and determine the market value of their employees. It appears now more than ever the decision to hire and fire will be judged with a high level of public scrutiny. In some cases, the failure to higher the right coach could lead to the demise of the athletic director and president. Perhaps that is why more schools are paying good money to search firms to help find the ideal candidate. Without question the salary debate will continue well beyond March Madness as basketball coaches are fired and hired, contracts are extended and terminated, and maybe we will crown a new coach as the “highest paid basketball coach”. I guess we will then have to wait and see if he or she was worth the investment…many people are watching.

Case Study: The University of Arizona

Last season, Sean Miller left Xavier University after a successful 5 year run to become head men’s basketball coach at the University of Arizona. Similar to many other successful “mid-major” programs, Xavier lost Miller to a BCS school that could afford to pay him more money and provide more resources. Miller, who had signed a 10 year, $850,000/year contract with Xavier in 2007-2008, was offered a 5 year contract with an annual salary of $2 million. The contact made Miller the highest paid employee at the school and thus caught the attention of the Arizona State Board of Regents. In June of 2009, Ernest Calderon, President of the Arizona Board of Regents, commissioned a special committee to examine not just Coach Miller’s contract but review the cost associated with intercollegiate athletics, specifically the Division I programs at the University of Arizona, Arizona State University, and Northern Arizona University.

In this video clip, President Calderon speaks candidly about the present condition of athletics and in particular the escalation of coaches’ salaries. Note: the discussion about athletics occurs from 1:05-4:52 of the video.

Quick links:

Mid-season dismissals:

UNC Wilmington fires coach; AD takes responsibility for the decision

Andy Katz of ESPN captures the current practice of firing basketball coaches mid-season

Evaluating a coach:

Saban hiring impacts more than just Alabama football

The financial implications of firing Penn State’s basketball coach

The job security of the Rutgers basketball coach

Auburn basketball struggles

Eastern Illinois invests in their basketball coach

University of Toledo’s basketball coach: Highest paid departmental employee, losing season

Division I Head Coaches Salaries:

Assistant coaches salaries:

Paying Tennessee assistant football coaches

Alabama assistant football coach gets big pay raise

Atlantic Coast Conference assistant football coaches are well paid

Athletic director salaries:

Georgia athletic director gets pay increase

Athletic Director database from 2009 Bloomberg

Monday, March 8, 2010

Athletic budget update #58

Seton Hall to cut four sports
Track and field will take a big hit under Seton Hall’s new athletic budget, as the school plans to cut its men and women’s indoor and outdoor programs. Seton Hall will add women’s golf to meet Title IX standards.

Cal State Northridge drops swimming

The men and women’s swimming programs will be dropped at Cal State Northridge according to athletic director Rick Mazzuto. The school will save close to $300,000 a year once current scholarships run out.

Montana may reduce out-of-state scholarships
After raising ticket prices and cutting the athletic budget last year, the University of Montana may limit its out-of-state scholarships. This would allow the school to bring in more money from the out-of-state student-athletes.

Oregon athletics suffer deficit
Despite the recent success of its football team, the University of Oregon is currently suffering from a $642,000 deficit. Oregon State is also struggling and was down $5.9 million on June 30, 2009.

Wednesday, February 24, 2010

Athletic budget update #57

KSU to cut athletic budget by 10 percent
As part of university-wide budget cuts, the Kansas State athletic department will have its budget cut by 10 percent over the next two years. Athletic Director John Currie said in a statement that eight staff positions were being cut.

Wisconsin raising ticket prices

In the midst of a five percent budget cut, the University of Wisconsin is raising prices on its football tickets. Associate Athletic Director for Business Operations John Jentz said he think the increase will go a long way in helping the school’s financial situation.

Brown considering cutting sports

Amid $30 million budget cuts, Brown University has proposed cutting several varsity sports and athletic staff positions. Ruth Simmons said the school’s athletic problems are there to stay for the time being.

Cutting sports a possibility at UNLV

In an attempt to retain money in its budget, the University of Nevada Las Vegas (UNLV) and the University of Nevada, Reno, are considering cutting athletics. This is in response to the school’s task of cutting $147 million from its budget.

-Alex Mayster

Sunday, February 21, 2010

Athletic Budget Update #56

Tennessee puts record amount into athletics
Tennessee has no problem spending during the recession, as its budget will jump 13 percent this year, meaning the university will spend over $100 million on athletics for the first time. The upgraded budget comes partly because of the SouthEastern Conference's new television contracts.

Iowa cuts recruiting costs
The University of Iowa saw a 40 percent drop in recruiting costs for its football program during 2009. Each Iowa sport had to cut five percent from its budget according to athletic director Gary Barta.

Ohio State will not cut sports
Ohio State University offers the most Div. I sports of any school in the country, 36, but OSU is not considering cutting sports as an option to resolve its budget problems.
"There was never a thought in these last discussions about eliminating sports," athletic director Gene Smith said. "We're not doing that."

Hawaii's athletic deficit could surpass $10 million
After accumulating $8,051,123 in debt since 2002, the University of Hawaii expects its deficit to surpass $10 millon during this fiscal year. Hawaii had a $2,632,408 deficit this past year, and has lost money in seven of the past eight years, excluding the 2007 Sugar Bowl year.

Fordham to increase budget for men's basketball
The board of trustees at Fordham University (NY) has announced that there will be a "significant" increase to the men's basketball budget. The school hopes the budget increase will push the team into the upper third of the Atlantic 10.

-Alex Mayster