This content is from: Corner Office
Final Four Bonanza Is Just a Taste of College Athletics Riches
Basketball, football and other sports programs at U.S. universities are raking in billions, fueling an arms race among rival schools.
When sports fans tune in to this weekends Final Four contest in Houston, theyll see obvious signs of financial success: the packed arena, the prime-time television slots, the high-dollar commercials. The widely watched basketball tournament is a profit machine CBS Corp. and Time Warners Turner Broadcasting System are in the midst of a 14-year, $10.8 billion contract to televise March Madness but its only part of the expanding income statement of the National Collegiate Athletic Association (NCAA).
For the past decade athletics budgets at U.S. universities have moved in one direction straight up. In 2014, 124 colleges with big-time football teams brought in a combined $8.2 billion in revenue from their athletics programs, according to an Institutional Investor analysis of the latest available data from the U.S. Department of Education. Thats double their 2004 tally of $4.1 billion.
Those deepening revenue streams provided largely by TV dollars and, to a lesser extent, by ticket sales and donations delight the mens football and basketball coaches who pocket ever-larger salaries, not to mention the architects and contractors building palatial new on-campus venues.
The television money being thrown at athletic departments is enormous, says Robert Baade, a professor of economics and business at Lake Forest College in Illinois who specializes in sports economics.
In an era of on-demand television that allows viewers to skip or avoid commercials, advertisers covet the live audiences attracted by sporting events. Its a media trend that has driven revenue for professional and college sports alike.
College footballs new four-team playoff has proved to be a cash cow for an already lucrative sport. The Walt Disney Co.s ESPN division paid the NCAA $7.3 billion for the right to televise the college football playoffs from 2014 through 2025.
Meanwhile, such minor sports as volleyball, wrestling, track and softball provide programming on the new breed of all-sports channels, such as the Big Ten Conferences and Fox Entertainments Big Ten Network; the Southeastern Conferences ESPN-owned SEC Network; and the Longhorn Network, owned by the University of Texas at Austin, ESPN and sports marketing giant IMG College.
When the Big Ten launched the Big Ten Network in 2007, that was the first domino that then led the other conferences to try to match what the Big Ten was doing, says Amy Perko, executive director of the Miami-based Knight Commission on Intercollegiate Athletics, a nonprofit that scrutinizes the money flowing into college sports.
Just how gaudy have the sums become over the past decade? Consider this: In 2004 no college brought in more than $90 million in sports revenue. In 2014, 30 schools topped the $90 million mark.
The University of Texas generated the biggest bucks, raking in $179.6 million that year, followed by Ohio State Universitys $170.9 million, the University of Alabamas $150.6 million and Louisiana State Universitys $138.9 million.
The top 25 schools by revenue are a reasonable proxy for the top 25 on the gridiron. On college athletics financial ledgers, football is king. In 2014 the sport generated a total of $3.7 billion in revenue at the 124 schools examined by II. Basketball brought in a collective $995 million.
Only three universities with big-time football programs pulled in more money from hoops than from football, and all three are known as basketball powers: the University of Louisville, Duke University and the University of Connecticut. Louisville ranked No. 1 for basketball revenue, with $46 million, but Texas dwarfed that sum with its top-grossing football program, which took in $121 million.
Intriguingly, the soaring revenue goes not to university endowments but back into athletics. Whereas big-money schools like Texas and the University of Florida say that sports profits help them offset general educational expenses, many colleges are engaged in what the Knight Commissions Perko calls an arms race to hire prominent coaches and build new facilities.
As the revenues have gone up, so has the spending, she says. The revenues have disproportionately increased coaching salaries and, in some cases, led to extravagant facilities.
For college administrators, spending on sports makes sense because the most successful schools gain a bigger share of television revenue and can sell more tickets at higher prices. Whats more, a higher profile can boost donations and spur more students to seek admission.
Coaching salaries are an obvious area of inflation. Among head football coaches, Alabamas Nick Saban made $7.1 million last season, while Michigans Jim Harbaugh earned $7 million, according to USA Todays salary database.
Even at less prominent institutions, the salary schedule leaves little doubt as to whos the biggest man on campus. At Florida International University, for instance, head football coach Ron Turner makes $554,190 a year to run a middling team, topping the presidents $502,578, the state of Floridas salary database reveals.
Schools have also invested heavily in facilities. For example, nearly every football team in the SEC has an indoor practice venue. As of mid-2015 the University of Oregon owed nearly $187 million on its 12,364-seat basketball arena, which opened in 2011. In a record outlay for a U.S. college, Texas A&M University just spent $485 million to renovate and expand its football stadium.
The spending spree at major colleges has upped the ante for smaller schools, which face pressure to raise their games to compete for recruits. The gulf has widened between the so-called power conference colleges members of the Atlantic Coast Conference, Big Ten, Big 12, Pac-12 and SEC and the smaller-money programs. Theres going to be a growing divide between those schools that are marketable and ready for prime time, and those that arent TV-ready, economist Baade says.
That gap is evident in whats indelicately known as body-bag games, which pit big schools against small ones. In 2015 the University of Georgia hosted the University of Louisiana at Monroe in a football contest. Georgia won in a blowout, but the 5114 score on the field was less lopsided than the one on the income statement: $116 million versus $11 million.
How long college athletics revenue can continue its upward path is anyones guess, but Perko and Baade predict a plateau. I just cant imagine that the economics are going to continue to grow like this forever, Baade says. Where is it that we reach a saturation point?
Still, sports fans cant resist the spectacle of 20-year-olds competing in football and basketball, he notes. Rallying around sport, for whatever reason, continues to be significant in the college ranks, Baade says. Youre not going to get 80,000 people to go to a chemistry experiment.