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Wednesday, December 30, 2015

Hiding the High Price of College Sports

Some schools spend more than $10,000 per student

A barrage of articles in the popular press points out the escalating cost of higher education, rising student debt levels, and the financial struggles many colleges and universities face. Although many factors are at play, we maintain that expenditures of college athletics are a significant factor that are often overlooked, in particular for small schools, especially those with big-time athletic programs.

A recent piece in USA Today points out that only 24 of 230 Division I public schools generated sufficient revenues to cover the total costs of their athletic programs, and that each of these schools was a member of one of the “Power Five” conferences (the Atlantic Coast Conference, the Big Ten, the Big Twelve, the Pacific Twelve, and the Southeastern Conference). A more recent piece in the Chronicle of Higher Education says that only six of 201 Division I schools cover total athletic costs.

As the Center for College Affordability and Productivity points out, “(w)hen an athletic program cannot cover its expenses through generated revenue, it is forced to rely on allocated funds from the wider institutional budget.” These subsidies from the wider institutional budget can be huge, approaching 90 percent of total athletic costs for small schools. 

As economists, we wondered, “How much are the costs of college athletics?” In particular, “How much are the costs per student?” And of great import, “How do these costs vary with the size of the school and scale of the athletic program?” We estimated these costs using data collected by the federal government under the Equity in Athletics Disclosure Act.

Our investigation reached two important conclusions: The number of students and the scale of the athletic program matter a lot.

Many costs of college athletic programs are largely fixed, varying greatly with the scale of the school’s athletic program, but not with undergraduate enrollment. The National Collegiate Athletic Association (NCAA) mandates the numbers of sports, scholarships, and personnel by the athletic program a college or university adopts. Division I-A (or Football Bowl Subdivision) athletic programs are the most expensive, followed by Division I-AA (or Football Championship Subdivision) programs. Division II programs are significantly less expensive, particularly if they don’t play football.

In our analysis, we considered schools in each of these categories and also distinguished whether the school was public or private.

Our analysis confirmed our expectations. Because the costs of college athletic programs are largely fixed, costs per undergraduate student are high for small schools and then drop rapidly as the number of students expands, until reaching relatively small values for large schools. Regardless of the number of students, as the level of play moves up, so do the costs.

A few examples help to illustrate the point. Public schools playing at the Division II level without a football program have the lowest costs. (All costs are measured in 2013 dollars.) With 1,000 students, their per-student costs for athletics are about $2,500. If they have more than 3,000 students, their per-student costs fall to around $1,000.

For public schools playing FBS football, the costs are much higher, but so too are the numbers of students. At 10,000 students the per-student costs are around $4,400; at 20,000 students the costs are about $2,600; and for a truly large state school with 40,000 students, the costs fall to just over $1,500.

These large schools are also the most likely to generate substantial athletic revenues through ticket sales, television contracts, and appearances in the NCAA basketball tournament or a major bowl game. They also benefit from conference revenue sharing.

Because those revenue sources are unlikely, if not impossible for small schools, controlling athletic costs is critical to keeping pressure off the wider institutional budget. If they don’t, the subsidy from the institutional budget can become extreme. 

Consider a small, private school like our institution, Presbyterian College, with around 1,000 students. Because Presbyterian College aspired to big-time athletics, it made the transition to Division I-AA (FCS) in the late 2000s and today faces athletic costs of about $12,000 per student. Had the college remained a Division II program, costs would be around $5,000 per student. 

Flagship state universities, such as the University of North Carolina at Chapel Hill and North Carolina State University, spend heavily on athletics, but also have large numbers of students. Their per-student costs are about $4,500 and $3,000, respectively. In the analysis by the Chronicle of Higher Education, UNC receives subsidies of 11.1 percent of total athletic costs, while NCSU receives slightly less (9.7 percent).

For DI-A (FBS) private schools Duke and Wake Forest Universities, with about 6,500 and nearly 4,800 students, respectively, per-student costs are around $12,000. Western Carolina University, playing at the DI-AA (FCS) level with about 7,000 students, has per-student expenditures of about $1,500, quite low for a school its size. But, according to the Chronicle, more than 68 percent of this is subsidized by the institutional budget.

Most of the small North Carolina colleges show reasonably good judgment regarding athletics.  Lenoir-Rhyne and Mars Hill Universities, each with around 1,300 students, play at the Division II level, although they could cut costs significantly if they dropped intercollegiate football. Brevard College, at about 700 students, stood out as hopelessly undersized for a Division II school with football, but it recently initiated the sensible move to Division III, where schools offer no athletic scholarships. 

If students and parents want to pay for intercollegiate athletics, that is their decision.

The problem is that when they pay the bills to their colleges and universities, little is itemized. Therefore, they don’t have a good idea as to the dollars that are going to fund athletics.

They might reasonably think that the board charge goes to pay the external vendor who provides meals at the dining hall, that the room charge is used to amortize the costs of dorms and fund their upkeep, and that lab fees are used to purchase requisite equipment for science classes. But, on the whole, charges are “nontransparent.” They’re vague, indirect, or hidden. 

If students and their parents knew how much they were spending for sports, would they stand for it? Many probably wouldn’t.

Suppose that the per-student athletic cost at a small college with Division II football comes to $2,500 — and that the school made it clear that students must pay that amount separately, whether they participate in sports or not, or attend any games. Would students and their parents choose to spend $10,000 (over four years) for sports? Or might they prefer to trim $10,000 from their college debt?

What about a school with crumbling infrastructure? $2,500 per student could go a long way towards fixing that problem. Or the funds might be used to hire more full-time faculty and rely on fewer adjuncts. 

Money has alternative uses, and we predict that budgetary pressures on small schools, especially those playing at the DI-AA (FCS) level, will intensify, forcing these schools to “right size” their athletic programs. Some will drop to Division II or perhaps even to Division III. 

Some schools may drop their football programs entirely. Many will find that they can best compete for value-conscious students by greatly reducing their athletics budget.

Large universities, such as UNC and NCSU, are able to generate sufficient revenues to cover or nearly cover the costs of their athletic programs and continue to play at the Division I level.  Alumni pressure and politics will prevent downsizing of their athletics programs despite the fact that they must be subsidized.

There will also be resistance to cutting athletics at small schools. Athletics directors, influential alumni and donors, and many presidents will fight against any downsizing. For now, they have nontransparent pricing to hide behind, but in time, budgetary pressures and competition will force many schools to do so.

This article first appeared at the Pope Center.