Auburn University Athletics reported a huge, multimillion dollar 2014 operating deficit causing many in the media and elsewhere to claim yet again that college athletic departments are a financial drag on university budgets. Those hostile to college sports love to play Chicken Little while they tout these "deficit" numbers and claim they are the primary reason for rising tuition and out of control spending at universities across the country.

Check out this interview with ABC 33/40 in which I attempted to dispel this common myth about college sports.

https://twitter.com/Sports_Biz_Prof/status/568033593383096320

A Flawed Argument

There are multiple reasons why such claims are fundamentally flawed. For one, the accounting methods the NCAA uses to calculate revenue ignores many of the benefits that an athletic department produces which have huge economic value for a university. Missing in these revenue numbers are the impact of athletics on student retention, alumni loyalty and involvement, university brand name recognition (which has a major impact on sponsorship revenue generation), university quality perceptions by the general public and recruitment of high quality non-athlete students to campus (in general, applications tend climb both in quality and numbers when teams on campus have winning seasons).

Second, at most big time NCAA Division 1 universities the vast majority of the operating budget for the athletic department is covered by revenue generated by the sports themselves (primarily from ticket sales, media rights, sponsorships and licensing). In 2014, the 14 SEC athletic departments generated almost $1.4 billion in revenue (see the 2014 Brock School of Business College Athletics Financial Outlook for more information on that topic). The portion of athletic department budgets that are covered by the university itself is called "institutional support" and is relatively small in comparison. Indeed the institutional support provided by the university is typically a trivial component of the overall university operating budget as a whole.

The Real Question We Should Be Asking

So the real question that should be asked is, "Does the university itself get a reasonable rate of return on the intuitional support it is investing in athletics?" Professors Fort and Winfree set out to answer this question in a study recently published by Stanford University Press in a book entitled, "15 Sports Myths and Why They're Wrong." If you are interested in this subject I would highly recommend that you closely study Chapter 3 of their book. They conclude, "The idea that athletic departments are money-losers... is simply wrong in all but a very few cases" and that athletic departments are "generating enviable returns" for the institutional dollars being spent by the university on athletics. This paragraph from page 53 of their book sums up their findings.

"The clear picture is that... university administrators with the most successful athletic departments put next to nothing into their athletic programs, relative to either their university budget or allocations to other departments on campus. In turn, those programs generate extraordinary return to university administrators on their institutional support investment. The bottom of the heap programs generate a lower return," yet they still "generate reasonable returns overall." Their research shows that this holds true for big time Power Five Conference schools as well as smaller FBS schools like UAB and FCS schools like Samford University.

In conclusion, I would caution listening to the voices crying out "the sky is falling" when athletic department operating deficit reports surface in the media. There are few units on any college campus capable of generating the amount of revenue and strong return on institutional investment as does the athletics department.

Written by: Dr. Darin White