Nike University. University of Phil Knight. Spoiled U.
All are nicknames attached to the University of Oregon because of its relationship with Nike.
There is no question that the University’s athletic programs have drawn cynical attention for their flashy uniforms, and the school has garnered much criticism for its relationship with philanthropist and former Nike CEO Phil Knight, whose landmark donation of $100 million in 2007 spurred the rebirth of major fundraising for Matthew Knight Arena.
Such major donations, along with news coverage of Oregon’s ambitious construction plans for its facilities, might lead fans to think athletic departments nationwide are awash in cash.
The surprising truth, though, is that college sports actually don’t make money.
In a day and age where whoever has the best equipment and facilities get the best recruits, money is key. But only a handful of schools in the country turn a profit from year to year, while the rest live on the fringe of the budget – the part where red is the dominant color. With the worsening economy, more athletic departments are joining the handout line just so they can stay afloat.
“We’re not the cash cow that people think we are,” incoming University Athletic Director Mike Bellotti said. “I think that’s one of the reasons Pat Kilkenny was brought on board – to give us a business perspective … he’s been able to put things on a little bit more workable relationship with the University and the community.”
“The real issue is that expenditures are growing at a faster rate than revenue is,” said Whitney Wagoner, instructor of sports business and marketing for the University’s Lundquist College of Business. “That is the fundamental problem.”
It’s a problem a lot of businesses are having. Yet, there still is a perception that athletic departments across the country are swimming in money like Scrooge McDuck.
“People see 110,000 fans at a University of Michigan football game and think that the school’s sports are doing well financially,” said Dan Fulks, a professor of accounting at Transylvania University in Kentucky. “What these people don’t realize is that one team has to support the entire athletics program.”
Fulks is also a research consultant for the NCAA on finances, and has published reports for 15 years on revenues and expenditures in the NCAA. The most recent, which covered all 1,033 member schools of the association, was published in 2006. The newest report for the last three years is expected to come out this June.
In his findings, Fulks found that football and men’s basketball are the only two consistent moneymakers in college athletics across the board.
There are a few exceptions, such as women’s basketball at Tennessee or Duke, or baseball at the University of Texas and Louisiana State University. The problem at Oregon is how to support its other 12 sports – many institutions carry even more programs, such as Stanford University with 35 – that aren’t generating any revenue. That becomes especially complicated when football provides approximately 70 percent of the department’s revenue, as is the case at Oregon.
The 19 schools that do take home money from year to year are the exception rather than the rule. They represent the super-minority: fewer than 2 percent of NCAA member schools. Ohio State University in Columbus earned almost $19 million in profit in the 2007-08 school year to lead the list, and athletic departments at the University of Florida and Pennsylvania State University also made similar amounts. Oregon, by comparison earned about $300,000 after expenses.
The thing these moneymakers have in common is that they have the ability to maximize ticket sales, and they have a large donor base to fund big projects.
At Oregon, things are less grandiose when compared to other athletic departments that are part of the super-minority. In 2007-08 the school made $24.5 million on football and $5.2 million on men’s basketball.
Combined with the other sports, generated revenue was approximately $56.6 million.
The athletic department’s expenses were $56.3 million. But that’s enough, Bellotti says.
“As an athletic department, we break even,” he said. “We make enough to make our budget and meet our needs. I think we’ve been very fiscally sound. We’ve embraced that and created that opportunity for ourselves. We recognized that there were risks involved, and we have to toe the line.”
Oregon’s athletic department loves to tout its self-sufficiency, but with basketball and baseball facility construction sites under way and the economy tanking, things are going to be tight in Eugene and around the Pacific-10 Conference.
The University of Washington is cutting its men’s and women’s swim teams, while Stanford will chop $5.1 million from its athletic department’s budget during the next two years after its endowment lost a fifth of its value. Oregon State University may cut sports if it can’t raise more money from donors, while Arizona State University’s coaches are taking unpaid furloughs.
These are grim times. Oregon’s self-sustaining mantra would have a hit were not for $1.2 million in extra revenue from the Oregon Lottery last year. The lottery helped out all state universities’ athletic departments, and without the funds the UO would have been in the red.
Fulks says the drop will only continue for the near future.
“I think the economy has given us a wake-up call and I think schools are going to start trying to reduce their spending on athletics,” he said. “There will be a cut back on facilities construction, and they’ll be a lot more rational about traveling expenses.”
Even donors are disappearing, Bellotti confirmed.
“We’ve seen a drop in donations, absolutely,” he said. “People have less available cash. Everybody is just sort of being cautious for the future. We’re feeling that pinch and as we go forward we have to find different revenue streams to make up for that.”
Fulks’ report shows ticket sales are one of the few things large enough to ease expenses for an athletic department. A department gets money from sources like TV contracts, but more than 23 percent of its money comes from ticket sales. The NCAA report also shows that another 24 percent comes from private donations.
Those donations can be misleading when they depict college athletics as revenue giants. Most go under the radar, but donations such as the $100 million that Phil Knight pledged to Oregon in 2007 are beacons for disgruntled faculty members who think money should go toward academics.
University biology professor Nathan Tublitz, who is also the co-chair of the Coalition on Intercollegiate Athletics told The Oregonian after Knight’s gift, “The priorities of the university are totally out of whack when so much money can go to an ancillary activity of the university when the rest of the university goes begging.”
Wagoner argues that these critics don’t take into account the fact that donations are also a big part of the overall University revenue stream, not just for sports.
“We have this big building across from Lillis that is called the Knight Library,” she said. “We also have a huge building called the William H. Knight Law Library. But people don’t want to talk about that; they want to talk about the new basketball arena. It’s sexy, it’s controversial.”
Bellotti says he doesn’t tell donors where they should give their money and wouldn’t want to offend a booster by declining offers. “People give what they want to give to,” he said.
How athletic departments spend those donations is another sore spot, but the University has no control over what the department does with its money, Wagoner says. That’s because the Oregon athletic department is a separate entity from the general University, receiving no money from the general budget.
“When the University of Oregon builds new facilities for the athletic department, everyone’s initial reaction is that the University can’t aff
ord that. But the University isn’t paying for it,” she said.
So what’s dragging departments into the loss column? Coaches’ salaries and tuition, Fulks says.
According to the NCAA report, 33 percent of all athletic expenses in the NCAA come from paying coaches. At Oregon, new head football coach Chip Kelly agreed to a five-year, $7 million deal since he was named head-coach in waiting in December. Another 17 percent is “grants-in-aid,” which are the costs of athletes’ tuition. The remaining 50 percent is allocated for travel, facility maintenance and other general budget items. Overall, these expenses significantly outweigh revenues at most universities in the United States.
For the average athletic department, that means a combined $18.45 million each year in losses, Fulk’s report states. There are perks for bigger conference schools that have a lot of teams who make it to football bowl games or win more than one game in the NCAA men’s basketball tournament, but the majority of athletic departments are bleeding money.
Part of the reason expenses are outstripping revenues is because some streams are capped. For instance, ticket sales are a limited item. Athletic departments cannot sell more tickets than a stadium holds.
Also, the big money many fans think of is actually split up over all the schools. Things like the NCAA’s basketball tournament $6-billion TV deal with CBS, which expires in 2014, are allocated based on how many teams a conference has participating. If one conference, for instance the Pacific-10, has six teams playing in the tournament that year, it will get a bigger share of the revenue than a conference that usually has only one team go.
The same goes for the bowl games that football teams play in.
“Bowl game payouts are split up among the teams in a conference,” Fulks said. “There’s no NCAA involvement. Each bowl makes a direct contribution to the university.”
That means if a conference has a perennial Bowl Championship Series contender like the Pac-10 or Big-Ten do, each school will receive a cut from the bowl payout. Multiply that by five other bowl games in that league and each school (even the last place team) gets a substantial paycheck.
As Oregon and nearly every other athletic department searches for new revenue streams to tap in the future, Oregon can be assured that its hottest product – Duck football – will always sell.
Fulks doesn’t think empty seats will start popping up at Autzen Stadium any time soon.
“Oregon is going to sell football tickets no matter what,” he said. “College athletics are part of the entertainment industry, and that’s fairly recession-proof.”
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