15 SPORTS MYTHS AND WHY THEY’RE WRONG

By RODNEY FORT, JASON WINFREE

Stanford University Press

Copyright © 2013 Board of Trustees of the Leland Stanford Junior University
All rights reserved.
ISBN: 978-0-8047-7436-9

Contents

Introduction………………………………………………………1COLLEGE MYTHS……………………………………………………..1 Revenue Sports Pay for Nonrevenue Sports……………………………72 An Arms Race Drives College Sports Spending…………………………223 Athletic Departments Are a Drag on the University Budget……………..414 Conference Revenue Sharing Levels the Football Field and Basketball
Court…………………………………………………………….595 Pay-for-play Will Bankrupt College Athletic Departments………………806 Title IX Compliance Must Come at the Cost of Men’s Participation………957 The FBS Playoff Will Be Better than the BCS…………………………110PRO MYTHS…………………………………………………………8 Owners and General Managers Are Inept………………………………1339 Owners Lose Money on Their Sports Teams…………………………….15410 Player Salary Demands Increase Ticket Prices……………………….17011 Failure to Act on the Issue of Competitive Balance Is Hurting Some
Sports Leagues…………………………………………………….18812 Player Drafts and Revenue Sharing Will Improve Competitive Balance……21113 Owners Should Be More Vigilant in Policing Performance-Enhancing Drugs..22614 Everybody Loses When Labor-Management Relations Go South…………….23915 Major League Baseball Should Emulate the National Football League…….253Conclusions……………………………………………………….271References and Further Reading………………………………………275Index…………………………………………………………….287

CHAPTER 1

REVENUE SPORTS PAY FORNONREVENUE SPORTS

INTRODUCTION

It is an old adage that without the top men’s revenue programs—footballand basketball—there would be no athletic department. The idea is thatthe athletic director (AD) spends any excess of revenues over costs in thesesports on all of the other programs. Ipso facto, as football and men’s basketballrevenue goes, so goes the economic fate of the athletic department.In some cases, the courts have determined that the original implementationof Title IX (enacted in 1972) acted to exclude football from the equationon just these grounds (e.g., Blair v. Washington State University, WashingtonState Supreme Court, 1987). Indeed, as far back as 1974, Texas senatorJohn Tower proposed an amendment that would exempt “revenue generating”sports from Title IX; nobody was fooled that “revenue generating”meant anything besides football and men’s basketball. In 1995 the CollegeFootball Association (the major conferences minus the Big Ten and Pac 10)argued for the exclusion of football from Title IX in part because it fundedother sports. The myth is being used at this writing to bolster the argumentagainst the death penalty for Penn State football—it funds all of the othersports (Scranton Times-Tribune.com, 2012).

In this chapter we first document the number of athletic departmentsin which revenues from football and men’s basketball exceed the costs ofrunning just those two sports. Then, for those departments for which therest of the sports have operating deficits (indeed, many do not!), we showthe number of athletic departments that can cover that deficit with theirfootball and men’s basketball operating surplus. Finally, we examine theextent to which any surpluses also cover the remaining costs of running theathletic department.

We need to be clear immediately on an important element in our calculations.The data available on college sports revenues and expenses (we coverthe source in detail in a subsequent section) are not submitted accordingto any rigorously monitored accounting protocols. This does not meanthat the data in any way misrepresent revenues and expenses, but they dopose interpretative problems. One of the issues is that the revenue reportsare divided into two categories. “Generated” revenues can be attributed tothe usual sources—attendance and attendance related revenue for each ofthe sports, TV contracts by sport, and contributions that are earmarkedby sport. “Nonallocated” revenues are not tied directly to any particularsport—direct institutional support, student fees, and general giving. Theproblem clearly is that some ADs take a portion of nonallocated revenuesand allocate them in the data reports while others do not.

And therein lies the interpretative problem. Suppose those ADs that allocatedsome of their nonallocated revenues to football and men’s basketballin their reports had not done so. Then we would identify fewer programs inour first step that would have any surplus from these two sports to cover therest of the sports, let alone any of the other athletic department spending.We take some comfort in our results, since this means that we are overstatingthe ability of football and men’s basketball to provide spillover value tothe rest of the department. At the same time, however, we wish there were aconsistent accounting protocol, consistently audited, that did not have thisproblem in the first place.

Here is what is true in the most recent data available (2010–11). About85 percent of Football Bowl Subdivision (FBS, previously I-A) athletic departmentswere able to cover any excess of spending over revenue in therest of men’s sports and women’s sports with football and men’s basketballnet operating revenues. The result drops precipitately to about 34 percentfor the Football Championship Subdivision (FCS, previously I-AA). Sincethe myth is that they all do so, myth dispelled. But stopping here lets themyth off the hook too easily because these results are about only allocatedrevenue and cost by sport. There are other expenses that are not allocatedto any one sport, including salaries, recruiting, event management, and annualfacilities costs. All are required to make play happen at its current levelfor any program. Adding these in, the myth is busted squarely and truly.Only 6 of 118 reporting FBS programs earned enough from football andmen’s basketball to cover their entire athletic department budget. In orderof smallest to largest surplus, they are Syracuse, Michigan State, NotreDame, Alabama, Penn State, and Georgia. Only one FCS program out of124 reporting earned this same bragging right—Southern University andA&M. The fact that all reporting FBS and FCS departments at least breakeven means that they must rely on revenues that are not allocated by sportin order to do so. (And remember that this lack of ability for football andmen’s basketball to cover other sports and athletic department spending isactually overstated as a result of the data reporting issue noted above.)

So, by and large, the observed facts reveal that revenue sports nearly nevercover the costs of making the rest of the sports happen. This myth feedson the intuition of the misinformed. It is quite easy to believe that footballand basketball generate giant revenues and that other sports do not. Thus, ifthere are to be these “other” sports, the money must come from somewhere.Where else than from football and basketball? And it is especially mythicalif the idea is extended to an all-encompassing policy such as Title IX.

We feel almost sheepish busting this particular myth, but we feel compelledfor two reasons. First, even though others have pointed the way, theyhave been nearly completely ignored. Second, nobody (including the earlierpathfinders on the subject) puts substance behind the myth busting byasking a simple question. Why in the wide world of sports would anyoneever expect it to be true in the first place? The breadth and scope of theelements of the athletic department are chosen much like the individualelements of a firm’s product line. Successful products are never expectedto cover unsuccessful ones; the idea is that all products are expected to besuccessful. And so it is with sports offerings in athletic departments, but theyardstick is not net revenue. What is missed in the confusion of this myth isthat different sports have different purposes for university administrators.Some men’s and women’s sports will generate operating revenues greaterthan expenses (just as the medical school might). Some will not (the majorityof departments on campus, we dare say), but these sports serve otherpurposes than generating positive net operating revenues. Some generateother types of values for university administrators—most notably, Title IXcompliance for some women’s sports. We will get into more detail on therelationship between university administrators and their athletic departmentsin subsequent chapters. Here, it is sufficient to bring the evidencetogether and demonstrate the power of just a little data when it comes tobusting myths.

This myth is destructive in a number of ways. First, it grants footballespecially, and men’s basketball secondarily, special status that they deserveat literally a handful of the very top programs in the FBS, and at only oneprogram in the FCS. Feeding on the uninformed (and misinformed bythose foisting the myth), the myth deflects proper attention to be paid toall aspects of the athletic department when it comes to the implementationof public policy. Surely Title IX or the impacts of the National CollegiateAthletic Association (NCAA) death penalty, generally, cannot be judgedby the size of football revenues at a school like Penn State, when nearlyno other programs in all of big-time college sports look like that. Second,it confuses people interested in discovering just where it is that universitysupport actually gets spent. Under the myth, it doesn’t go to men’s majorrevenue sports because they are generating a positive spillover to the restof the department. Truth be known, in nearly all FCS and in a large numberof FBS departments, university support also goes to football and men’sbasketball. If policy is to be effectively implemented, and if proper accountingof spending in the athletic department is to occur, this myth must bediscarded.

This myth begins to show the pervasive way that the operation of athleticdepartments is done with purpose—namely, the purpose of universityadministrators and athletic directors. This type of myth distracts thescrutiny of critics from full attention to the actual allocation of revenuesources. Since athletic directors thrive with full control of that spending,this distraction is clearly in their interest.

A QUICK LITERATURE REVIEW

As we have said, we feel almost sheepish writing this chapter, since othershave made the same point. However, by drawing all of the past workstogether and augmenting with our own, perhaps we will cause the myth towither under unified scrutiny. The earliest “general consumption” noticewe found came from the Women’s Sport Foundation’s executive director,Donna Lopiano, in a 2002 “Q&A” (Women’s Sports Foundation, 2002). Underitem 10, Does Title IX Enforcement Hurt Football Programs?, we findthe following:

Among NCAA football programs in all competitive divisions, 81% spendmore than they bring in and contribute nothing to other sport budgets.Even among Division I-A football programs, more than a third are runningdeficits in excess of $1 million per year.

We do not buy the “deficits” characterization, addressed explicitly in Chapter3, but the point is clear—leftover revenue from football and men’s basketballis the exception rather than the rule.

Turning to academic treatments, University of Notre Dame businessprofessor Richard Sheehan (2000) found that a $1 “profit” increase raisesspending in other men’s sports by $0.10 and in women’s sports by $0.20. AtPenn State, with net revenues of $15.5 million, that’s $3 million for women’ssports. At Tulane, losing $3.3 million, that’s a decrease in women’s spendingof $600,000.

While their aim was to study college football and Title IX, Temple Universityeconomists Michael Leeds, Yelena Suris, and Jennifer Durkin (2004)found out along the way that only a few of the most profitable footballprograms provide any actual subsidy at all to women’s sports. Almost allother athletic departments, including some with highly profitable footballprograms, actually drain money from women’s sports. They conclude thefollowing:

Schools with unprofitable football programs have no surplus to provideand reduce the funds available for women’s sports. A profitable footballprogram, however, is no guarantee that women’s sports will receive adequatefunding. Only a few of the most profitable football programs providea positive net subsidy to women’s athletics. Almost all other schools, someof them with highly profitable football programs, actually drain fundingfrom women’s athletic programs. Indeed, some of the nation’s most prestigiousand successful football programs have the most harmful impactdrain on women’s athletics.

POUNDING THE (LAST?) NAILS IN THE COFFIN

While examples can’t prove anything, if they are chosen carefully they canbe enlightening. A quotation from the Book of John is well known: “Thenyou will know the truth, and the truth will set you free.” From the secularstandpoint, it helps to know where the truth comes from—data sourcesmatter, since they are important for knowing data limitations. For collegesports revenues and expenses, there is only one original source. Memberinstitutions respond to an NCAA survey of revenues and expenses. Whilesome surveys were collected prior, the data have been collected under therequirements of the Equity in Athletics Disclosure Act (1996, henceforthEADA) pretty much on an annual basis. In turn, the data are publicly availablein four versions.

The NCAA produces and freely distributes its own revenues and expensesreport from this survey, most recently from Transylvania State Universityaccounting professor Daniel Fulks (2011). While useful, the NCAA reportsprovide data at a very aggregate level (representative programs such as themedian and largest). Another less condensed (but condensed nonetheless)version of the same survey results goes to the U.S. Department of Education,Office of Post-Secondary Education (OPE) as one of the assessmentsfor Title IX compliance. The OPE data, available freely at their webpage(Office of Post-Secondary Education, 2012), are available by athletic department,for all sports offered, by men’s and women’s sports, and also at theaggregate individual program level.

The two other versions of the NCAA survey were obtained under theFreedom of Information Act (FOIA) and compiled at two news sources.The IndyStar.com (2012) version contains all of the data that went throughthe NCAA but only for the 2004–05 school year. This is by far the mostdetailed report, including all of the important elements of revenues andexpenses for football, men’s basketball, women’s basketball, “other” sports,and a non–program specific category for all reporting individual athleticdepartments. The USAToday.com (2012) version covers a longer period, the2005–06 through 2010–11 school years, but only for individual program totalswithout any breakout by sport. Both of these versions are valuable despitetheir limitations, because (1) the reporters went to great lengths throughFOIA to make any data of this detail available, and (2) they offer insightsthat neither the NCAA reports nor the data available at OPE can provide.

To begin our examples, we chose the two major universities in the stateof Washington, where we both grew up and spent part of our academiccareers. For the purpose of untangling revenue and expense data by sport,and by men’s and women’s spending, for the most recent period possible(2010–11 school year), only the OPE version will do (we did verify some ofour calculations with the USAToday.com version). At Washington State University,the smaller program in the eastern part of the state, athletic departmentspending totaled $40.6 million. Football operating revenue exceededoperating costs by $3.5 million, and the figure was $1.3 million for men’sbasketball. Operating costs exceeded operating revenue by $1.8 million onall other men’s sports. The WSU athletic department spent $4.0 millionmore on women’s sports in total than those sports were able to generate inoperating revenue. Thus the top earning men’s sports, football and basketball,fell short of covering the net operating losses on the rest of the men’ssports and the women’s sports by about $1 million. While this result clearlyviolates the myth, the final assessment cannot stop here. No sports wouldoccur on just the spending on operations. What of the rest of the spendingin the WSU athletic department required to make sports happen?

In addition to sports operations, another $16.8 million, or 41.1 percent ofthe $40.6 million budget, was spent on the rest of the athletic department(salaries, recruiting, event management, and facilities). When we add this”other spending” to the picture, and surely we must, since the athletic departmentcannot function without it, football and men’s basketball at WSUfall even further behind in terms of funding all of the “other programs”!The amount to be covered is the $1 million net shortfall in sports operationsplus the $16.8 million spent on the rest of the department, or $17.8million. So, while football and men’s basketball helped defray part of thecost of sports operations, they did not cover all of it and they surely, then,could not cover any of the rest of athletic department expenses. For theyear, the WSU AD reported to the NCAA (subsequently, to OPE) that theCougars broke even with other revenues that were not allocated by sport.The IndyStar.com version for 2010–11 shows that the rest of the revenueneeded to cover all spending came from student fees, institutional support,and contributions.
(Continues…)Excerpted from 15 SPORTS MYTHS AND WHY THEY’RE WRONG by RODNEY FORT, JASON WINFREE. Copyright © 2013 Board of Trustees of the Leland Stanford Junior University. Excerpted by permission of Stanford University Press.
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