FACTORS INFLUENCING COLLEGIATE ATHLETIC DEPARTMENT REVENUESBy: Chad D. McEvoy, Alan L. Morse, and Stephen L. Shapiro

Presented by: Dion Doucet

NCAA DIVISION 1 REVENUE GENERATION

• Median generated revenues increased about $13 million from 2004 – 2010

• More than one half of the schools from the six major BCS member conferences increased budgets by 10% or more from 2010 – 2012

• Athletic Directors• Were usually current or former

coaches• Now, someone who has a track

record of success in business in areas such as fundraising, sales, and marketing

FACTORS LEADING TO LARGE GROWTH

• Television media rights• 5 BCS bowl games distribute more

than $174 million a year• March Madness terms for CBS and

NCAA; 2011 – 2028 $10.8 billion• New conference level deals

• Pacific 12 receiving $225 million a year from FOX and ESPN

• Southeastern conference receiving $205 million a year from CBS and ESPN

• Big Ten Network generating $252 million

• Longhorn Network generating $300 million for school over 20 years

• Ticket Sales• In 2010, accounted for 29% generated

revenue at Football Bowl Subdivision (FBS) institutions

• Charitable Contributions/ Donations• Accounting for 23%

• Corporate Sponsorships• Approximately 10% of athletic

departments’ external sources of revenue

HIGHLY-COMMERCIALIZED NON-PROFIT

• Bowen’s Revenue Theory of Costs• An increase in expenses is an

outcome of non-profit organizations spending all revenue to avoid a significant surplus

• Revenue-to-cost spiral• A cycle created when increases in

revenue are the source for increases in expenditures

• Bowen’s 5 laws to explain costs in higher education

1. Be perceived as high quality2. There are never enough resources3. Institutions will always attempt to

increase revenue4. Each institution spends all that it

raises5. All this leads to a consistent

increase in expenditures. Instead of trying to minimize costs like profit seekers do.

APPLYING THE LAWS TO COLLEGE ATHLETIC DEPARTMENTS

1. Be perceived as high quality

2. There are never enough resources

3. Institutions will always attempt to increase revenue

4. Each institution spends all that it raises

5. All this leads to a consistent increase in expenditures. Instead of trying to minimize costs like profit seekers do.

• Primary goal: Success, prestige, influence, and a positive reputation

• 81.7% of 120 FBS programs losing money despite dramatic revenue increases

• Escalating revenues froma. Increasing staff and sophisticationb. Formalized outbound ticket sales force

• Evidence of consistent increase in revenue creating an environment where programs must continue to increase expenditures

VARIABLES

• Dependent Variable • Department-generated revenues

for D-1 FBS athletic programs• Instead of total revenue like other

studies, which includes intra-institution transfers of funding like student fees and direct subsidization

• Explanatory Variables• First group examines success of past and

present football and men’s basketball such as; # of football bowl games and men’s basketball NCAA & NIT tournament appearances in the previous 10 years, participated in those postseason events in current year, and current and previous season winning percentage in the two sports.

• Next group examines several institutional factors including; university enrollment, market area population, annual household income, # of student athletes, and member of a BCS conference dummy variable

• Lastly, year-by-year dummy variables

CONSIDERED BUT EXCLUDED VARIABLES

• Geographic region represented by time-zone dummy variable• Multicollinearity with BCS

conference member dummy variable

• Variables that are revenue generation by nature• Such as; Attendance for football

and/or men’s basketball, ticket sales, and donation totals

• Would lead to multicollinearity

• Similarly, expense related variables• Bowen’s Revenue Theory of Costs

CORRELATION MATRIX

• Strongest correlation is with whether the school was a member of one of the BCS conferences• Explains more than 60% of the

variance in department-generated revenue

• Moderately strong relationships between generated revenue and the # of varsity sports and student-athletes• Consistent with Bowen’s Revenue

Theory of Cost

• Football more important than Men’s Basketball• All football success variables are

more strongly correlated with generated revenue than all men’s basketball success variables

• Strong correlation between generated revenue and university enrollment• Several elite athletic programs

come from some of the largest universities in the country

THE REGRESSION MODEL

• Revenue generation trend towards gradual increase over time• Generating almost 8 million more in

06 and 07 year than 03, ceteris paribus, more than a 20% increase in just three to four years

• Most important factor is membership in a BCS conference

• Enrollment is also a strong predictor of department-generated revenue

• County population and per capita income not significant

“CASH COW” ATHLETIC DEPARTMENTS?

• “Consistent with Bowen’s theory, it is interesting to note that we could not identify any universities through a media search that elect to treat their major conference athletic department as a “cash cow” product within the larger university umbrella and adopt a “profit-,” or surplus-, taking financial strategy where athletic expenditures in non-revenue areas like “Olympic” sports would be minimized in order to shift a large athletic surplus to counter financial deficiencies throughout the university, such as the decrease in state support that has affected many public universities. Some BCS member universities were identified, including the University of Florida, University of Tennessee, and Louisiana State University, which do transfer athletic surplus to the general university, but these transfers generally represent well below ten percent of the total athletic budget. Again, we believe this is consistent with Bowen’s Revenue Theory of Costs, where athletic departments are increasing expenditures directly in line with revenues rather than behaving more efficiently to seek profits, as would be expected of a traditional, for-profit organization. Thus, it appears that college athletic departments focus more on excellence and prestige, consistent with Bowen’s second law of the Revenue Theory of Cost, rather than seeking financial surplus to aid the university’s overall financial condition.”