Last fall, University of Alabama- Birmingham (UAB) announced that it was shutting down its football program. According to university president Ray Watts, the reason was money – the program was set to cost the school an additional $49 million over the next five years and the school, quite simply, couldn’t afford it. From the beginning, there were skeptical voices, including the sports economist Andy Schwarz, who suggested that the school wasn’t really losing money on football. On the contrary, Schwarz suggested, the program was poised to make additional revenue for the university. An angry community and several reports later, UAB has now reversed itself: UAB will restore football in time for the 2016 season.
What does this episode tell us about college sports more generally? it sheds interesting light on the accounting shenanigans that drive much of the debate about college athletics, including the NCAA’s and member schools ongoing cries of poverty when it comes to discussing paying players.
Andy Schwarz has laid out in detail the means by which athletic departments make it look like they’re losing money when they’re not. One of the most consequential is the way in which scholarships are accounted for in university cost estimates. If, for example, the list price for the full cost of attendance at a school is $60,000 a year per student, it doesn’t follow that this is what it actually costs the university if the student actually attends the university. The university, for one thing, has many fixed costs and these don’t move appreciably because of the addition of one or a few dozen extra attendees. Zeroing in on athletic scholarships, when an athletic department recruits a scholarship athlete, it pays the university for the cost of the scholarship. But now we have at least two layers of accounting confusion: 1) the scholarship doesn’t cost the university what the list price suggests and 2) when the athletic department transfers funds to the general administration to cover that scholarship, this isn’t a cost to the university as a whole. It’s a just a transfer of what is, in effect, an internally accepted number for squaring books from one campus unit to another. In other words, it’s not real money.
In this, and other ways, athletic departments can look like they’re losing money – or costing the university money – when they’re really not.
Among the consequences of these rarely questioned fiscal realities is that, even as record amounts of money are flowing into university coffers because of athletics, the NCAA and its member schools and conferences continue to insist that they’d go broke tomorrow if they had to start paying athletes. Another is that schools are positioned to tout their “generosity” to athletes by citing the list price for the scholarships they dole out. To repeat, however, those top line numbers they bandy about do not reflect what it actually costs the university to feed, house and educate the players while they’re playing sports.
There are nuances distinguishing between the accounting realities at programs like UAB and the big-time behemoths like Alabama, Ohio State and Oregon. But what remains more or less a constant is that players don’t really cost universities what they claim, nor is the alleged value at which schools price the scholarship a real number.