FACTORS INFLUENCING
COLLEGIATE ATHLETIC
DEPARTMENT REVENUES
By: 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.
2.
3.
4.
5.
Be perceived as high quality
There are never enough resources
Institutions will always attempt to
increase revenue
Each institution spends all that it raises
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
• Primary goal: Success, prestige,
influence, and a positive reputation
2. There are never enough
resources
• 81.7% of 120 FBS programs losing money
despite dramatic revenue increases
3. Institutions will always attempt
to increase revenue
• Escalating revenues from
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.
a.
b.
Increasing staff and sophistication
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 intrainstitution 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 studentathletes
• 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.”