A proposal for better balance sheets among NCAA members

Proposed changes in how the NCAA compiles financial data from college athletics departments could lead to more of them being in the black, though not by increasing revenue or cutting expenses.

Just 23 athletics departments are self-sufficient by the NCAA’s current benchmarks. That has led to criticism of increases in athletics spending across Division I public schools that have been greater than the considerable increases in athletics revenue.

Under one proposed change, student fees might no longer be treated only as subsidy, but also as revenue generated by the athletics department. That could make it easier for some athletics programs, especially those at schools in the power conferences, to be considered by the NCAA as self-sufficient at a time of tight university-wide finances and increasing costs for students. The standard for self-sufficiency is whether revenue generated by an athletics department at least equals its annual expenses.

“I felt like this is an opportunity to make (the system) a little more favorable to institutions in how they are asked to report financial data,” said Larry Templeton, a consultant to Southeastern Conference commissioner Mike Slive on television matters. Templeton is part of an NCAA focus group that was assembled to assess the current financial reporting system. “Instead of running around saying how many programs are in the red, this should put a considerable number running in the black. It would give a truer accounting of how most athletic programs work these days.”

Kathleen McNeely, the NCAA’s vice president of administration and chief financial officer, unveiled the proposed changes in the financial reporting system last week during a presentation at the annual meeting of the College Athletic Business Management Association (CABMA).

In an interview with USA TODAY Sports this week, she said the proposal was a product of what she characterized as a standard review of a system that has been in place for seven years. Under the current setup, schools are required every January to file a report with the NCAA that includes data from the previously completed fiscal year for 15 categories of annual operating revenues, 19 sources of annual operating expenses, as well as a variety of other information about the athletics program and the school.

She said the ideas for the changes came from the focus group, which met in March and will continue to be at the center of discussions about how to implement any changes. The group involved 22 people from outside the NCAA staff, drawn from the ranks of campus-wide vice presidents for finance, athletics department business officers, athletics directors, external auditing firms that work with universities, internal university auditors and a representative from the National Association of College and University Business Officers. A similar coalition helped create the NCAA’s current financial reporting form and definitions.

The NCAA now considers as subsidy any revenue that comes from student athletics fees, state support or either of two types of school support. There is direct institutional support, which includes money from the school’s general fund and the value of tuition waivers. There also is indirect institutional support, which is the value of facilities and services provided by the school but not actually charged to the athletics department; under the present reporting system, indirect support is counted as both revenue and expense.

Among all Division I public schools, subsidies consistently have constituted roughly one-third of all athletics revenue, according to a USA TODAY Sports analysis of data it has collected from the schools’ annual reports to the NCAA, beginning with the reports covering the schools’ 2004-05 fiscal year. (The data now are collected in conjunction with Indiana University’s National Sports Journalism Center.) In 2011-12, subsidies for all of Division I athletics rose by nearly $200 million compared to what they were 2010-11, reaching a total of $2.3 billion.

The NCAA’s benchmark for self-sufficiency is whether the annual operating revenue generated by an athletics department—money from ticket sales, donations, multi-media rights contracts, shares of revenue from the NCAA and conference-wide rights and bowl deals, or any source other than those comprising subsidy—at least equals the department’s annual operating expenses. In 2011-12, just 23 of 228 athletics departments at NCAA Division I public schools generated enough money on their own to cover their expenses, a figure basically unchanged for three consecutive years.

The proposed change to the financial reporting system that McNeely called “the big one” involves allowing schools to potentially reclassify at least some student-fee revenue as generated revenue rather than subsidy. At most schools that collect an athletics fee, it is a mandatory charge to all students, and in exchange they receive free or greatly reduced admission to sports events. Schools then set aside seats for students that they might otherwise be able to sell. McNeely said that when schools sell out events in a sport–including but not limited to football, men’s basketball and men’s hockey–they may be permitted to count related student-fee money as generated revenue.

“Member institutions have been advising the NCAA for several years that they felt it was unfair that student fees could not be counted as generated revenue when the athletic department can prove the facility sells out,” McNeely said. “All we’re doing is having the conversation at this point to see what does look like if we do that and what would be the rules around when the student fees dollars qualify as generated versus (subsidy). This is a big one, and we will be very thoughtful and careful in modeling that.”

But she predicted that the impact on the number of schools being considered self-sufficient “is going to be minimal. The vast majority of schools we don’t believe sell out their football stadium. A lot of the ones that already do are in the 23 that already have a positive net revenue. So, we do think it will grow some schools into the plus column.”

Templeton, a former Mississippi State athletics director, said the system “should be counting student fees in stadiums that are selling out as a (generated) revenue source. How can that be a subsidy?”

McNeely said consideration also is being given to eliminating indirect institutional support as revenue but leaving it in place as an expense, although she said “that’s at a preliminary stage.”

Anne D. Neal, president of the American Council of Trustees and Alumni said the NCAA’s and its member schools’ attention should be more focused on the cost of major-college sports.

“I think the bigger issue can’t be addressed by playing with the accounting rules,” she said. “The issue here is how we can find ways to help reduce the cost on students and focus institutions on their primary purpose, which is providing students an education.”

McNeely is targeting the reports due in 2015 as the ones that will begin incorporating any other possble changes.