Conference moves: Revenues up, costs up
June, 18, 2012
By Kristi Dosh | ESPN.com
Getty Images, AP PhotoWith all this talk about realignment, what will happen to the Big Ten and the SEC?NCAA president Mark Emmert said a couple of weeks back that another round of conference realignment could be coming, as schools try to get in position for a proposed four-team college football playoff.
The goal of a move, of course, would be for schools to capitalize financially and academically. Yet an examination of prior moves shows financial gain is not necessarily a given (see table below).
The last time college football saw a major shift in conference alignment was when 16 schools moved from one FBS conference to another in 2004 and 2005. The majority of schools joined their new conferences in 2005, with only Miami and Virginia Tech making the move in 2004. The shifts:
Big East to ACC: Boston College, University of Miami, Virginia Tech
Conference USA to Big East: Cincinnati, Louisville, South Florida
Mid-American Conference to Conference USA: Central Florida, Marshall
Western Athletic Conference to Conference USA: Rice, SMU, Tulsa, UTEP
Conference USA to Mountain West: TCU
Sun Belt to Western Athletic Conference: Idaho, Utah State, New Mexico State
Comparing NCAA financial disclosures filed the year before each public school shifted conferences to the same disclosures for the 2010-11 school year shows a majority of schools had revenue growth that outpaced FBS schools on average. From 2004-05 to 2010-11, public FBS schools overall on average saw operating revenue increase by 58 percent. For the 10 public universities that changed conferences in 2004-05, that number was 81 percent.
Mission accomplished with the moves, right? Not so fast.
Expenses skyrocketed, too, which affected the schools' bottom lines. Costs at schools that moved conferences (up 78 percent) outpaced the overall FBS average (at plus 54 percent).
Average net revenue (operating revenue minus operating expenses) for public FBS schools overall rose by 197 percent from 2004-05 to 2010-11 -- from $1 million to just under $3 million. Yet with the exception of one program, the conference movers that were below the average in 2004-05 still found themselves below the average in 2010-11. Cincinnati, South Florida, Marshall, UTEP, Idaho, Utah State and New Mexico all fell below the 2004-05 average. From that group, only Utah State outpaced the average in 2010-11.
Central Florida flipped positions. In 2004-05, the Knights slightly outpaced the average with net revenue of $1.4 million. However, after moving conferences, the athletic department had a $43,498 deficit in 2010-11. That came despite virtually every revenue category increasing for Central Florida, including student fees and direct institutional support.
Brian Goff, a professor of economics at Western Kentucky University, studied athletic department finances in an article in the Journal of Sport Management, and explained the not-uncommon phenomenon of expenses rising to meet or exceed revenue in the non-profit setting:
“As in other not-for-profit settings, unit directors in universities (e.g., department chairs, deans, athletic directors) do not typically have an incentive to maximize profits (budget surpluses). If surpluses are experienced or anticipated, most unit directors increase expenditures in order to fully utilize their budgets. As a result, expenses rise to match, and often exceed, budgets regardless of revenue.”
Brad Stricklin, Central Florida’s chief financial officer, said investments in facilities and coaches increased expenses. Since joining C-USA, the Knights have added new facilities in football, softball, basketball, golf and rowing and have added to the baseball and soccer facilities.
“We needed to be competitive with coaches’ salaries,” said Stricklin. “We were at the very bottom of C-USA in coaching salaries and pretty thin administratively as well. We made a great commitment to our coaches and our sports.”
Stricklin said the commitments to facilities and coaches set Central Florida up for the most recent round of realignment, when the school was attractive enough to the Big East to get an invitation.
The notion that academics play any role in a university’s decision to change conferences is often dismissed. Yet it turns out institutions might see more tangible results to their academic bottom lines than their athletic department finances.
A recent study by doctoral students Dennis Kramer and Michael Trivette examined the 32 Division I colleges that changed conferences from 2004 to '11 and found significant academic gains, even after taking into consideration institutional characteristics and prior institutional prestige.
On average, those schools experienced a 3 percent decrease in their admissions rate three years after their move, meaning they became more selective. They also saw an average 5 percent increase in the number of admitted students who chose to enroll. Schools also experienced an increase in applications and higher average ACT scores from applicants.
Institutions that moved to the ACC saw some of the largest gains. Virginia Tech saw more than a 16 percent increase in applications and a 6.1 percent decrease in admission rate the three years following its entrance into the ACC in 2004. Boston College, which joined in 2005, saw applications increase by 37 percent and its admission rate decrease 4.7 percent three years later.
In terms of finances, revenues increased the most in the category of “conference distributions,” which includes revenue from conference television contracts along with NCAA distributions for March Madness. The 10 public schools that changed conference affiliations in 2004-05 saw increases in their conference distributions that ranged from a 121 percent increase (Cincinnati) to a 522 percent increase at South Florida.
South Florida saw 369 percent growth in royalties, licensing, advertising and sponsorships. Athletic director Doug Woolard attributed his school’s move to the Big East as one major reason.
“Certainly conference affiliation and the increased national branding we were able to accomplish because of the presence we had in the metropolitan areas and the populations in the Big East -- that’s one reason,” said Woolard. He credited outsourcing of sponsorship and radio and TV advertising to IMG College as the other major factor.