Maryland athletics’ financial woes reveal a broken college sports revenue model

Jonathan Newton/The Washington Post

With its multimillion-dollar deficit mounting and no deep-pocketed donor to cover the shortfall, the University of Maryland’s athletic department will proceed with plans to cut at least seven of its 27 varsity teams this weekend. The downsizing is an attempt to correct an unsustainable pattern many households know well: Spending more than you earn.

But the forces behind the bleak reality in College Park aren’t unique to Maryland. Athletic departments at nine out of 10 public universities that compete in big-time sports spent more money than they generated last year — and many are grappling with the question of whether dropping some sports is the solution.

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Unless runaway spending is brought under control, according to financial data and those who study them, it’s only a matter of time before other schools are forced to follow Maryland’s lead.

Over the last five years, 205 varsity teams have been dropped in NCAA Division I, the top ranks of college sports — 133 for men, 72 for women. Men’s tennis, gymnastics and wrestling have been hit particularly hard. Rutgers cut six sports in 2007 to address a multimillion-dollar deficit. Brigham Young, Clemson, Washington and UCLA have also pared offerings. And cash-strapped California Berkeley announced in 2010 it was cutting five sports because of budget problems, before an aggressive fundraising blitz spared the teams.

No major university has cut as deeply as Maryland, however, and some point to its budget woes as a warning that the current model of college sports, marked by overzealous spending in pursuit of success in football and men’s basketball, is broken.

“Quite frankly, I think we’ve gotten ourselves in a terrible situation with intercollegiate athletics, with the cost of running a program really out of proportion to the basic purpose of our universities,” said William E. “Brit” Kirwan, chancellor of the University System of Maryland and a co-chairman of the Knight Commission on Intercollegiate Athletics.

Added John Nichols, co-chairman of the Coalition on Intercollegiate Athletics, the leading faculty voice on the issue: “What seems to be happening all too often nationwide is that the breadth and depth of athletic departments are being cut. It’s becoming the victim of a financial need to feed this commercial beast.”

Texas, Ohio State and a handful of other universities aren’t feeling the pain. That’s because their football teams are so wildly successful they bankroll their entire athletics department — and more.

But that’s the exception. According to USA Today’s most recent annual survey of sports spending, culled from data supplied to the NCAA, just 22 of 227 public universities in NCAA Division I turned a profit in 2011. The rest, like Maryland, lost money.

The perfect storm

There are several factors behind the escalating financial pressures. Spending on sports is rising at nearly twice the rate of spending on academics, according to the Knight Commission. Coaching salaries and construction costs are up dramatically, as football-playing schools, chasing the holy grail of a major bowl appearance, expand stadiums and lure big-name coaches capable of filling them. Scandal-plagued Ohio State in November, for example, guaranteed Urban Meyer a $4 million base salary.

Meanwhile, state appropriations for higher education are declining, which heightens pressure on athletic departments to sell out venues and boost fundraising.

In this environment, a downturn in ticket sales, coupled with a heavy debt burden, can be catastrophic. At Maryland, those factors converged in a perfect storm in recent years. The school’s athletics department deficit, now $4.7 million, is projected to reach $17.6 million by 2017 if not addressed.

Convinced its football stadium was too small and its basketball arena too outmoded for its fan base, Maryland over the past decade expanded Byrd Stadium and added luxury suites, and built the Comcast Center. At the time of construction, officials said the upgrades would pay for themselves through a jump in ticket revenue. Instead, Maryland’s football and basketball teams have struggled, and attendance and revenue have dropped.

As a result, spending on buildings and grounds has soared nearly 78 percent over the past five years, from $4.6 million to $8.2 million, according to data supplied to the NCAA. Debt service on the construction projects alone totals $7.9 million this year — up from $6.9 million in 2010-11. That’s more than 11 percent of Maryland’s athletic department budget, and the figure escalates each year like bad credit-card debt.

That’s just one line-item in a Maryland athletics operating budget that increased 24 percent over the last five years, from $49.5 million in 2005-06 to $61.6 million in 2010-11. Spending on the Terrapins’ coaching staff climbed at an even higher rate, rising nearly 30 percent, from $18.7 million to $24.3 million.

Meanwhile, total revenue increased only 15 percent, from $53.6 million to $61.6 million in the same span.

And, for the first time since the NCAA financial reports have been required, Maryland football actually lost money in 2010-11, with expenses ($12,538,482) outpacing revenue ($12,065,000) by $473,482.

That deficit alone is nearly enough to fund one of the eight teams Maryland announced in November would be dropped: Men’s and women’s swimming and diving, acrobatics and tumbling, men’s tennis, women’s water polo and men’s cross country and indoor and outdoor track and field. Men’s outdoor track may get a reprieve this weekend if it reaches an interim fundraising target set by the university.

So, too, is the $500,000 in guaranteed annual compensation that Maryland is paying its new offensive coordinator, Mike Locksley, hired in January to help turn around a football team that finished 2-10 last season. And the $3 million cost of the new synthetic turf football field at Byrd Stadium could fund five varsity teams for a year. Maryland has declined to identify the private donor who footed the bill for the field.

Athletic Director Kevin Anderson, who was hired two years ago, says Maryland’s student-athletes have been under-served as a result of the athletic department’s chronic operating deficits and deserve better.

“I did not come to the University of Maryland to cut sports,” he said, “but dire situations require decisive action.”

The reality is that in the hyper-competitive environment of college sports, in which athletic departments must spend money to make money, Maryland’s budget priorities are more the norm than the exception.

No one needs to explain that to NCAA President Mark Emmert. He was president of the University of Washington in 2009 when the athletic department dropped its nationally ranked men’s and women’s swim teams to address a $3 million deficit. The same year, Washington hired a head football coach whose annual salary was more than the budget of both teams combined.

According to R. Scott Kretchmar, a Penn State professor of exercise and sport sciences, it’s all but impossible for university presidents to ramp down spending on the revenue sports of football and men’s basketball, even as they confront deficits.

“Presidents are obligated to raise money, and it’s the football and basketball events that bring the big donors and trustees in,” said Kretchmar, who served as Penn State’s faculty athletic representative to the NCAA for 10 years. “There’s virtually nothing else at the university that has the cache and excitement that big-time sports does. Presidents are saying, ‘I can’t go down that road of scaling back big-time sports.’ Unilateral disarmament is nothing that will fly.”

Some hope that the four-team college football playoff that was approved this week will bail out athletic departments in distress. A playoff could generate as much as $500 million in new revenue, according to industry insiders. That could mean an additional $2-3 million apiece for the 120 schools in the NCAA’s most prestigious football division, the Football Bowl Subdivision.

But if past is prelude, the newfound playoff money will only increase the cost of competing and widen the gulf between college sports’ “haves and have-nots,” Kretchmar predicted.

“Every cash cow that has come down the line that I have seen has been a temporary stop-gap,” Kretchmar said. “A playoff system is not going to be a panacea in any sense of the word. It will help balance the books of schools in the red, but with the escalation of salaries and facilities, it’s a black hole.”

Where to go from here?

So what’s the remedy for college sports’ spending compulsion?

The Knight Commission, a group of university presidents, trustees and former athletes who advocate for reform in college sports, offered a road map in a 2010 report, “Restoring the Balance: Dollars, Values and the Future of College Sports.” In it, the panel recommended the NCAA require colleges to publish the true cost of their athletic programs in comparable, complete terms, reflecting not only revenue and expenses but also the often-hidden debt service on facilities and subsidies from their universities’ general funds.

It also proposed that the NCAA cap the number of “non-coaching” jobs on certain teams — an expense that has ballooned in football, for example, with the addition of directors of football recruiting, operations, player development and strength-and-conditioning coaches for every position. And it recommended the NCAA reduce the number of football scholarships allowed by at least 10 from the current 85.

To date, none of those recommendations has gained traction.

“The people who could and should be responsible for fixing what almost certainly is going to be a train wreck are either unwilling or unable to do it,” Nichols said. “Unless you assume that television money is a bottomless pit — and there are no limits to the amount of money that television networks will invest — there is going to be a day of reckoning.”

That leaves two options for substantive change — both of them political and neither particularly palatable.

One: Persuade Congress to grant an antitrust exemption that would permit the NCAA to cap spending — whether on coaches’ salaries, scholarship costs or recruiting.

Two: Wait until the headlong rush for more money becomes so nakedly transparent that the Internal Revenue Service declares college sports a for-profit enterprise and revokes its tax-exempt status.

That’s a doomsday scenario but one Kirwan believes is plausible.

“Absolutely,” he said. “We’re moving further and further from the stated purpose of intercollegiate athletics. It has just become a big business.

“Maybe it sounds like we’re crying wolf. But sometimes the wolf is really at the door. And it will be if we continue with this madness.”

 
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