Saturday, March 1, 2014

College Athletics: Expense or Investment?

It has been said that a college's athletic programs are an institution's front porch. Sports teams fit that analogy on two fronts. One, for many people the primary (if not only) encounter they have with a college is through observing its athletic teams. Brand image is formed about a given school from exposure to it via sports. As is the case with any brand, first-hand consumption (visiting or attending a school) is not a requirement for forming associations that make up brand image. Two, college athletics are like a front porch in that they can be the initial point of contact in building deeper relationships. Success on the field of play is particularly valuable in attracting new "customers." Recent success in the NCAA men's basketball tournament experienced Florida Gulf Coast University and Butler University translated into large increases the number of new student applications (35% and 41%, respectively). Sports serve a dual role as marketing vehicle as media coverage and game broadcasts are like free advertising. The value of this exposure was quantified for two universities making improbable runs to the Final Four. George Mason University received an equivalent of $677 million in media exposure and Butler University received a mere $410 million in exposure, according to studies assessing the impact of basketball success for those schools.

Spend Money to Make Money?

The successes stories of FGCU, Butler, and George Mason along with corporate sponsorship and media rights dollars attracted by prestigious conferences creates a perception that college athletic programs are a cash cow, pumping in large revenue streams to support themselves and share with their institutions. Sounds good, but only if it was true. Data published by USA Today of 228 college athletic programs showed that 147 of them draw 50% or more of their budgets from institution subsidies. So rather than making money, they are an expense for institutions, with 15 institutions subsidizing athletics to the tune of more than $20 million a year. Only seven athletic programs (Texas, Ohio State, Michigan, Alabama, Florida, Texas A&M, and LSU) required no institution subsidies to function. 

This often misunderstood characteristic of college athletics came to light again recently when it was revealed that Rutgers University had pumped a whopping $47 million into its athletic programs in the 2012-2013 year. The subsidy made up for a budget shortfall driven largely by Rutgers' move to the Big 10 Conference and increased expenses to support competing in its new conference. The payoff? Rutgers is expected to realize about $200 million in revenue from its Big 10 membership over the next 12 years. That figure does not include the possibility of Rutgers experiencing a bump like FGCU, Butler, or George Mason if one of its teams enjoyed a banner season.

Expense or Investment?

An athletic program may indeed be the front porch of a higher education institution, but there are questions about just how much money should be spent to decorate and maintain the porch. Should spending on athletic programs be managed more like an expense, with the aim of controlling costs and making decisions about expenditures with the overall institution mission in mind, or should athletics be viewed as an investment in marketing that can build awareness and shape brand image? Do the potential marketing benefits of athletic programs justify expenditures that for many institutions includes dipping into student and general funds to cover?