Money to burn

Now this is thought-provoking:

… I’ll just say very loudly:  college sports operates in a not-for-profit accounting world!  In these environments, expenditures rise to match revenues.  Reported surpluses are not a guide to profitability because their is no incentive to grow surpluses so owners can extract these surpluses as profits.  In not-for-profit settings, revenues and revenue growth are the real guide.

What about empty seats at some games, even for big time producers?  Again, the crazy world of college sports has invented this problem largely through setting up games with lower tier teams that generate much less interest.  In pro sports, these are pre-season games, not mid-season games.

So, if at some point student-athletes received a serious share of athletics revenue, would that force schools to improve scheduling to keep asses in the seats/eyeballs on the tube?

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12 Comments

Filed under College Football, It's Just Bidness

12 responses to “Money to burn

  1. Mark

    The guy is spot on about not for profit. Some folks don’t realize it, but profit is what makes things affordable in normal business settings. If I have a business that is very profitable making widgets, you can bet that a competitor will set up shop making widgets and try to do so for less money, driving the price down.

    When non-profits do accounting, they need to make sure that expenditures match revenue. Otherwise, they have this profit to deal with that the IRS doesn’t like. Their current line of reasoning is that by spending money on IPFs, weight rooms, dorms, etc. they are “spending it on the students”. However, those things all add to the value of the college. By spending on themselves, they can say they are spending it on the student.

    Anyway, the whole business model is about to come crashing down and it’s about time. Thing is, had the left the money alone, they would have been able to continue along their merry way.

  2. W Cobb Dawg

    “When non-profits do accounting, they need to make sure that expenditures match revenue.”

    I’m not against profit, but don’t underestimate altruism as a very strong motive. And not-for-profit or non-profit colleges are far better than for-profit colleges: Harvard vs. U of Phoenix? And accounting is far more complex than revenue = expenses. I recall Harvard ran a $100 million deficit a few years ago. At the time they had something like a $25 billion endowment fund.

    Maybe the exploitive football model is about to come crashing down. Despite the histrionics of college presidents and ADs, I don’t believe whatever happens to the ncaa and cfb will have much effect on the educational mission of colleges in the US.

    • Mark

      Agree with you on altruism. However, based on how the money is spent, I don’t think the big five conference athletic departments are functioning based on altruism.

      • Agreed. It’s hard to reconcile Nick Saban getting $7M a year coaching a collegiate extracurricular to an altruistic motive. These guys are operating as profit-based, regardless of their tax designation.

  3. So, they spend the money on stuff because they have it to spend. They could spend the money by giving it to the players instead of on capital expenditures. But, players like the new capital expenditures, and compare schools based on those facilities when choosing where to attend. I foresee the fans getting the bill for whatever money gets diverted away from meeting the arms race demand.

    • Warden182

      I think that’s the point of the article. That prices aren’t cost driven, they’re demand driven. That is…they’re already pretty much charging us as much as we’re willing to pay. Now ADGM will raise prices in the very near future to test the elasticity, but don’t let him fool you that it has anything to do with rising costs.

  4. DawgPhan

    Non-profits can clearly operate in the black and generate huge sums of money that they dont spend each year. The reserve fund is an example of that. Most non-profits operate with that in mind. putting money into a reserve fund becomes an expenditure.

    Free Market price controls apply to non-profits as well. If someone thinks they can do more with less in a non-profit setting then competition occurs and the price of the service offered is driven down.

    Non-profit is just a tax designation and not a operational model.

  5. Charles

    “So, if at some point student-athletes received a serious share of athletics revenue, would that force schools to improve scheduling to keep asses in the seats/eyeballs on the tube?”

    A good question. In my mind, I think these ADs and presidents are revenue maximizers irrespective of the cost structure (paying players, etc.). I believe that they’re scheduling cupcakes with an eye toward greater expected revenue from better bowl payouts (e.g. it’s easier to make a top flight bowl at 10-2 than 9-3). If that is indeed the case, I don’t think the calculus would change if stipends were introduced.

    • DawgPhan

      I doubt that bowl payouts are the driving force behind cupcakes.

      ADs like home games. If they could figure out how to have 8-9 home games they would. (I think that Auburn does sometimes have 8 home games)

      The schedule is going to change because the TV network is going to require better programming and the playoff is going to punish someone because of “footballRPI” at some point.

  6. Charles

    “footballRPI”

    shudder

  7. Chuck

    Call me the grammar police, but I have a hard time taking an article seriously when the writer does not know the difference between ‘there’ and ‘their’. Forbes Magazine? Get an editor, guys.

    The only thing I have read that makes sense to me is from DawgPhan:
    “Non-profit is just a tax designation and not a operational model.”

    • Nashville West

      I’m with you Chuck. If a writer and editor at Forbes cannot tell the difference between there and “their” then higher education may already be broken beyond repair.