March is one of the prime times for the NCAA to talk about how the association’s revenue, mostly from the Division I Men’s Basketball Championship, is used to fund the other programs and championships that the NCAA operates. But last Thursday, the start of the Round of 64 and one of the signature days of the NCAA calendar, the NCAA published a report about how that revenue might not be enough to run Division III:
The core of the problem is the simplest in economics: Expenses are outpacing revenues, a trend that chips away at the division’s cash reserve balance and is forecasted to continue indefinitely. The reserve is intended to keep the division afloat for a year should financial catastrophe strike (for example, if the Division I Men’s Basketball Tournament is cancelled).
Identifying the cause for the budget imbalance is simple, too. The division has run a deficit in each of the past two years because year-to-year revenue growth has slowed from nearly 7 percent to 2.4 percent under the NCAA’s current contract with Turner/CBS. Meanwhile, championship travel costs are rising and are forecasted to continue to jump by 8 to 10 percent annually.
The story explains how Division III operates on a roughly $27 million budget. More than $16 million of that is for championship travel and per diem expenses. Despite recommendations to cut planned increases in travel spending that will save $1 million, the division is still looking to cover a $2 million budget shortfall in 2015–16 and beyond.
Because the Division III membership is likely opposed to the easiest way to cut costs, limiting the number of teams in the NCAA championships, the leadership is forced to look at smaller cuts. Ideas floated include a longer time period between selection and the start of a championship for cheaper booking, avoiding charter travel, and limiting travel parties.
But Division III’s financial troubles also highlight the precarious position NCAA finances are in light of possible antitrust lawsuits. Even in a perfect world, Division III’s reserve is only designed to fend off a one-time catastrophic event like the cancellation of the Division I Men’s Basketball Tournament. It was not designed for, nor does it appear capable of, supporting the division during a longer-term financial change, like the NCAA having to split half its television revenue with college athletes.
The NCAA has other reserves and surpluses that it could tap in the event of an adverse legal decision or political event. But those are also finite and while they may take care of most of a settlement fund, it is not feasible to use them as an endowment to cover revenue that now must be shared with athletes, unless the athletes’ portion is relatively small. If Division III cannot convince the NCAA to simply fund its championships at the current rate of increase now, that does not bode well for the division’s ability to argue that it should not face cuts in light of revenue sharing with Division I athletes.