Steve Berkowitz has the story about a proposed NCAA accounting change which would have a big impact on the narrative about athletic department finances:
Under one proposed change, student fees might no longer be treated only as subsidy, but also as revenue generated by the athletics department. That could make it easier for some athletics programs, especially those at schools in the power conferences, to be considered by the NCAA as self-sufficient at a time of tight university-wide finances and increasing costs for students. The standard for self-sufficiency is whether revenue generated by an athletics department at least equals its annual expenses.
This is a curious decision on a number of levels.
For starters, the NCAA has banged the drum for years that few universities are in the black when it comes to athletics. Put another way, the message has been that the vast majority of athletic departments are operated as a cost to universities, not as a department expected to break even, much less turn a profit. Alternative measures show that many more athletic departments break even or are profitable if subsidies are counted as revenue. Counting student fees as revenue moves the NCAA away from tracking how much athletics costs or makes for a university to focusing solely on athletic department finances. This in my opinion is a negative change.
This change in the narrative is even more surprising coming just days before the O’Bannon class certification hearing. The plaintiffs have already shown a willingness to expand their lawsuit to seek a chunk of more and more revenue sources. And a victory by the O’Bannon plaintiffs will likely bring more lawsuits seeking to expand on that decision. If the NCAA is saying student fees are now revenue, it makes it easier for a future plaintiff to demand that some of those fees go directly to athletes.
Second, not all student fees are created equal. A fee initiated and/or approved by the student government is a different animal than one simply imposed by the governing board. But students may not even know they are paying an athletics fee, which might be hidden under terms like “activity fee”.
The justification from athletics administrators for this change also needs to be taken with a grain of salt:
At most schools that collect an athletics fee, it is a mandatory charge to all students, and in exchange they receive free or greatly reduced admission to sports events. Schools then set aside seats for students that they might otherwise be able to sell. McNeely said that when schools sell out events in a sport – including but not limited to football, men’s basketball and men’s hockey – they may be permitted to count related student-fee money as generated revenue.
But what is “related student-fee money”? If a school charges a $500 year athletic fee to all 20,000 students, has a 2,000 student basketball student section, and sells out all their games, what portion of that $10 million is revenue and what is subsidy? Does it matter if 3,000 students requested tickets for the student section? How do schools handle undefined or unlimited student sections?
An accounting change should not invite more accounting shenanigans, but this one does. A university could theoretically expand its student section, use the free admission provided to students to inflate attendance numbers, declare a sell-out, then book all that student fee money as revenue. Without stringent and complicated controls, that could occur even if students do not attend games and are even unaware that they could for free.
Money charged to every student which is then given to athletics regardless of whether an individual student took advantage of the benefits of paying that money should remain a subsidy. The only advantage of the NCAA’s proposed change is to make some athletic departments look better, when they are still relying on compulsory fees paid by students rather than user fees (i.e. buying student passes or tickets). And the university community is still financing the athletic department, which is exactly what the NCAA should be tracking.