After a decade spent realigning conferences and securing blockbuster TV rights deals, college athletic programs are facing financial pressures from a unionization movement and a handful of lawsuits challenging the NCAA’s entire compensation structure.
One case — an antitrust suit that former UCLA basketball player Ed O’Bannon filed — started its trial phase Monday in Oakland, Calif., and is scheduled to last three weeks. The NCAA agreed Monday to settle a class-action lawsuit with current and former players over use of their likenesses in video games for $20 million.
The outcome of such cases could force teams to start paying college athletes beyond traditional scholarship costs — maybe by a few thousand dollars per scholarship, maybe by tens of thousands of dollars.
College athletes, especially in money-making football and basketball programs, want a bigger share of the ever-growing revenues. Their full-ride scholarship does not cover the full cost of attending a university and often falls well short of their market value.
If the NCAA decides — or is forced — to pay athletes more, universities will have to find that money somewhere. Even with soaring revenues, schools have spent most of their cash hauls. That means coaches such as Pitt basketball coach Jamie Dixon, who was paid $2 million in 2013, and Penn State football coach James Franklin, who will earn $27 million in the next six years, could be facing smaller salaries.
It also means multi-million facilities upgrades, such as the $106 million plan approved earlier this year at West Virginia University, could shrink in size and scope, and scholarships in non-revenue sports, which go to hundreds of thousands of students each year, could start vanishing, too.
Many athletic departments are ill-equipped to take on more expenses.
Despite record revenues in recent years, most colleges have overextended themselves with non-revenue-producing sports and construction of new facilities.
Most of the profit in college athletics is concentrated among the largest universities in the power conferences.
In 2012, the most recent data available from the U.S. Department of Education, the 345 schools in Division I of the NCAA generated $10.5 billion in revenue and incurred $10.1 billion in expenses.
But the 59 schools in the “Power Five” athletic conferences — the ACC, the Big Ten, the Big 12, the Pac 12 and the SEC — accounted for $5 billion of that revenue, and that doesn’t include schools such as Pitt, Syracuse and Notre Dame that have since changed conferences.
Smaller schools are struggling to compete when recruiting athletes, coaches and fans. Duquesne and Robert Morris recently eliminated sports in an effort to reallocate funds and stay competitive. Temple University earlier this year said it will cut five sports.
“There’s more of a chasm between the haves and have-nots,” said Russell Wright, managing director of Collegiate Consulting, an Atlanta firm that conducts feasibility studies and provides ticketing services for college athletic programs.
Schools in the Power Five conferences each earned an average of $6.8 million profit in 2012. The remaining 286 Division I programs earned an average of $3,500 in profit in 2012.
But even the big schools often struggle to be profitable.
Penn State’s athletics program had a deficit in 2012-13, according to ESPN’s “Outside the Lines.” The school’s athletic revenues remained constant from the previous academic year at $104.8 million, but expenses climbed from $100.5 million, to $110.7 million. Recruiting expenses and rising coaching salaries added to the costs.
The University of Maryland, whose athletic department brings in about four times as much revenue as Robert Morris, cut seven sports in 2012.
Most big-time athletic programs still rely on university support, too, according to a USA Today survey. All but seven Division I schools relied on their universities for subsidies, often in the form of a student athletic fee. Several large programs have invested in capital improvement plans, which have increased their debt obligations and taken big chunks out of operating revenues.
That’s not problematic for schools until their personnel costs start to climb dramatically.
Mr. Wright’s firm regularly consults with universities considering upgrading their athletic programs to join Division I. Often, he cautions those schools to temper their expectations.
“We tell folks all the time, ‘there is not a pot of gold at the end of the rainbow,’ ” he said.
Despite the costs, schools seem poised to voluntarily increase their scholarship spending. The NCAA recently granted more autonomy to the Power Five, paving the way for those schools to cover the gap between a full athletic scholarship and the full cost of attendance. It’s a problem since expenses for school supplies, food and transportation often forces athletes in a multibillion-dollar industry to spend thousands of dollars each year.
Tax implications, Pell Grants and Title IX also could affect funding.
“It is very complicated,” said Notre Dame athletic director Jack Swarbrick. “Not that we can’t solve it, we can solve it, but we’ve gone forward with this proposal for the $2,000 stipend, and no one knew what they were talking about.
“If that’s the goal — better support — let’s come up with a way to do it.”
So where would the money come from?
Schools have the same options as most businesses facing increasing expenses: Cut spending or raise revenue.
Mr. Swarbrick said at the Atlantic Coast Conference spring meetings last month that athletic scholarships already comprise the largest line item in his department’s annual budget.
At the meetings, which all 15 of the conference’s athletic directors attended, there was no consensus as to how schools would pay for potential increases.
Joel Maxcy, vice president of the International Association of Sports Economists and an associate professor at Temple’s School of Tourism and Hospitality Management, said if player costs go up, schools might have to cut player recruitment spending.
“The bottom line is it’s about talent acquisition,” he said. “You can’t pay the talent directly, so you pay it indirectly.”
High-profile coaches and top-notch facilities have been the best way to recruit college athletes, and spending on both has increased. Coaching salaries have soared, The University of Alabama recently closed a deal with football coach Nick Saban, worth $55.2 million. Kentucky basketball coach John Calipari, a Moon native, just signed a seven-year $52 million deal, the second highest deal for a college coach, eclipsing all NBA coaching contracts.
“If you pay the players, you see that reallocated,” Mr. Maxcy said.
But Mr. Wright said he does not see facility upgrades slowing down anytime soon.
More likely, schools will try to increase their revenues, he said. Ticket prices could rise, and schools will continue to pursue lucrative TV rights contracts.
Search for resources
Mr. Swarbrick said another source of new funds might involve a robust expansion of the NCAA’s Student Assistance Fund, which at just over $73 million as of August 2013, comes from revenue that the NCAA’s media rights contract with CBS generates, primarily for broadcast rights to its men’s basketball tournament. The most recent contract with CBS, negotiated in 2010, was a 14-year deal worth over $10.8 billion.
The Student Assistance Fund helps athletes with minor expenses, such as a suit for a job interview or a flight home to see family. Student-athletes can request $500 per semester, except for emergencies.
Pitt athletic director Steve Pederson endorses enhancing the fund in part because it would allow the NCAA to distribute money within an existing framework rather than create new governance structures.
“There have been several concepts out there and we’re trying to get the best concept, and one that will work,” Mr. Pederson said. “One that doesn’t take five years to put into place, something you can enact almost immediately.”
North Carolina State University athletic director Debbie Yow said most people within the NCAA recognize the value of the fund but noted that it would require significant overhaul to make it a viable option to distribute any increased expenses.
“Most of us are maxed out on our student assistance funds,” Ms. Yow said. “In other words, you can carry over money, but most of us don’t have money to carry over because we’re already spending it on trips home.
“There’s a formula, but the formula could change.”
If schools can’t raise the money with better broadcast-rights payouts, they might consider cutting more sports, a trend that has been increasing, Mr. Wright said.
The recent rounds of conference realignments have increased travel costs across the board. Those costs are easier to absorb for football programs, which generate millions at the nation’s biggest schools, than for gymnastics teams, swimming teams, tennis teams and others.
West Virginia, for instance, now plays in the Big 12 Conference, and its travel schedule means occasional trips to Norman, Okla., and Austin, Texas.
“Schools are looking hard at how to effectively and efficiently run their athletic programs when the big payoff comes from football and men’s basketball,” said Mr. Maxcy at Temple. “Those pressures are already there.”
The pressures will only grow if scholarship costs increase.
Still, a solution that takes away from other sports was a non-starter for Mr. Swarbrick at Notre Dame, who said any proposal to increase athlete compensation should be equally distributed across all sports.
“That’s a big part of the philosophy for college athletics,” he said. “We shouldn’t be pursuing a model that reduces that.”
Michael Sanserino: email@example.com, 412-263-1969 and Twitter @msanserino. Sam Werner: firstname.lastname@example.org and Twitter @SWernerPG.