New Study on College Sports Finances and NCAA Tax Exemption

The Indianapolis Star's Mark Alesia--arguably the nation's premiere reporter on NCAA issues--has outdone himself in his latest feature: a massive study on how university general funds and students contribute to athletic departments and the interplay of those contributions with the NCAA's tax exempt status as a non-profit entity (Alesia, "Colleges Play, Public Pays," Indianapolis Star, 3/30/2006; Alesia also built an NCAA Financial Reports Database from the story). The NCAA qualifies for the non-profit exemption because it claims to be "organized and operated exclusively for educational purposes." Earlier this month, we discussed a story by Alesia on how the U.S. House and Ways Committee has begun a quiet investigation into whether the NCAA, conferences, and school athletic departments have misused their tax exempt status as non-profit, educational entities (3/14/2006). For this story, Alesia analyzed the 2004-05 athletic budgets of 164 of the nation's 215 biggest public schools. He was assisted by Matt Moore, Mark Nichols, Chris Phillips, Ole Morten Orset, Ben Thomas, Jimmy Trodglen, and Kandra Branam.

So what did Alesia find? First off, he found that athletic departments at taxpayer-funded universities nationwide receive more than $1 billion in student fees and general school funds and services, and that without such outside funding, fewer than 10 percent of athletic departments would have been able to support themselves with ticket sales, television contracts and other revenue-generating sports sources. In fact, most would have lost more than $5 million.

Here are the top the top 10 Moneymaking State Schools and then the Final 4 Schools:

TOP 10 MONEYMAKERS (using adjusted bottom line)
	FUNDING FROM OUTSIDE ATHLETIC DEPARTMENT
		University,	Total	Total	% of operating
	Student	government	outside	operating	revenue from	Reported	Adjusted
	fees	support	support	revenue	outside support	Bottom line	bottom line
Georgia	3,028,878	0	3,028,878	68,787,384	4%	23,854,329	20,825,451
Michigan	0	0	0	78,424,186	0%	17,037,042	17,037,042
Kansas	972,123	2,214,159	3,186,282	50,826,019	6%	10,064,665	6,878,383
LSU	0	0	0	60,937,676	0%	5,080,280	5,080,280
Texas A&M	0	839,348	839,348	64,180,453	1%	5,307,357	4,468,009
Texas	1,673,928	1,353,382	3,027,310	89,651,682	3%	7,250,853	4,223,543
Iowa	1,505,016	2,127,182	3,632,198	61,676,257	6%	6,693,599	3,061,401
Alabama	2,550,605	0	2,550,605	62,287,192	4%	5,297,584	2,746,979
Kansas State	566,752	2,382,288	2,949,040	39,884,220	7%	5,489,599	2,540,599
Virginia Tech	5,840,958	324,469	6,165,427	45,730,485	13%	8,265,356	2,099,929

FINAL FOUR SCHOOLS					% from
	ATHLETIC FUNDING FROM				student,
	University	Student fees		Total athletic revenue	government
SCHOOLS	government support	(Per student)		(in millions)	funding
Louisiana State	None	None	None	$60.9	0%
Florida	$1.3 million	$2.4 million	($45)***	$77.7	5%
UCLA	$210,000	$2.3 million	($62)	$46.0	6%
George Mason	$1.6 million	$7.5 million	($346)	$11.0	84%

Alesia and his staff then studied the effect of taxpayers indirectly subsidizing athletic departments through the tax-exemption. He found that the exemption particularly benefits big schools, which receive up to 40 percent of their athletic revenue from donations, most of which are tax-deductible. At Indiana University, for example, donations constitute 21 percent of revenue; at Purdue, 27 percent. And keep in mind, all of the TV money the NCAA and its schools receive go untaxed--we're talking about hundreds of millions of untaxed dollars there.

Expectedly, there are serious criticisms of this arrangement in light of how big-time college sports appear far more focused on entertainment than education. This is particularly troubling, Alesia notes, considering rising tuition and stagnant state support for higher education. Economist Andrew Zimbalist of Smith College tells Alesia, "The subsidies grossly overestimate the role of intercollegiate athletics in higher education. This should be something that absorbs a much smaller share of outside resources." Moreover, as noted by Professor Rodney Fort of Washington State, "The simple fact is that the athletic department enjoys subsidies in many areas where other departments at the university must pay explicitly."

There is much, much more to this story, and I strongly encourage you to read it, as it is a masterpiece in the empirical research of sports economics. Part II of this story is being published on the front page of Saturday's Indianapolis Star, and it will soon be available on-line.

I also encourage you to check out Alesia's huge database on NCAA Financial Reports. It is the the most detailed, publicly available database of college athletic department financial information ever assembled. I just spent quite a bit of time on it and look forward to spending more.