CHAPTER FOURTEEN

The NCAA and Conference Affiliation

INTRODUCTION

Intercollegiate athletics have been infused with a degree of commercialization since the earliest days of student competition. What is not as readily apparent, however, is the size of the college sports industry. This chapter and the one that follows explain the business of intercollegiate athletics from the perspective of the NCAA as a collective, its member conferences, and its individual member institutions.

This business of college sports, other than some international student participants, is an American phenomenon. The initial selection in this chapter by Noll provides a comprehensive overview of the financial aspects of intercollegiate athletics. A subsequent excerpt by the late Myles Brand, a university president turned NCAA president, highlights the concerns and challenges brought on by commercialization of intercollegiate athletics. As shown in Table 1, the primary asset of the NCAA is the Division I men’s basketball tournament. The NCAA budget was $661 million in the 2008–2009 season. Nearly 90%, or $590 million, of this amount was generated by the NCAA’s previous 11-year, $6.2 billion contract with CBS to broadcast what has become widely known as “March Madness,” as well as the NCAA’s marketing rights. The NCAA replaced the last 3 years of this deal with a 14-year, $10.8 billion contract with CBS and Turner (via its TBS, TNT, and truTV networks) through 2024, which will provide the NCAA with an average of $771 million per year. The NCAA cedes it marketing rights to CBS, which sells the sponsorships. Top-level NCAA sponsors (known as ‘corporate champions’) pay a reported $35 million annually, with second-tier sponsors paying a reported $10 to $12 million annually. Another 6%, or $41.8 million, was earned in ticket sales for this tournament. The organization’s remaining revenues (5%) were the result of gate receipts from all of its other tournaments across all three divisions ($18.6 million combined), as well as licensing efforts and other investments, sales, fees, and services ($9.8 million).

It is important to note that the NCAA does not control the revenues associated with the Division I-A football post-season, despite the fact that its revenue potential is seemingly much greater than that of basketball. Thus, individual conferences and schools (namely, Notre Dame) negotiate separate broadcast agreements for regular-season football; a separate coalition of top conferences and Notre Dame control the postseason through the Bowl Championship Series (BCS). All other postseason games are controlled by the promoters of the various independent bowl games that have entered into individual agreements with broadcast networks and cable channels to televise their contests. These bowls typically have arrangements with conferences to send predetermined place teams to play in the games. The article by Copeland explains the history of the NCAA’s hands-off approach to college football, which is a result of the Supreme Court’s 1984 decision in Board of Regents v. NCAA. The NCAA distributes the majority of its revenues to the members of Division I through various mechanisms. These distributions totaled $387.2 million, or 59% of the NCAA’s expenses in 2008–2009. (The details of these distributions are provided in the NCAA’s 2008–09 Revenue Distribution Plan later in this chapter.) Another $49.9 million, or 7.5%, of the NCAA’s revenues was distributed to the members of Divisions II and III, as is mandated by the NCAA constitution. The NCAA pays for all of the game and travel expenses for the schools participating in its 88 postseason tournaments in 23 sports, totaling nearly $64 million in 2008–2009, or 10% of its budgeted expenses. The NCAA also provides a number of programs and services for its members and athletes and spent $107.5 million in a wide range of areas in 2008–2009, or 16% of its budget. Finally, the NCAA’s expenditures on attorney’s fees, lobbyists, its internal governance and committees, staff salaries, and general and administrative services totaled over $27.9 million, or 4% of its budget, in 2008–2009.

Source: National Collegiate Athletic Association. © National Collegiate Athletic Association. 2008–2010. All rights reserved.

Although there are 31 conferences in Division I, it is not surprising that the NCAA’s revenue-sharing system favors the members of the so-called BCS conferences—the “Big Six” athletic conferences that dominate Division I—the ACC, Big East, Big Ten, Big 12, Pac-10, and SEC. The NCAA’s distribution to athletic programs is based on three factors. First, the number of NCAA sports that the institution offers affects the amount of money that it receives from the association. With the distributed funds being directly proportionate to the number of teams fielded, the more comprehensive athletic programs receive larger amounts of NCAA monies. Only the Ivy League received more money than the Big Ten, ACC, and Big East in 2008–2009. Second, the number of athletic scholarships that a school offers to its students impacts its receipt of NCAA funds; the more athletic scholarships offered, the greater the amount of money received. The BCS conferences occupied the top six spots on this distribution list in 2008–2009. The third distribution is based on each conference’s performance in the men’s basketball tournament over the previous 6 years. Each of the BCS conferences received more from this distribution than any other conference. This should be expected given the depth and strength of these conferences and their dominance of college basketball. No school from outside of this power base has won a national championship in the sport since 1990. The dominance of these conferences is not limited to basketball. Overall, institutions from BCS conferences won 32 of the 35 Division I NCAA championships in which they competed in 2008–2009.

Though the other distributions to Division I institutions are divided far more equitably via the academic-enhancement fund, the special assistance fund for student-athletes, the student-athlete opportunity fund, and conference grants, they represent a much smaller amount of money—approximately one-quarter of the amount that is dispersed through the aforementioned athletic scholarships, sports sponsorship, and basketball funds. The chapter concludes with the NCAA’s 2008–2009 revenue distribution plan, which provides the exact details of its methodology, while the accompanying NCAA budgets and audited financial statements add color.

Although the ACC, Big East, Big Ten, Big 12, Pac-10, and SEC receive favorable NCAA distributions, a far greater advantage is gained from the revenue sources that the NCAA does not control: the negotiation of television agreements by these elite conferences for regular season and postseason conference basketball and football contests, ticket sales to the postseason conference basketball tournaments and conference football championship games, and the participation in postseason BCS bowl games by members of these conferences. The pursuit of increased revenues has led to periodic, dramatic shifts in the conference landscape, with some conferences strategically adding institutions in an effort to increase their long-term media revenues by adding geographic reach, to gain the ability to play a conference championship game in football by reaching the 12 schools required by NCAA rules, and to increase their dominance within their regional footprint. Other conferences then realign in an effort to preserve their existence. Indeed, yet another round of realignment was occurring in mid-2010 as this book was going to press, with several institutions switching membership among BCS and non-BCS conferences.

College conferences operate quite similarly to professional sports leagues in the negotiation of television agreements for football and basketball. Each conference pools certain rights of its member schools and enters into its own conference-wide broadcasting agreement, with the revenues typically divided equally among the member institutions. These contracts are lucrative. In addition, the ability of conferences either to launch or to contemplate launching their own networks to complement their existing national media contracts (a topic discussed in the context of professional sports in Chapter 8), has enabled them to dramatically increase their media-related revenues in their most recent agreements.

The Mountain West launched its own network (The Mtn.) in partnership with Comcast in 2006, which set the groundwork for the Big Ten to launch its own network (the Big Ten Network) the following year. The Big Ten Network is a 25-year deal with Fox Sports Network (a subsidiary of News Corp.) in which the conference owns 51% and Fox owns 49%. News Corp. has indicated in filings that the conference could receive $2.8 billion over those 25 years, an average annual value of $112 million. In addition, the Big Ten has a 10-year football and basketball agreement with ABC/ESPN, worth a projected $1 billion, that runs from 2008–2017 and a 10-year, $20 million football and basketball deal with CBS that runs from 2009–2018. The Big Ten’s media deals compare to those of the SEC. The SEC eschewed the possibility of launching its own network in favor of signing a pair of 15-year contracts with ESPN and CBS that run from 2009–2023 that provide the conference with a total of $2.25 billion from ESPN and $825 million from CBS, an average annual value of $205 million. This is a testament to the popularity of the conference both in its own regional footprint and on a national basis, as well as its dominance in college football.

The Big 12 conference signed a more traditional rights fee agreement with ABC/ESPN—an 8-year, $480 million deal (an average annual value of $60 million) through 2015–2016 for football, basketball, and Olympic sports. It complements this deal with a 4-year, $78 million contract with Fox Sports Net running through 2011 to air football games.

The Pac-10 conference has a 5-year, $125 million deal with ABC/ESPN through 2011; a 5-year, $97 million deal with Fox Sports Net through 2011 for football; and a 6-year, $52.5 million deal with Fox Sports Net through 2011–2012 for basketball. This last agreement is a multifaceted outsourcing deal that gives the cable outlet the exclusive right to sell, among other things, all Pac-10 basketball tournament sponsorship packages.

The ACC has a 12-year, $1.86 billion contract with ABC/ESPN through 2022–23, a deal that replaced a 7-year, $258 million deal with ABC/ESPN through 2010 for football and its 10-year, $300 million deal with Raycom Sports through 2010–2011 for basketball. The 130% increase in the annual average value of the deal (from an average of $66.9 million per year to an average of $155 million annually) was a product of a bidding war for the rights between Fox and ABC/ESPN. The Big East conference has proven to be quite strong at basketball and much weaker at football. This is reflected in its relatively small football/basketball media deal among the BCS conferences—a 6-year, $200 million deal with ESPN through 2012–2013 for basketball and through 2013 for football.

In 2009–2010, the BCS conferences of the Big Ten, SEC, ACC, Big 12, Pac-10, and Big East received television revenues of $242 million, $205 million, $78 million, $67 million, $58 million, and $33 million, respectively. The non-BCS conferences in Division I-A—the Mountain West, Conference USA, Western Athletic, Mid-American, and Sun Belt—earned $12 million, $11.3 million (including media/marketing revenues), $4 million, $1.4 million, and $1 million, respectively. These contracts indicate the popularity of big-time college football and basketball. Table 2 shows the various revenues and expenses of the SEC, ACC and Big Ten in recent years.

In addition, each of these conferences stages a profit-generating postseason basketball tournament, with revenues ranging from $2.8 million (SEC) to $7.3 million (ACC) in 2007–2008. Further, the Big 10, SEC, and ACC each have 12 schools, which allow these conferences to hold a post-season championship football game, as per current NCAA rules. These games generated $13.7 million for the SEC and approximately $5 million for the ACC in 2007–2008.

*Each school received $17.3 million. This total does not include $14.3 million retained by institutions participating in bowls or $780,000 from the NCAA Academic Enhancement Fund.

Source: SEC.

*Includes distribution of approximately $141.45 million to members.

Source: IRS Form 990.

Football is the most important source of revenue for the elite conferences. Beyond the aforementioned television contracts and championship games, membership in a BCS conference (aside from Notre Dame) is nearly a prerequisite for participation in the Bowl Championship Series. The BCS is a coalition of the Fiesta, Orange, Rose, and Sugar Bowls and the BCS National Championship Game, which doled out over $125.5 million to the BCS conferences in 2008–2009. The five other Division I-A conferences, combined, shared approximately $19.3 million. There were 29 other, non-BCS bowl games in 2008–2009 that played host to a collection of lesser teams, most of which still came from the BCS conferences. The non-BCS bowl games distributed $79.9 million in 2008–2009, approximately three-quarters of which went to the elite conferences. Thus, while none of the BCS conferences earned total bowl revenues of less than the Big East’s $23.3 million, no other Division I-A conference earned bowl revenues greater than $12.2 million (Mountain West). Overall, the BCS conferences collected $189.8 million from bowl games played in 2008–2009, and the other five conferences reaped $36.5 million.

Source: IRS Form 990.

In addition to the substantial amount of revenue that is generated by participation in bowl games, there is also a significant expense associated with playing in these contests. Each institution must pay for the transportation, meals, housing, entertainment, awards, and per diem allowances for its team and coaching staff, marching band, cheerleaders, and official traveling party, many of whom arrive in the host city several days prior to the game. The participating schools also must sell an allotment of tickets to the game and are responsible for the cost of any unsold tickets. These expenses are much higher for the BCS bowls than the non-BCS ones. However, the expenses are more than offset by the revenues generated in the BCS games. The net distribution to conferences and institutions in the five BCS bowls was $125.4 million in 2008–2009. The 29 non-BCS bowls are quite different; their lower revenues resulted in a net distribution of $22.6 million in 2008–2009. Thus, the profit margin for BCS bowls was 85%, while it was only 28% for the non-BCS bowls in 2008–2009.

Each conference has a different formula for sharing the revenues that its institutions receive from bowl games and NCAA tournaments. Similar to professional sports leagues, a revenue sharing system that gives participating teams a disproportionate amount of the monies creates profit-maximizing behavior, including cheating, whereas one that is too generous to nonparticipating schools encourages free-riding among lesser teams and creates a disincentive for self-improvement. The key for each conference is to find the appropriate level of revenue sharing.

Although the BCS conferences generate substantial revenues, an existence in Division I outside of these conferences is much more difficult. At present, 25 other conferences play Division I basketball; 5 of these conferences play Division I-A football and 11 additional conferences play Division I-AA football; the remaining 9 conferences are in Division I-AAA and do not offer football. These “have-not” conferences generally struggle both competitively on the field and financially off of it. The 25 other Division I basketball conferences lag in total NCAA distributed revenues, with only two conferences (Conference USA and the Mid-American) receiving even half of what was received by any of the Big Six conferences in 2007–2008 and 16 receiving less than one-quarter. For the five other conferences participating in Division I-A football (Conference USA, Mid-American, Mountain West, Sun Belt, and Western Athletic), the situation is even more daunting. The problem facing these football programs is that they have a cost structure that is similar to the BCS conference programs (athletic scholarships, coaching staff, facility costs, etc.), but lack the popularity—the fan demand for tickets and television—to generate comparable revenues during the regular season. In addition, these schools receive a fraction of the revenues from bowl games that are earned by the BCS conferences, as previously noted. Finally, the eight conferences that participate in Division I-AA football are financially troubled. Though the cost structure is lower than it is in Division I-A because of the lower scholarship total (63) and smaller coaching staffs and infrastructure, it remains quite high in comparison to the paltry revenues generated. With its small attendance, little television coverage, and a largely ignored NCAA playoff in lieu of bowl games, Division I-AA football conferences have little hope for profitability.

FINANCIAL OVERVIEW

THE BUSINESS OF COLLEGE SPORTS AND THE HIGH COST OF WINNING

Roger C. Noll

Intercollegiate athletics is a strange business—one whose profits end up in the most unlikely pockets. But I’m getting ahead of the story.

For some 50 colleges and universities, football and men’s basketball are modest enterprises that generate enough revenues to cover full scholarships for about 100 athletes—and, in a good year, to yield a profit of a few million dollars. At a few universities, women’s basketball is also profitable, and baseball is more or less a break-even operation. For all other sports, and for major sports outside the top group of colleges, intercollegiate athletics is a financial drain. Yet almost all American colleges and universities field an impressive array of men’s and women’s teams across a variety of sports that have few players and virtually no spectators.

What’s more, intercollegiate sports chronically generate serious controversy that leaves college administrators cringing behind their desks. The media regularly report scandals about drug use, criminal activity, excessive financial aid, and poor academic performance punctuated by low graduation rates. No less important, big-time sports cause friction among faculty and university administrators. Some see sports as diverting resources and attention to an unimportant—even frivolous—non-academic activity. Explicit favoritism to athletics also is controversial. If coaches are paid more than Nobel Prize winners, if athletes have larger scholarships and better dorms than academic superstars, are colleges transmitting the wrong lessons to students and society at large? And if college sports cast so dark a shadow, why do they endure?

WHY AMERICAN UNIVERSITIES SUPPORT SPORTS

To the rest of the world, American intercollegiate athletics seem like pagan rituals. Universities rarely sponsor athletics teams—let alone encourage them to play before thousands or to appear on television.

The popularity of intercollegiate sports in the United States is not driven by Americans’ greater interest in sports….

Nor are intercollegiate sports popular because more Americans follow sports that first interested them as students. Intercollegiate athletics in the United States has been a popular entertainment since the beginning of the century, when the fraction of Americans who had gone to college was far lower than the proportion of college-educated Europeans and Japanese today.

Finally, the special prominence of American intercollegiate athletics is not explained by television exposure. College sports were popular before radio and long before television. Moreover, since Europe has liberalized broadcasting by allowing cable television, sports on cable has proliferated—but not intercollegiate sports.

So why do American colleges devote so much effort to sports? Primarily, because their students demand it as athletes, not as spectators. Public enthusiasm focuses on the so-called revenue sports—basketball and football. But the vast majority of college athletes play other, minor sports, for which no significant demand exists other than from the athletes themselves. The inescapable conclusion: universities have comprehensive varsity athletics programs largely because students want to be athletes. And they compete to enable students to follow their interests, whether in physics or field hockey, linguistics or lacrosse.

THE FINANCIAL STAKES IN SPORTS

Colleges and universities follow diverse policies regarding intercollegiate athletics. The vast majority sponsor teams with no expectation of generating revenues. Indeed, the typical intercollegiate sports program is based on the traditional amateur model.

But focusing on the typical ignores the big-time sports schools with multimilliondollar profit centers in basketball and football, and the many other schools that dabble in the so-called revenue sports. The NCAA divides colleges and universities into three divisions according to the depth of their financial commitment. The top group, Division I, is further subdivided into I-A and I-AA for football. And even this categorization understates the extent of diversity.

In Divisions II and III, sports are relatively low-cost activities. Most schools use part-time coaches, play only nearby competitors and give few athletic scholarships…. This sum is not large compared to a university budget. But a small liberal arts college with 1000 students may end up spending 5 to 10 percent of tuition on a comprehensive sports program.

At the top of the heap are about three dozen Division I-A schools that compete for national championships in several sports including football and both men’s and women’s basketball. Just below are another dozen mostly small, Catholic colleges that have the same ambitions in all but football. At these schools, game attendance for the trophy sports approaches the numbers for professional sports. They expect to be in the NCAA championship basketball tournament and, if they play Division I football, in a postseason bowl.

PUNTING ON FOOTBALL

The financial returns from football can be very large for top teams. Typically, they play six or seven games at home, bribing weaker schools to be cannon fodder against far superior opponents in front of large crowds….

The top teams also expect to appear on television almost every week … although in most conferences the money must be shared with other conference members. Notre Dame does even better since it sells national television rights to all its home games and does not belong to a conference.

In addition, bowl games guarantee a payoff … per team. For teams picked for a top bowl game … the payoff is several million dollars—although, for most schools, bowl income, too, must be shared with conference members…. [Ed. Note: Tables 3, 4, 5, and 6 show revenues generated by bowl games.]

For the rest of the Division I-A football teams and all of the ones in Division I-AA, television exposure is unusual … Thus, these teams must get by on revenues about one-tenth that of their superpower brethren—a reality that explains why most jump at the chance to earn a few hundred thousand dollars to be drubbed by Penn State or Michigan.

Football team operating costs are driven by the school’s business strategy. Does it try to field a ranked team that will go to a major bowl? If so, the team must play interregional foes, running up travel costs of hundreds of thousands per trip….

Management costs typically are attributed to something other than salary—endorsements, in-kind payments (e.g., a mansion, a Cadillac)—in order to keep compensation in line with that of top faculty. But this practice is mainly a public-relations device: competition for top coaches insures that, one way or another, they are paid according to their ability to generate revenue. By contrast, a team that does not aspire to national ranking can minimize travel costs and rely on mediocre veterans for coaching. Stadium operation costs are roughly proportional to attendance….

The major source of differences among teams’ financial aid budgets is tuition. Tuition depends on the quality, reputation, and scope of activities of the school as well as whether it is public or private. All athletic scholarships include about $12,000 for room and board so that 85 scholarships (the Division I-A ceiling for football) cost about $1 million plus tuition….

Scholarship costs explain why two-thirds of Division I basketball schools do not play in Division I-A football. Athletics departments at private schools need to dish out two or three times more in aid to play Division I-A football as do most public schools. Thus for nearly all private schools in Division I, football revenues can’t come close to covering the costs of scholarships, coaches, travel, equipment, and stadium operations. So very few opt in.

¹Average expense allowance for BCS participating institutions is $1,713,406, and average expenses are $2,108,645.

²Average expense allowance for non-BCS participating institutions is $876,198, and average expenses are $987,224.

Source: National Collegiate Athletic Association, April 10, 2009. © National Collegiate Athletic Association. 2008–2010. All rights reserved.

Source: National Collegiate Athletic Association, April 10, 2009. © National Collegiate Athletic Association. 2008–2010. All rights reserved.

Source: National Collegiate Athletic Association, April 10, 2009. © National Collegiate Athletic Association. 2008–2010. All rights reserved.

Tuition does not necessarily reflect actual costs to the university. A key consideration is whether the school is at its enrollment ceiling. At highly rated academic schools—California, Duke, Michigan, Northwestern, Stanford, U.C.L.A., Wisconsin—many applicants are rejected who would be willing to pay all of the university’s charges. So the decision to subsidize another athlete is a decision not to admit someone who might pay full tuition.

But where an extra athlete does not displace a tuition-payer, the cost of admitting 85 football players is very small compared to the average cost of providing the education. Thus, if an under-enrolled private school can generate enough revenue from football to pay the tuition of its players, the tuition payments are gravy for the university.

Capital facilities are a very important cost of football. In theory, a university could go into debt to build a stadium, and then cover the debt from its operating budget. But, in practice, capital investments are covered by special fundraising drives or, for public universities, by separate appropriations. The reason is simple: no university generates a large enough surplus to justify the capital expenditures necessary to field a football team.

….

March Madness

Basketball operates on a smaller gross, but with disproportionately lower costs. Like football, the best basketball schools play more home games than the worst, with cash changing hands to arrange unbalanced schedules. A dozen Division I men’s teams have a home attendance of around 300,000 per season, while some 50 draw more than 100,000.

Colleges ration student attendance to sell more tickets at higher prices. The best men’s basketball teams have game revenues … plus television revenues…. A few top women’s teams take in over $1 million. But most of the 50 or so schools that try to field a ranked team and usually make the NCAA championship tournament have revenues below this.

The NCAA has a complex formula, based on past success, for dividing the profits from the NCAA tournament. Nearly all payments go to conferences that share revenues, so a school’s tournament revenue depends more on the success of its conference than its own record. [Ed. Note: Tables 7 and 8 show distribution amounts to Division I conferences.]

….

Over 300 schools play Division I basketball, compared to over 100 in Division I-A football and about 80 more in Division I-AA….

Basketball is far less expensive than football because teams need pay only 15 scholarships and travel with fewer than 15 players. Coaches are paid about the same as in football, but staffs are smaller….

As in football, the cost of a scholarship to the athletics department can run from $12,000 to over $30,000. But even in the latter case, the total team cost is under $500,000. Thus revenue … is more than sufficient to pay the out-of-pocket costs of a team at a private school, and half that can do the job at an inexpensive public school….

WHAT’S IN IT FOR SPORTS U?

Schools not well known outside their home region can benefit indirectly from a successful Division I team by increasing applications for admission. Whether this actually helps the school, though, depends upon its circumstances. A school at its enrollment ceiling will gain only to the extent that it can be more selective in admissions. But a private school that has trouble filling its dorms can admit more students and collect more tuition. Even an extra 100 students at $20,000 each represents a serious piece of change for the average university.

Source: National Collegiate Athletic Association, April 10, 2009. © National Collegiate Athletic Association. 2008–2010. All rights reserved.

Source: National Collegiate Athletic Association. © National Collegiate Athletic Association. 2008–2010. All rights reserved.

Some claim that big-time sports can increase donations to academic programs. But several studies have concluded that athletics has essentially no effect on contributions to the school outside the athletics programs. The only plausible source of an indirect financial benefit is through the enrollment effect: if more and better students attend, the university might receive more alumni gifts a few decades later.

The vast majority of departments of athletics do not make a profit, even from the two revenue sports. Indeed, a majority of Division I schools lose substantial amounts on football and, at best, break even on basketball. Thus, for all schools outside (and most in) Division I, intercollegiate athletics is a financial drain—commonly hundreds of dollars annually per student enrolled.

Source: National Collegiate Athletic Association. © National Collegiate Athletic Association. 2008–2010. All rights reserved.

For the top schools that do profit from their revenue sports, the profits are significant. But the money rarely accrues to the academic side of the university. Competition is fierce for high-end coaches—as well as for people who can run big-time athletics departments efficiently. Thus, much of the surplus from revenue sports is spent on salaries.

What’s more, universities are inclined to spend anything left on unremunerative sports. This phenomenon has been boosted by the requirement for gender equality in varsity athletics. Women have no counterpart to football with its 85 scholarships. So in the wake of legal requirements to balance gender participation in varsity sports, football schools have been forced either to drop some men’s sports or to add women’s. Schools that make a lot of money on football pursue the second strategy. After all—returning to the earlier theme—men and women students alike want more women’s sports, not fewer men’s sports.

“CHEATING” AND THE ROLE OF THE NCAA

Athletics scandals typically arise from violations of the NCAA’s rules, and thus are commonly labeled as “cheating” to emphasize the idea that the offending institutions are attempting to gain advantages unfairly. These scandals fall into three categories. The first is excessive financial assistance to student-athletes—under-the-table payments or no-show jobs. The second is toleration of antisocial behavior that does not directly affect athletic performance—drug use, theft, violence, or simply low academic performance that would not be tolerated for nonathletes. The third is toleration of performance-enhancing drugs or training regimes that consume most of a student’s time. All of these rules violations follow from the financial incentives facing universities and, especially, coaches.

… To obtain a job at one of the 30 or so universities that aspire to the first tier in revenue sports, a coach must first win consistently at a lower level. Then, to keep a plum job or move on to the pros, a coach must win consistently against quality opponents. At the very top schools, winning seasons without major bowl victories in football or a shot at the quarterfinals in [the] NCAA basketball tournament will lead to dismissal.

The basic principle behind the NCAA’s rules regarding competition for athletes is that it must be limited to two dimensions: the overall college environment and the skills of the coach. Many highly skilled athletes are in college to prepare for professional sports careers. They seek scholarships for one purpose: to obtain experience and training needed to advance to the pros with the least possible disruption to what they do off the playing field. And like other adolescents, some athletes cut class, take drugs, beat up other students and, on occasion, knock off a liquor store if they think they can get away with it.

For a coach, success assures a decades-long career with a salary of hundreds of thousands of dollars. And with few exceptions, coaches have no alternative employment opportunities anywhere near as lucrative. Consequently, a coach facing an athlete who wants extra money (or a free pass on school rules) has compelling reasons to succumb.

Persistent rule breaking by coaches is not likely to go unnoticed by vigilant university administrators. But the incentive to cheat spills over if they regard athletic performance as a way of attracting students or encouraging the generosity of alumni and state legislators. All that is needed to let cheating persist is inattention.

The cheating label is a device for generating adverse publicity that might pressure universities to adhere to the NCAA’s rules. But looking behind the public relations, much of what the NCAA and the press call cheating is not ethically questionable.

The NCAA’s financial rules are incredibly detailed, frequently picayune, and vigorously enforced. Isolated minor infractions usually lead to minor penalties: While at Stanford, Tiger Woods regained eligibility when he reimbursed Arnold Palmer for dinner. But repeated minor violations are interpreted as a sign of laxity in a university’s enforcement efforts. When U.C.L.A. was placed on probation in basketball, the documented crimes were repeated gifts of T-shirts and Thanksgiving dinners.

THE NCAA CARTEL

Economists who have studied intercollegiate sports unanimously agree that the NCAA is the harshest price-fixing cartel in all athletics, amateur or professional. Recall that an athletic scholarship actually covers only about $10,000 in basic living costs. The rest goes for tuition, books, and other fees. For an athlete who has no interest in the educational aspects of being a college athlete, the part of a scholarship that covers academics has no value. If attending college were regarded as more or less a full-time job, the student-athlete could do better working an equivalent number of hours at a fast-food restaurant. The problem from the athlete’s perspective is that McDonalds does not field a football team. [Ed. Note: See Figure 1 for the stated economic policy of the NCAA.]

Financial cheating arises because an athlete is worth more to a university and its fans than the NCAA scholarship limit. If five good players can increase the revenue of a men’s basketball team from $1 million to $3 million—still a modest amount—these players are worth $400,000 each. Thus if schools were to bid competitively for these athletes, the winning bids would be ten times more than the list price of a year at Stanford.

Where would this money come from? Some, presumably, from subsidies now going to minor sports. Some would come from coaches’ salaries, because recruiting superstar athletes would no longer be as profitable. And for a handful of top sports schools, some would come out of profits now used to cover academic expenditures.

The beneficiaries of the NCAA scholarship rules are thus athletes in other sports, the very best coaches, and, in rare cases, academic programs. For the most part, these beneficiaries are either highly paid or from families with above-average incomes. By contrast, NCAA financial rules harm the star athletes in football, men’s basketball, and, to a lesser degree, women’s basketball—athletes who disproportionately come from lower-income families. Thus, the NCAA financial rules are primarily a means of redistributing income regressively.

The overall impact of the financial rules varies enormously among schools and students. For a minority of college athletes, including some in minor sports, the main benefit of intercollegiate athletics is preparation for a professional sports career. For those who do become pros, the payoffs are very large and college life is a far more pleasant way to gain experience and acquire training than playing in minor leagues. In this sense, college athletes are not exploited because their alternatives are less attractive.

Nevertheless, the prospects for a pro career are poor in every sport. Each year, about 1500 men receive Division I basketball scholarships, while 2000 receive Division I-A football scholarships. Of these, about 150 will ever play an N.B.A. game, and about 250 will ever play in the N.F.L. Moreover, most of the athletes who succeed as pros will come from the elite athletics programs….

For scholarship athletes who never become pros, intercollegiate sports can provide two other benefits. One benefit—competition itself—is frequently overlooked because of the focus on preparing athletes for pro careers. Nevertheless, this benefit is not trivial.

Then, too, a college degree has a big effect on lifetime income. The return to the investment in college is very high and has increased sharply in the last two decades. Thus for a serious student, a free education at a private university is worth not just the $100,000-plus scholarship, but another $200,000 in the “present value” of the extra income the student will earn over a lifetime.

At the other end of the spectrum, if a school has no academic standards or graduates few athletes, restrictions on scholarships are just an instrument for taking advantage of the NCAA price-fixing cartel. In the trophy sports, many scholarship athletes do not take academics seriously and very few graduate, so that they do not enjoy the postgraduation benefits of higher education.

For these, the majority of Division I scholarship athletes, college is nothing more than an opportunity to play organized sports for a few more years before facing the reality of adulthood. The nub of the issue about the place of sports on campus is whether these athletes, numbering a few thousand in all sports combined, are better off in college than out. For the most part, they enjoy their college experiences—but not for anything having to do with academics.

PLAYING BY THE RULES

On paper, the NCAA’s rules seem to say that college is for athletes ready to benefit from the academic side of school. For the most part, however, the NCAA’s rules [that are] unrelated to money or the games themselves are minimal and rarely enforced. The NCAA does maintain eligibility rules for both admissions and grades. But these requirements are actually very low—well below the formal admissions requirements for universities and colleges with well-regarded academic programs, including many schools that compete in Division I athletics. Indeed, in the trophy sports only a small fraction of athletes who could play regularly for a top team satisfy the normal admissions requirements of the academically oriented colleges.

To maintain eligibility, the NCAA insists that athletes be registered as full-time students, remain in good academic standing, and make normal progress toward a degree. But since schools are extremely heterogeneous in their academic standards, these requirements boil down to very little. Good standing means whatever the university decides. Normal progress toward a degree means almost nothing, since progress is not judged retrospectively by actual graduation results. Most schools graduate a third or fewer of scholarship athletes in the trophy sports and some graduate none.

With respect to antisocial behavior, the NCAA’s basic rule is that athletes should be treated like other students. As a result, if a school does not expel other students for felonies, they need not expel athletes. In most cases, universities’ disciplinary actions are taken on a case-by-case basis. And some schools are perfectly happy to field a team of alleged perpetrators who, when they behave the same way in the pros, are suspended.

In theory, the NCAA also limits the time athletes can spend on sports. But these rules have no bite. If coaches and universities want a longer season, the NCAA accepts extended time limits. And for some sports, the “season” is the academic year.

The hours-per-week limit is more an accounting formality than a strict constraint. The norm is to practice far more than the limits allow, so that each athlete “voluntarily” decides to commit extra time to training in order to compete effectively against others who devote extra time to training.

By contrast, the prohibition against performance-enhancing drugs is rigidly enforced. Student-athletes sometimes are declared ineligible to compete in NCAA events after taking prescription drugs for an illness. While athletes often protest the NCAA’s testing protocols, the strict rules against steroids, painkillers, and stimulants definitely serve their long-term interests.

THE TRUE IMPACT OF THE NCAA CARTEL

Step back, and the picture is clear: the NCAA is mostly a device for “cartelizing” universities while doing little to enforce standards of academic performance and social behavior among student-athletes. With the exception of the prohibition against performance enhancing drugs, the only rules that are both strict and vigorously enforced pertain to limiting financial aid. Thus, to judge solely by cause and effect, the NCAA is mostly interested in suppressing payments to athletes in a way that benefits coaches and the athletes who play minor sports.

The NCAA’s inclinations are also revealed by its other business activities. Until the mid-1980s, the organization required all colleges and universities to give the NCAA a monopoly in television rights for daytime Saturday football games. The practice ended only after the rule was declared a violation of antitrust law. This court decision led to the proliferation of football telecasts on cable channels, which reduced the total fees collected by colleges, increased the disparity in television revenues among colleges (favoring the strongest football programs) and substantially increased the total number of Saturday games available to viewers.

….

The NCAA’s rules on the number of games go far beyond what is necessary to limit the demands on athletes. That objective could be achieved by a much simpler rule …. This cynical conclusion is not intuitively obvious, and to some seems to deny the organization’s history. Early in the [last] century, football came very close to being banned because it had become so violent and dangerous. The NCAA rewrote the rules of play to solve this problem, and hardly anyone would dispute the legitimacy of this role.

A few decades later, as intercollegiate football became more important many schools abandoned the principle of a student-athlete, and became professional operations. The NCAA’s present limits on the number and value of scholarships and its academic requirements arose to combat this professionalization.

But the NCAA’s rules do not prevent professionalization among universities that seek to pursue it. Indeed, by making certain that coaches and schools—not athletes—are the main beneficiaries, the NCAA makes the problem worse by giving them a reason to abandon academic values in pursuit of athletic glory.

ARE INTERCOLLEGIATE SPORTS A DESTRUCTIVE INFLUENCE?

Perhaps 50 colleges and universities participate in trophy sports to generate revenues, with the benefits going in part to coaches and athletic administrators, in part to other sports, and, in a few cases, to academic programs. For all other sports, and even for trophy sports at all but the top programs, intercollegiate sports exist not to make money but to please important constituencies—primarily students. If all universities collectively banned intercollegiate sports or athletic scholarships, higher education as a whole probably would be stronger financially than it is.

But this is far from the complete story. Most colleges and universities also would be better off financially if they agreed to eliminate comparative literature and advanced mathematics. The difficult question is whether varsity sports bring enough value to universities to offset their costs. And part of the answer revolves around the scandals that surround athletics.

Scandals embarrass universities and undermine their moral authority as transmitters of social values. But scandals are not intrinsic to intercollegiate sports. Intercollegiate athletics create scandals only in schools that are powers in trophy sports—or seek to become powers.

The incentive of coaches to win is a necessary component of the incentive to break the rules. And much of this is created by the cartel aspects of the NCAA’s rules, which limit the cost of all programs and substantially increases the profitability of trophy sports at top schools.

If the NCAA behaved less like a cartel, the financial benefit of on-field success would be smaller. In turn, salaries for top coaches would fall, and schools would have less reason to recruit athletes who seek only a pro career and not an education. Moreover, relaxed rules would lead to fewer violations and fewer scandals. Cutting to the chase, if colleges had to pay something closer to market value for top athletes, they would admit fewer of them and be less interested in athletes who are likely to be behavioral problems.

The economics of intercollegiate athletics is not a story of administrators willfully perverting academic values for the fast buck. Such things do happen, but this is not an accurate characterization of the vast majority of intercollegiate sports programs. The more fundamental force driving college sports is the intense interest that so many students and alums have in sports. And the idea that colleges would abandon something as universally popular as intercollegiate athletics is a fantasy.

But things could be far better. Higher education and society at large would be better served if the NCAA did not limit scholarships or set the price for postseason events in trophy sports.

OPTIONS

Breaking up the NCAA cartel is probably as unrealistic a goal as banning intercollegiate athletics. Any effort to eliminate the cartel aspect of the NCAA would probably lead many Division I schools to set up a rival organization that adopted the practices the NCAA now follows. If the schools that value athletics most highly all joined the new cartel, reforming the NCAA would have little effect.

So what, if anything, can be done? Perhaps, not much.

Too many people currently involved in sports, from coaches to athletes in non-trophy sports to the commercial interests that cohabit with [the] best college sports programs, would fight hard to preserve the business as usual. Moreover, as the demand for revenue sports rises along with affluence and leisure time in America, the financial incentives to do well in trophy sports will only grow. The future is likely to be a larger version of the past.

But for optimists in the crowd, there are a couple of plausible routes to reform. The first is to attack the NCAA through antitrust laws. The NCAA has already lost its television monopoly this way. And an unrelated antitrust suit forced a consortium of elite universities to abandon collusion on need-based financial aid. But an antitrust suit would be slow and expensive. And it would probably require the active involvement of the Antitrust Division of the Department of Justice, which is notably uninterested.

The Justice Department’s reluctance is understandable: The Federal Trade Commission was barred from attacking the NCAA on the ground that it is only allowed to enforce competition in for-profit markets. Moreover, unlike the television case in which some universities had financial incentives to break the NCAA’s control, private parties are unlikely to pursue the antitrust route on scholarships or postseason play.

Another way to castrate the cartel would be to alter the existing rules in ways that change the universities’ incentives.

….

The key to change in all these proposals parallels the general drift of economic policy reform in the past three decades: rely more on incentives and less on rules. The practical way to make the values of intercollegiate sports more closely parallel the academic values of universities is to give universities less incentive to abandon academic values.

UNBOUND: HOW A SUPREME COURT DECISION TORE APART FOOTBALL TELEVISION AND RIPPLED THROUGH 25 YEARS OF COLLEGE SPORTS

Jack Copeland

Twenty-five years ago this summer, the thread that leads to today’s NCAA began unspooling from the chambers of the U.S. Supreme Court. That was when Justice John Paul Stevens wrote that the Association’s control of football games on television violated antitrust law. Six of his colleagues signed on in agreement.

The 7–2 decision on June 27, 1984, resulted from a legal challenge filed nearly three years earlier by the Universities of Georgia and Oklahoma. The schools argued the NCAA’s Football Television Plan, through which the Association controlled broadcasts of weekly national and regional games on TV and cable networks, illegally blocked them from striking their own deals.

Just two weeks later, the Association grappled during a special meeting in Chicago with a future in which members no longer would share in football-television revenues that had topped $260 million under the voided plan. There, representatives of 111 schools argued over whether the NCAA should attempt to salvage the plan with a new agreement that would address antitrust concerns, then essentially voted to leave members free to pursue their own contracts.

The Division I Men’s Basketball Committee also gathered about that same time in Colorado, and Richard Schultz, then director of athletics at Virginia, was attending his first meeting as a new member. He remembers the group taking a break so that he and others could fly to Chicago for the football discussion.

“There were a lot of tensions out there as the lawsuit was coming together … and there was some tension once (the decision) came down,” Schultz recalled. “Where I was, the tension was mainly, what’s going to happen, how’s this going to impact financially, and so forth.”

Schultz returned to Colorado, and the basketball committee resumed planning to implement an expansion to 64 teams in 1986—a move that just seemed like a natural step at the time but that soon sparked an explosion in the tournament’s popularity and value.

Then, everyone—the administrators who struggled through that postmortem in Chicago, and Schultz and the other stewards of the basketball tournament that now was the NCAA’s most prized possession—went home. So did members of the newly formed NCAA Presidents Commission, which had gathered in Chicago for a scheduled organizational meeting just three days after the court ruling and whose agenda included a request from the NCAA Council for presidents to consider the idea of a major-college football playoff.

All returned home from those meetings and began picking up that thread unspooling from the Supreme Court.

That thread soon would lead Schultz into leadership of the NCAA, ultimately put presidents in charge of decision-making for the organization and lead to an array of once-unimagined challenges as it pulled the Association into the future.

Five years ago, journalist Keith Dunnavant wrote about the 1984 decision in his book titled “The 50-Year Seduction,” calling NCAA vs. University of Oklahoma Board of Regents an “earthquake.” The book detailed “how television manipulated college football, from the birth of the modern NCAA to the creation of the BCS,” as the subtitle put it.

If what happened in 1984 was an earthquake, there now have been 25 years of aftershocks.

“The Board of Regents decision fundamentally shaped the future of college athletics, and college football in particular, because it created a future denominated by the chase for TV sets,” Dunnavant explained….

“You can draw a line from the Board of Regents decision to the expansion of the SEC to the death of the Southwest Conference to the birth of the Big 12 to the emergence of the Atlantic Coast Conference. Also, without the decision—and how it affected what I call a civil war political climate within big-time college football—you would not have the Bowl Championship Series today,” he said.

“It is the absolute common denominator to the modern era of the sport that we see today.”

The decision’s impact on college football, that “civil war political climate” and a lengthy struggle to capitalize on the newly opened TV marketplace is well-documented in books written by Dunnavant and others, including one by the NCAA’s executive director at the time of the ruling, Walter Byers.

By the time he published “Unsportsmanlike Conduct” in 1995, Byers had come to believe the organization—which he had nurtured from the establishment of a national headquarters in the 1950s through the achievement of rules-enforcement authority, financial security and new championship opportunities for both men and women—had lost its way in serving the students playing the sports.

He argued the NCAA should not limit the term or value of athletics scholarships, should not prevent athletes from holding a job or otherwise restrict outside income, should repeal restrictions on transfers and should permit consultation with agents in making decisions about sport careers. He also said if the NCAA does not take these steps unilaterally, it should be forced to do so by legislative action.

Byers looked at those contentious days around the Board of Regents case from that perspective and judged the focus on football as too narrow. He suggested that Oklahoma, Georgia and other schools that joined forces through the College Football Association could have dismantled the NCAA for the sake of reform but instead “missed a politically propitious moment to restructure control of college athletics, dazzled instead by TV glamour and the prospect of network dollars.” As a result, rather than destroying the Association, the Board of Regents case prompted the NCAA to regroup and reassess—whether through day-to-day business like that basketball committee meeting in Colorado or decisions by the NCAA Executive Committee and Council and at annual Conventions.

“Organizations, like the people who inhabit them, generally need time to absorb and operationalize major changes,” wrote Joseph Crowley, a former NCAA membership president, in his history of the Association in 2006, “In the Arena: The NCAA’s First Century.”

“Refinements are often necessary. Midcourse corrections often occur. Leaders have the responsibility of monitoring the pace of change and maintaining a protective balance between reform and organizational stability. Hard choices have to be made in the process. Tall orders may take a while.”

Perhaps those words best describe the thread that the NCAA followed through the quarter century after Justice Stevens’ opinion.

During the NCAA’s 2006 Convention, three of the Association’s four chief executives (Schultz, Cedric Dempsey and Myles Brand) and a stand-in for Byers (retired Big Ten Conference Commissioner Wayne Duke, who had worked beside Byers after establishment of the national office in Kansas City) participated in a panel discussion celebrating the 100th anniversary of the Association’s founding.

Schultz, Dempsey and Brand each stressed the importance of the Board of Regents decision, as did Duke, who recalled Justice Byron White’s dissenting opinion in the case, which argued that the NCAA television plan should be preserved because it “fosters the goal of amateurism by spreading revenues among various schools and reducing the financial incentives toward professionalism.”

Yet, even as the foursome agreed that the decision was a key milestone in the NCAA’s history, Brand provocatively suggested that it merely altered the course that history followed—not the outcome.

“I’m of the opinion that if that case had gone the other way, we still might be exactly where we are now,” he said then. “The names might have changed and some of the contractual arrangements would be different, but I’m not sure there would be anything different in the end.”

It’s an interesting question: Would the NCAA be different today if it had won, rather than lost, that 1984 antitrust case?

Brand’s predecessor, Dempsey, largely agrees today with Brand, though he thinks some of the most difficult issues he faced during his tenure leading the NCAA from 1994 to 2003 stemmed directly from the 1984 ruling.

“It created a vulnerability that the NCAA had never had before to legal actions, an area in which it had tremendous success before that time,” he said…. “It unfortunately, I think, began to separate out the major programs in the country, by giving them a feeling of—and in actuality—greater control. Had it not been for ’84, we might not have had the same kind of restructuring approach in Division I that occurred 12 years later.

“It had a tremendous impact upon the current structure and certainly the philosophy of intercollegiate sports.”

Schultz agrees that a fundamental frustration expressed via the Board of Regents case—that a relatively small number of schools were producing revenue for the Association but had limited say in how it was distributed—lingered as the newly expanded 64-team basketball tournament exploded in popularity. Eventually, it won a $1 billion television contract for the NCAA with CBS in 1989.

“I had one or two athletics directors at various times say, ‘Well, we might just pull out of basketball and go out on our own.’ And I said, well, fine, go ahead and do that,” Schultz recalled. “I said, ‘You’ve got a great model in front of you in football. You saw what happened to football television when you went out.’”

What happened is that football television revenue plummeted as conferences and schools began competing for the best deals from the relatively small number of media outlets available at the time to carry games. What had been a seller’s market suddenly was a buyer’s market, as The NCAA News reported three weeks after the Supreme Court decision, and just a week after that Chicago meeting.

“It was many, many, many years before the (football) rights fees on a per-game basis began to approach what they were at the end of the NCAA program,” said Tom Hansen, the recently retired commissioner of the Pacific-10 Conference….

Dempsey observed the same dissatisfaction among the membership tier that contributed most to the Association’s wealth, and perhaps felt it even more acutely than Schultz.

“From ‘84 to ‘96, there were always different things that would come up, and there would always be that veiled threat, well, if you don’t do this, we’re going to get out,” he recalled.

That dissatisfaction flowered as Schultz was leaving office in 1993 and Dempsey assumed the post at the 1994 NCAA Convention. A group of Division I-A commissioners circulated a restructuring proposal at that Convention calling for creation of a 15-member “board of trustees” consisting of institutional presidents and dominated by what it termed “equity” conferences to replace the Council and Presidents Commission, as well as an end to one-institution, one-vote rulemaking at the Convention.

“Most of it had to do with revenue-sharing and determining their own destiny, and not having it be determined by people who didn’t have the same kind of challenges that they had with their programs,” Schultz said.

Three years later, the NCAA membership essentially adopted the plan proposed by the commissioners, after hammering out provisions designed to maintain links between the three membership divisions even as it reorganized into a “federated” structure meant to give each division authority over its own affairs. (Divisions II and III retained the one-institution, one-vote approach to deciding issues.)

“I think that had to take place, and it would have taken place with or without the Board of Regents decision,” Schultz said. “In fact, the decision to do that may have come sooner (if the NCAA had won the case).”

Dempsey agrees federation was inevitable, but worries about whether the Association got it right in the details of governance.

“Out of that, we lost a lot,” he suggested. “Those institutions still could have maintained control in the way they wanted without throwing out the baby with the bath water, if you will.

“As I go to campuses, people just don’t feel part of the Association any longer. And all of the benefits that used to accrue from going to the Convention—and I know there were a lot of negatives, having to sit and listen to the other two (divisions), though I think those were handled by federation—it could have been handled much differently.”

Even so, restructuring brought peace organizationally that the Association had not experienced since before the College Football Association formed in the late 1970s.

For several years after the Board of Regents decision, NCAA members struggled within the Association’s structure to determine who would call the shots for the organization, while vying outside that structure—sometimes in something resembling hand-to-hand combat—to capitalize on the freedom provided by the Supreme Court to sell the appeal of college sports for media consumption.

The “civil war” Dunnavant referred to essentially was a rivalry pitting the College Football Association against the Big Ten and Pacific-10 Conferences. The conflict often did resemble a series of battles, as the sides skirmished in courtrooms and schools deserted longtime conference affiliations to boost the television appeal of a rival league. One key player, Notre Dame, struck a separate peace of sorts by breaking ranks with the CFA and negotiating its own network television contract.

But just as those “equity” conferences found a way to co-exist in a shared authority over the Division I governance structure within the NCAA, they also found a way through what has come to be known as the Bowl Championship Series to work together on the problem of football television.

The Board of Regents decision led directly to a dramatic increase in the number of games aired not only by the old-line networks such as CBS, NBC and ABC, but also by then fledgling cable outlets such as ESPN and the Turner Broadcasting System. It may have driven down the amount that schools earned per game for a television appearance, but over time it opened up many more opportunities for teams to appear on TV—though leagues with less negotiating clout ended up playing on Tuesday or Wednesday or Thursday night.

“I find it ironic that today, each of the (Division I Football Bowl Subdivision, formerly Division I-A) conferences has just about the same resources committed to football television that the NCAA did to run the entire country back in those days,” the Pacific-10’s Hansen said. “We all have multiple staff members involved in telecasting football, and in most cases, basketball also.”

Those institutions may have wrestled authority over football television away from the NCAA on antitrust grounds, but that didn’t exempt those institutions from antitrust scrutiny themselves—a problem that frustrated efforts to group the most attractive games into one television package. But a breakthrough of sorts came as the conferences dealt with complaints from many quarters—ranging from broadcast partners to fans—over the traditional football bowl system’s inability to satisfy the American desire to determine a national champion.

“The creation of the BCS was the symbolic reunification of big-time college football, because it effectively was what amounted to the old CFA schools coming together to create a better postseason structure, but that would not have been possible but for the inclusion of the Big Ten and the Pac-10 coalition,” Dunnavant said.

“The breakdown of that resistance really placed a period at the end of a very divisive era.”

The collaboration may or may not ultimately produce a football playoff (Dunnavant suspects it will), but regardless of the outcome, it’s interesting to ask that question again: Would things have turned out differently if the NCAA had prevailed in the Supreme Court in 1984?

“I think there’s a good possibility that we might have a limited football playoff in (the former) Division I-A if the NCAA still had control,” Schultz said. “We came very close to it when I was there.”

Schultz said that at one point in his administration, Division I-A presidents in the governance structure were ready to support a playoff but backed off in the face of criticism from colleagues in another division. Then, not long before his departure, Schultz unsuccessfully proposed a two-week playoff to Division I-A conference commissioners that he argued would bring schools three to four times more revenue than they were collecting from existing bowl games, while retaining those games.

Attractive as those revenues might be, it would have required the conferences to give up at least a measure of control over the playoff—and perhaps in those pre-federation days, control over who would receive the proceeds.

So, is the NCAA different today than it would have been if the Supreme Court had been persuaded to follow Justice White’s lead, rather than Justice Stevens?

It lost revenue from football television, but quickly replaced it with revenue from the basketball tournament, which Schultz believes exploded in popularity and value after expansion to 64 teams because “every community, every state, that had a team with 17 or 18 wins or close to 20 wins by the time the selection process came around thought their team was going to be in the tournament for the very first time.”

It afforded Schultz and the membership an opportunity to share revenues without requiring recipients to make what he has called “the $350,000 free throw” to advance deeper into the tournament, while supporting programs ranging from catastrophic-injury coverage to various initiatives directly serving student-athlete development and well-being.

“It probably satisfied some of those schools that were getting football revenue when it was controlled and then lost that football revenue afterwards, and were able to pick up the additional revenue in basketball,” Schultz said. “From a financial standpoint, that eased a lot of fears.”

The NCAA has changed structurally, but perhaps the Supreme Court’s decision better equipped the Association to work collaboratively to address issues.

“It’s still alive and, overall, well,” Dempsey says. “The NCAA has adjusted to the will of the membership pretty well, and will continue to do so. It will make the changes that are necessary, from time to time, as issues come up.”

Those issues are many. Can the expense of operating large athletics programs be controlled? Will the Association achieve its ambitious efforts to improve the academic performance of athletes? Should it take greater advantage of commercial opportunities to generate more revenue if doing so directly benefits students at member schools?

It likely will require another spool of thread to find those answers.

THE 2009 NCAA STATE OF THE ASSOCIATION SPEECH, AS DELIVERED BY WALLACE I. RENFRO, NCAA VICE PRESIDENT AND SENIOR ADVISOR TO PRESIDENT MYLES BRAND, JANUARY 15, 2009

Myles Brand

….

This paper and speech is the result of significant thought, discussion and writing that Dr. Brand has given to the relationship of commercialism to sports, a relationship that exists because sports is a significant part of the human experience.

It is present in our lives from children’s play to the most elite professional contests.

Our language is filled with sports metaphors, and we ease into deeper conversations by finding neutral ground in sports talk.

The relevance of sports to our global culture was made evident when China used the attention of the Olympics for two weeks in August to announce that it is moving back onto the world stage. In America, we have developed a rich tradition for both participation and consumption.

There are a variety of professional sports leagues in America from lacrosse to ice hockey, from soccer to football, from golf to basketball.

Indeed, there are more than two dozen professional leagues.

But, as pervasive as professional sports has become in this country, college sports occupies a central place in the American culture.

It has become integral to many of our universities and colleges, institutions which are the guardians of our traditions and histories and the harbingers of our futures. College sports generates a significant economic impact in communities all across the country.

The estimated annual budget for all of intercollegiate athletics is $6 billion.

A large number.

But to help put that number in perspective, it should be noted that the total spent by athletics departments in America each year would not fully fund even two of this nation’s largest public universities for a year, where annual budgets for a single comprehensive public research university range from $3 to $4 billion.

Unlike professional sports, however, the bottom line in the collegiate model is not the bottom line.

It is not creating profits for owners and shareholders.

The reason America’s colleges and universities sponsor athletics—for more than a century and a half now—is the positive effect participation has on the lives of young men and women.

We should feel good in knowing college sports empowers these young people to become contributing members of their communities and country.

College sports rely on the hard and good work of many, and we should praise those who coach and administer intercollegiate athletics.

Indeed, we could easily spend our time today citing the successes of intercollegiate athletics.

There are innumerable and wonderful stories that need to be told.

Make no mistake: sports in college are very, very good.

We should all be unabashed advocates. Nonetheless, intercollegiate athletics is faced with issues it must resolve.

There are a number of ongoing challenges—academic reform in Division I, future strategic directions for Division III, and a dearth of diversity in hiring for coaches and administrators in all three divisions.

The key overarching issue for each of the divisions, in its own way, is the integration of athletics into the life of an academic institution.

There is both good news and ongoing frustration in all these areas.

And there are serious efforts that must yet be made.

These issues are rarely subtle in their ability to grab our attention; but with persistence, they can and are being brought to manageable size.

But today, the focus will be on an even more exasperating challenge for intercollegiate athletics: the proper role for commercial activity.

Indeed, there may be no more pressing issue for us over the next decade, especially as the economy constrains university and college budgets.

Our ability to understand both the necessity of monetizing the assets of college sports and the potential dangers of commercialism gone wild … and to find a proper balance that helps financially support as many participation opportunities as possible without swamping the principle of amateurism … may either ensure the place of intercollegiate athletics in higher education and the American culture or relegate it in many instances to third-rate professional sports.

If this issue has not already reached crisis, it is certainly approaching it.

There are several reasons for that.

First, universities are accelerating their spending on college sports. For more than a decade, the rate of increase in athletics’ expenditures in Division I has exceeded the rate of increase in the general university budgets by a factor of three to four.

Revenues for athletics tend to increase faster than the general university budget.

Yet, in recent years, they have not, on average, kept pace with expenditures.

As a result, just six athletics programs in Division I have been in the black for each of the past five years.

In any given year, only five percent of the FBS programs operate in the black.

Gate receipts—not an insignificant revenue source for some institutions—generally hold static.

Athletics cannot depend on increased gates to cover the increased costs.

Where do new funds come from in order to meet the increased expenditures? There are basically three potential categories: increased donor contributions; increased subsidy from the university general fund; and increased commercial activity.

There is no question that Division I athletics directors have had to increase their efforts in fundraising.

True, they have had some success.

But there are natural limits, especially in times of economic downturn.

Moreover, the successes of athletics departments in fund-raising is beginning to have consequences for the rest of the university; while philanthropy is not a zero-sum game, funds raised for athletics in some instances appear to be coming from those that in the past went to other parts of the university.

Increased fundraising, while important, may not be the best solution.

Almost every campus subsidizes athletics, and there is nothing wrong with subsidization.

The issue is, rather, whether the subsidy so burdens the rest of the university that there are adverse academic consequences.

Given the budgetary difficulties for many institutions, most especially those highly dependent on state allocations or tuition, continued large increases in subsidy for athletics is proving problematic.

That, then, leaves increases in commercial activity to fund increased expenses in athletics.

The second reason why commercialism can be problematic is that there have been dramatic changes in the media, including especially the sports media, that have generated new and greater opportunities for commercial activity associated with athletics.

Nearly three decades ago, ESPN began solely featuring sports on TV.

There is no doubt that ESPN has been highly successful, its initial platform has not only turned into an entire network, but it now includes print media, radio and importantly new media configurations.

It is not an exaggeration to say that ESPN has shaped an entire generation in how sports are consumed.

Media presentation of sports—including college sports—is big—very big—business.

The desire of media outlets to obtain college sports content and to use it as programming to sell advertising sometimes seems limitless.

Media companies are quite willing to pay universities, conferences and the NCAA to present this content in ways that are attractive to audiences.

The more attractive the sports are, the more media are willing to pay.

For colleges and universities, the issue goes beyond increased revenue.

The broadcast presentation and distribution of a school’s athletics events can increase its visibility and name recognition.

Athletics is one good way to market the university.

Such successful marketing can result in higher application rates for the general student body, as well as campus morale and community building.

The third reason for increased commercialism is related to the expansion of the sports media.

We are in the midst of a media revolution in which there are rapid changes in the modes of presentation and in how audiences consume media.

It was not that long ago when sports were featured only in the print media and three TV networks.

Now, the options are almost limitless.

Where television once opened us to the pictures and sounds of sports on one screen, there are now three types of screens to watch: traditional TV, including network and cable, local and national; computer screens, which not only include live Internet presentations, but also animated sporting events through video games; and hand-held devices that permit mobile viewing tailored to the audience’s taste and convenience.

Indeed, video screens are becoming ubiquitous, in airports, elevators, taxis—wherever you look.

There are expanding opportunities for universities to generate revenue by selling the rights to present and distribute their sporting events to these new media outlets.

But the new media environment is highly competitive, and so expanded access becomes a condition for the sale of these rights.

Examples of expanded access include moving the games to nontraditional days of the week and adjusting the starting times to accommodate broadcast schedules.

Access includes live interactions with coaches and student-athletes in order to bring the viewer “into” the game.

The confluence of the Internet and reality animation makes difficult control by content providers—namely us.

These three primary reasons explain why there is increased commercialism and why, at this time, the challenge to finding the right balance is critical.

How do we ensure continued revenue from commercial activity, especially when these monies are needed more than ever, without abridging the values and mission of higher education?

The central questions then become: What is the balance point between too much and too little commercial activity and how do we adhere to it?

Aristotle argued for the doctrine of the Golden Mean.

The virtuous path is one that avoids the excesses of the extremes.

An example of such a virtue is courage.

Courage strikes a balance between debilitating fear and foolhardy disregard of danger.

Aristotle did not claim that the right path is always the middle one.

But warns us to avoid the ends of the spectrum.

In the case of commercialism, the extremes of unrealistic idealism and crass commercialism are not the right courses of action, but between them—somewhere—there is an acceptable balance point.

Finding this balance point, it can be argued, is the next greatest challenge we must address.

Some believe that college sports should be totally devoid of commercial interests.

They believe the enterprise should be “pure,” that only the competition between student-athletes is relevant.

Advertising and other commercial activities sully the contests and the contestants.

This idealistic approach may work in the cases of recreational and club sports, but not for competitive, organized sports, including intercollegiate athletics.

Training, coaching and competition are not free in the collegiate environment.

Coaches work for salaries, equipment must be purchased, and travel to the competition and conducting the events can be costly.

Championship competitions, in which the best compete against their peers, are a key part of the collegiate athletics experience, and championships certainly are not free to conduct.

Some level of commercial activity—from nominal levels of local sponsorships to huge media and corporate contracts—touches every NCAA athletics program in the country regardless of division.

Without commercial activity, intercollegiate athletics as we know it could not exist.

This is true even on the Divisions II and III levels.

A critical part of the Divisions II and III experiences is championship competition.

Championships in these divisions are almost entirely supported by revenues generated from the Division I men’s basketball tournament.

Thus, the ability of Divisions II and III to conduct championships are based—indirectly at least—in commercial activity.

Every member of the NCAA has a stake in how commercialism is conducted in college sports.

The only way to operate athletics on campuses without the revenues from commercial activity is to reduce it to recreational or club sports, without paid coaches or good equipment and facilities.

While that, of course, is always an option, the benefits of student participation in high-level, organized athletics; the branding and marketing of the institution through athletics; and the value to the community, including economic development, would all be lost.

The loss of these benefits to gain pure idealism is unwarranted.

The higher education community has understood this equation for over one hundred years. On the other hand, commercial activity can go too far and can subvert the values and mission of higher education.

Some critics of contemporary intercollegiate athletics argue that the problem is not commercialism itself, but rather the artificial limits placed on that activity by the higher education community.

Competitive success, they argue, is the goal of athletics programs.

The reason we play the games is to win.

Such success is costly, and becoming more so over time.

Since there are limitations to institutional subsidy, athletics programs should pursue commercialism, no matter its form, to pay the bills.

Intercollegiate athletics, so goes this argument, should do all that it can to generate revenues—a no-holds-barred approach.

Surely, this extreme position is mistaken.

Crass commercialism is no better than unrealistic idealism.

Both are unacceptable extremes.

There are commercial activities in which universities should not engage even if it generates substantial revenues for athletics. A crystal clear example is that student-athletes should not be commercially exploited.

They are students, not professionals.

Exploiting student-athletes for commercial purposes is as contrary to the collegiate model as paying them.

There are several orthogonal parameters that must be understood in order to find the balance point for commercial activity.

These parameters include the locus of responsibility for controlling commercial activity, the underlying types of activity relevant to college sports, and the potential for diminishing or eliminating cases of run-away commercialism.

There must be shared responsibility in the oversight of commercial activity. In particular, there are critical roles for the NCAA national office and there are critical roles for the individual campuses.

Without this complementary exercise of control, there is little opportunity to contain over-commercialism.

The role of the NCAA national office is to work with the membership to articulate the core principles that apply to commercial activity, and to disseminate these principles widely so that they are well understood within the college sports community and among the media and corporate sponsors.

The NCAA national office also has responsibility for conducting and managing the media rights for championship events (except BCS football).

It likewise has the responsibility for implementing the principles governing commercialism in these championship events.

The role of the NCAA members is to oversee their athletics programs and the events in which their teams participate, so that the core principles are followed.

That includes educating their athletics communities, including those off campus, about the nature and limits of commercial activity.

Conferences, also, have a role to play.

They oversee conference championships, and they negotiate media and corporate contracts on behalf of and at the direction of their conference members.

In some cases, conferences combine their efforts to create multi-conference events, including football bowl games in Division I.

Generally speaking, then, the national office is operationally responsible for post-season national contests, with the exception of FBS football, and the individual campuses have responsibility for all the other intercollegiate contests, including those conducted by their conferences.

This is the system of shared responsibility.

There are some who believe the NCAA national office should have oversight for commercial activity for all of college sports.

It would not be a good idea, however, for the national office to exercise campus-based control of commercialism.

Local control permits each campus to take best advantage of its unique opportunities and to market and depict itself in the manner it judges most appropriate.

The development, advancement and protection of an individual institution’s brand ought to be within its purview.

If the NCAA national office were to assume this responsibility, it would become overly intrusive into the affairs of its member institutions.

That is not a recommended course of action.

So, we understand that some level of commercial activity is necessary, even appropriate.

But, we also understand that there must be a balance reached so that such activity does not overwhelm the values of higher education.

And, we understand that there is shared responsibility for finding and maintaining the balance point.

What, then, are the limits of commercial activity? What is off the table?

What is not acceptable under any circumstances?

We need first to distinguish between two types of commercial activity.

Namely, there is commercialism that directly involves student-athletes and commercialism that does not.

The central stricture on commercial activity concerns the exploitation of student-athletes.

There must be a clear distinction between those activities that directly involve student-athletes and those that do not.

The NCAA Manuals for each division are filled with rules and bylaws that address the status and standing of student-athletes.

Fundamental to that standing is that these are young women and men who are students and not professional athletes.

The justification for this premise, we must continue to emphasize, is straightforward: The underlying reason why universities support intercollegiate athletics at all is that it provides educational value for those students who participate.

Thus, any adequate policy of commercial activity must ensure that student-athletes are not commercially exploited.

Call this the condition of nonexploitation.

….

When we say “student-athlete exploitation in commercial activity,” we should have a specific definition in mind.

Since student-athletes are amateurs, not paid professionals, they cannot accept payment for endorsing or advertising any commercial product or service.

It also means they should not be put in a position in which the natural interpretation by a reasonable person is that they are endorsing or advertising a commercial product or service.

But most cases of exploitation are subtle and indirect.

Instead of obvious product endorsement, the marketing can include game pictures, films, audio or video of student-athletes that make it appear to a reasonable person that a student-athlete is endorsing a specific commercial product.

The student-athlete may well have no knowledge or awareness that his or her reputation, image or name is being used for these commercial purposes.

But exploitation may be the result, nonetheless.

Generation of much needed revenue does not justify the exploitation of student-athletes.

We can—and we should—debate the nature of proper commercial conduct.

However, one principle is not subject to debate: commercial exploitation of student-athletes is not permissible.

Period.

This is the clearest and most important line of demarcation between college and professional sports.

In many ways, the two models are similar.

But the key differences are that, first, the function of college sports is based on education while the function of professional sports is based on entertainment.

And second, those who participate in college sports are students while those who participate in professional sports are paid employees.

It is critical to note that a sound definition of student-athlete exploitation does not include the promotion of most college athletics by institutions or charitable events.

Using pictures of student-athletes by athletics programs to promote the upcoming big game or to promote literacy by showing the athlete reading to young children is acceptable.

The reason that these cases are acceptable is that these are not commercial, for-profit based activities.

There is a difference between charitable and university activities, on the one hand, and commercial, for-profit activities on the other hand.

The other type of commercial activity in college sports pertains to instances not directly involving student-athletes.

There are numerous examples of this type.

For example, there can be the sale of merchandise, such as clothing, that use the athletics department logo; or a coach might endorse a commercial product or service; the institution might sell signage within its athletics facilities, including scoreboard space, in order to advertise a commercial product or service; or an institution or athletics department might adopt a certain commercial product for a fee, say a brand of athletics shoes or soft drink.

This type of commercial activity, when properly conducted, does not exploit student-athletes.

The NCAA does not regulate this type of activity.

It does not do so because that would intrude on institutional autonomy.

Some who are uncomfortable with the growth of commercialism focus on the tastelessness of some of these activities.

They may find the quantity of institutional commercial activity within athletics venues overwhelming, noisy or inappropriate; or they may find that the products or services advertised are unbecoming for higher education.

In the latter case, the NCAA does have rules prohibiting advertising that is degrading of race or gender.

But not all advertising that some find unacceptable is degrading.

For the two types of commercial activity, that which directly involves student-athletes and that which does not, should there be consistency among those who have responsibility for oversight?

The answer is: yes and no.

Without question, there should be universal rules that apply to all who have oversight responsibility prohibiting student-athlete exploitation.

These rules are not easy to formulate correctly, however. Indeed, over the past several years the NCAA governance structure has tried and failed to do so.

A recent attempt by a committee of presidents, it is hoped, will be more successful.

Rules only make sense in this context if they are enforceable and if there are sanctions for noncompliance.

If we are serious about protecting student-athletes from commercial exploitation, and it is not merely rhetoric, then we must have enforceable rules and meaningful sanctions.

Be assured that we must be serious about this.

By contrast, the question of consistency in oversight for commercial activity not directly involving student-athletes has a different answer.

Namely, there need not be consistency at the national, conference and institutional levels in commercial activity.

As a matter of fact, to require such consistency is to try to legislate taste, and trying to do that is at best foolish.

True, not every ad or marketing ploy is appropriate, and we want institutions of higher education to use good judgment and not succumb to temptations for the outrageous or the overly provocative.

But within these boundaries, there is a great deal of room for disagreement, and trying to set national policy will only frustrate the goal of shared responsibility.

The NCAA national office takes a conservative approach to its oversight responsibilities for the championships.

The national office has, and will continue to eschew advertising and other commercial activity that can be reasonably interpreted as offensive.

Championships are conducted in “clean” venues, in that advertising and signage are kept at a minimum and the highest standards of propriety are practiced.

In the case of venues and media presentation under the control of individual institutions and conferences, it is their taste that is controlling.

There may well be differences of opinion about what is appropriate and what is too much, but these often are differences of taste rather than differences in principle.

So be it.

Rules governing commercialism not directly involving student-athletes, therefore, are to be kept at a minimum.

We already have rules about treating all people with respect, and against racism and sexism.

Nothing more may be needed. Nonetheless, there are better and worse ways to conduct commercial activity on campuses, and on conference and national platforms.

Some ways better represent higher education than others.

It is understood that commercial activity is undertaken to generate revenue.

But it does not follow that the greater the flurry, the greater the revenue stream.

Good judgment and sound contract negotiations with the media and corporate sponsors is the key to revenue generation.

Focusing on the special higher education features of college sports is more effective than emulating professional sports, with its strong entertainment focus.

While rules are not the answer, guidelines based on best practices make good sense in bringing order and propriety to commercial activity.

These guidelines should be in the form of recommendations to institutions and conferences, not enforceable requirements.

This solution is likely to be unsatisfying to some.

They would like to have rules and accompanying sanctions for all commercial activity, whether or not it directly involves student-athletes.

However, a balanced approach to commercialism recognizes the differences in regulatory conditions when student-athletes are and when they are not directly involved, and it takes into account differences in matter of taste.

The framework for commercial activity just described is based on a key premise: Namely, issues surrounding student-athletes are central to any adequate policy for commercial activity in intercollegiate athletics.

Leaving aside radical critics of one orientation or another, there likely is widespread agreement with the condition of nonexploitation of student-athletes.

But we also know that there is lack of agreement on how to apply this condition in particular cases.

Can we solve the problem of determining when student-athletes are exploited?

Not easily, we suspect.

The first inclination is to try to develop an algorithm or mechanical rule that automatically gives the right answer.

That approach seems doomed to failure.

Obviously, a student-athlete cannot be depicted holding a product and saying “Buy this.”

But there is a great deal of gray area.

One recent attempt to provide a mechanical rule was to specify the percentage of space that can be devoted to advertising when a student-athlete is in the frame.

But there are multiple factors that make it appear that the student-athlete is endorsing a product beyond the percentage of space devoted to it.

No matter how carefully such mechanical rules are crafted, wily advertisers would likely find a way within the rules to give the appearance of product endorsement.

That would lead to revising the rules, and then new attempts to push the boundaries.

You can already see the NCAA rule book getting fatter.

The point is that this type of regulation cannot be mechanical.

Rather, what is required is the exercise of good judgment by sensible people who understand the rationale and purpose of the condition of nonexploitation.

This is the only reasonable way to proceed.

Even so, we will not likely achieve agreement on every case.

There will be borderline instances in which persons of good will, knowledge and experience will disagree.

We need, in particular, a systematic approach to adjudicate cases in which it is alleged that there is student-athlete commercial exploitation.

In similar cases, when good judgment is required to apply NCAA rules, such as student-athlete eligibility, we depend on trained, national office staff.

We should do so here, as well.

Moreover, as we do in other cases, there should be an appeals process involving NCAA members that would review staff decisions.

In addition, there may also be the need for an oversight committee of membership peers that will review the landscape of commercial activity in intercollegiate athletics, make binding determinations of instances in which there is student-athlete exploitation even if NCAA amateurism rules are not violated, and evaluate trends in commercial activity to ensure that the values of higher education and the best interests of the “collegiate model” of athletics are not abridged.

Actions of such an oversight committee would both guide decisions of the staff and appeals body directly with regard to student-athlete exploitation and inform the membership when trends appear to be compromising the values of higher education and the collegiate model.

Marketing expertise and new media technologies have changed the landscape in which student-athlete images and names are used.

We can expect those factors to continue to reshape the landscape.

Thus, our process of adjudicating the claim of student-athletic exploitation must be sufficiently forward-looking and flexible to take into account these factors.

It is incumbent on all to ensure that the national office staff and any oversight committee charged with undertaking decisions about student-athlete exploitation in commercial activity are knowledgeable and objective.

To sum up, then, at the highest level, there are two key principles that govern commercial activity in intercollegiate athletics.

First, student-athletes are not to be exploited in commercial activity.

Second, all such activity in college sports undertaken by universities and colleges, conferences and the NCAA national office must be consistent with the values and mission of higher education.

These two high-level principles must be translated into more specific NCAA legislative rules, as well as guides for best practices.

That detailed, careful work is necessary to assist athletics and university administrators in conducting commercial activity properly.

There is no question that commercial activity is necessary for mounting intercollegiate athletics programs, certainly in Division I, but also in Divisions II and III.

But that activity must be undertaken within the context of higher education.

It must be done the right way.

Contemporary marketing practices of college sports by the media and by corporations can unintentionally, and sometimes intentionally, abridge these two principles.

It is not easy, at times, for the college community to protect intercollegiate athletics.

The answer is to use regulation where clear prohibitions are evident—exploitation of student-athletes, for example—and apply values-driven judgment where flexibility is required.

We must not be lured into forced algorithmic solutions, which merely present a puzzle to be solved by those who want to take unfair advantage of student-athletes.

Rather, there needs to be a process by which experienced, objective, and careful judgment resolves the issues.

The NCAA staff should play that role in interpreting rules pertaining to student-athlete exploitation.

But, as we also do in other cases, there also needs to be an appropriate appeals process and oversight of staff decisions.

College sports are incredibly popular among fans and within the higher education community.

And for good reasons.

It consists of athletics contests among earnest young men and young women, who are students representing their colleges and universities.

There is a sense of exuberance, as well as high-quality performance, which is characteristic of intercollegiate athletics.

We should do everything we can to protect this signifi-cant enterprise.

But reality imposes itself.

Almost every university and college must provide financial subsidy to conduct intercollegiate athletics.

To help meet these costs, revenues from commercial activity are required.

The objective, then, is to determine the balance point, all factors considered, between crass commercialism and unrealistic idealism.

Once that occurs, we will be able to move forward in the conduct of intercollegiate athletics with a clear conscience.

Intercollegiate athletics has become an integral part of college life and culture.

Given the educational value of participation in athletics, it is important to not sell this great enterprise short. But it is immoral to sell it out.

We must do it right.

NCAA 2008–2009 REVENUE DISTRIBUTION PLAN

ACADEMIC ENHANCEMENT: DESCRIPTION

Approximately $20,667,000 is allocated for enhancement of academic-support programs for student-athletes at Division I institutions. A payment of approximately $62,438 is sent in late June to each Division I institution. In addition to funding direct benefits to student-athletes, the Academic Enhancement fund will continue to allow spending on academic support salaries and benefits and capital improvements that enhance the academic services. The Academic Enhancement checks will continue to be mailed to each institution. The institution is also encouraged to consider using this fund for the provision of other direct benefits to student-athletes that enhance student-athlete welfare. The additional benefits may be provided in accordance with the Student-Athlete Opportunity Fund guidelines. For research purposes only, institutions report on how the funds were used to enhance their academic programs and services for student-athletes. Among the common uses are tutorial services, equipment (e.g., computer), supplies and additional personnel.

Starting with the 2007–08 budget year, a portion of the increases to the Academic Enhancement Fund will be allocated to the Division I Academic Performance Program (APP) Supplemental Support Fund which was established to support campus-based initiatives designed to foster student-athlete academic success at eligible limited resource institutions. The Fund has been created to support efforts to improve team Academic Progress Rates (APR) and Graduation Success Rates (GSR). Eligibility for the fund is determined by the NCAA based on APR and GSR rankings. Grants from the Fund are awarded in response to proposals for innovative solutions and efforts to increase student-athlete retention and progress-toward degree success. Funds not utilized within the Supplemental Support Fund will be distributed among all Division I institutions with the Academic Enhancement Fund dollars in late June.

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BASKETBALL FUND: DESCRIPTION

The basketball fund provides for moneys to be distributed to Division I conferences based on their performance in the Division I Men’s Basketball Championship over a six-year rolling period (for the period 2003–2008 for the 2008–09 distribution). Independent institutions receive a full unit share based on its tournament participation over the same rolling six-year period. The basketball fund payments are sent to conferences and independent institutions in mid-April each year.

If a new member participates in the Division I men’s basketball championship in March-April 2009, the units for participating will be included in the Basketball Distribution sent April 2010.

One unit is awarded to each institution participating in each game, except the championship game. In 2007–08, each basketball unit was approximately $191,000 for a total $143.3 million distribution.

In 2008–09, each basketball unit will be approximately $206,020 for a total $154.7 million distribution.

….

Conferences are urged, but not required, to distribute money from the basketball fund equally among all their member institutions.

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CONFERENCE GRANTS: DESCRIPTION

A total of $7,467,000 is allocated for grants to Division I men’s and women’s basketball-playing conferences. Grants of approximately $240,871 will be made to each Division I conference that employs a full-time administrator and that are eligible for automatic qualification into the Division I men’s and women’s basketball championships, regardless of whether the conference is granted automatic qualification.

These grant funds must be used to maintain, enhance or implement programs and services in each of the following areas:

a.   Men’s and women’s officiating programs: permissible uses include the improvement of officiating programs in all sports, as opposed to just in men’s and women’s basketball.

b.   Enhancement of conference compliance and enforcement programs.

c.   Heightening the awareness of athletics staffs and student-athletes to programs associated with drug use, and assisting coaches, athletics administrators and student-athletes in this regard.

d.   Enhancement of opportunities: employment, professional development, career advancement and leadership/management training in intercollegiate athletics for ethnic minorities.

e.   Development of conference gambling education programs.

A conference may determine the specific amount it wishes to allocate to these five areas, but it must spend at least some portion of its grant in all five.

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GRANTS-IN-AID: DESCRIPTION

The broad-based distribution is made to all Division I institutions on the basis of the number of varsity sports sponsored (weighted one-third, totaling $51.6 million) and the number of athletics grants-in-aid awarded (weighted two-thirds, totaling $103.1 million).

….

The annual distribution is based on sports-sponsorship and grants-in-aid data from the preceding academic year (e.g., the 2008–09 distribution is based on 2007–08 data). The grants-in-aid distribution is based on previously submitted squad lists, and the number of athletics grants-in-aid is calculated from those lists….

The grants-in-aid component is based on the number of athletic grants awarded by each institution (based on full-time equivalencies), beginning with one grant and progressing in value in increments of 50. Grants awarded above 150 are valued at the same amount. The value of each basis point in the 2007-08 distribution was $242.67.

As examples, an institution that awarded 80.48 grants-in-aid received a check for $26,927; an institution awarding 164.89 grants-in-aids received $230,003 and an institution awarding 242.44 grants-in-aid received $606,384.

As with sports sponsorship, athletics grants are counted only in sports in which the NCAA conducts championships competition, emerging sports for women and Division I-A football. However, sports that do not meet the minimum contests and participants requirements of Bylaw 20.9.4.3 are included in the grants-in-aid component. Institutions also receive credit in the grants-in-aid component for grants awarded to fifth-year student-athletes who have exhausted eligibility and for students who, for medical reasons, do not count on the squad list but are receiving aid. Credit is not given for Proposition 48 student-athletes.

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SPORTS SPONSORSHIP: DESCRIPTION

The NCAA Committee on Infractions may consider withholding all or a portion of an institution’s share of the broad-based distribution moneys as a penalty in infractions cases.

An institution receives a unit for each sport sponsored beginning with the 14th sport (the minimum requirement for Division I membership).

Only sports in which the NCAA conducts championships competition (which meet the minimum contests and participants requirements of Bylaw 20.9.4.3) and emerging sports for women are counted. In the 2007–08 distribution, for sports sponsored beginning with the 14th, an institution received approximately $26,123 per sport (i.e., an institution sponsoring 16 total sports received $78,369; an institution sponsoring 24 sports received $287,353).

[Ed. Note: Even though the NCAA does not conduct a Division I-A football championship, that sport and athletics grants awarded in it are counted in the broad-based distribution.]

STUDENT-ATHLETE OPPORTUNITY FUND AND SPECIAL ASSISTANCE FUND: DESCRIPTION

Special Assistance Fund

A total of $13,383,000 is sent to conference offices in early August to assist student-athletes in Division I with special financial needs. The guiding principles of the fund are to meet the student-athletes’ needs of an emergency or essential nature for which financial assistance otherwise is not available. Conference interpretations not addressed by the Executive Committee should stay within this intended purpose. The responsibility for oversight and administration of the fund, including interpretations, rests solely with the conferences. The allocations are based on grants-in-aid and sports sponsorship information from two years prior (e.g. 2008–09 distribution is based on 2006–07 grants-in-aid and sports sponsorship data.)

Student-Athlete Opportunity Fund

A total of $35,393,000 will be sent to Division I conference offices in late August 2008 that will be allocated based on the ‘broad-based’ (sports sponsorship and grants-in-aid) distribution formula. The funds will increase in value at 13 percent annually, subject to approval by the Division I Board of Directors.

The following information demonstrates the intent of the funds:

The following student-athletes are eligible for funds:

….

The following are restrictions on the use of the funds:

A.   Salaries and benefits.

B.   Grants-in-aid (other than summer school) for student-athletes with remaining eligibility.

C.   Capital improvements.

D.   Stipends.

E.   Athletic development opportunities:

….

The Special Assistance Fund has three components to the calculation. It is based on current year information for Pell Grants and, starting with the 2009 distribution, oneyear’s subsequent information for Grants-in-Aid and Sports Sponsorship data. As an example, the August 2009 Special Assistance Fund distribution will be based on 2008–09 Pell Grant information and 2007–08 Grants-in-Aid and Sports Sponsorship information…. [Ed. Note: See Table 9 for grants-in-aid fund values and Figure 2 for information on the special assistance fund for students.]

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Source: NCAA 2008–2009 Revenue Distribution Plan. © National Collegiate Athletic Association. 2008–2010. All rights reserved.

Figure 2   Eligibility for Special Assistance Fund for Student-Athletes

Source: PAC-10 Conference. Used with permission

NATIONAL COLLEGIATE ATHLETIC ASSOCIATION AND SUBSIDIARIES

[Excerpts from] Consolidated Financial Statements [see Table 10]

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NATIONAL COLLEGIATE ATHLETIC ASSOCIATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Source: National Collegiate Athletic Association. © National Collegiate Athletic Association. 2008–2010. All rights reserved.

(1) The Association

The National Collegiate Athletic Association (the NCAA or the Association) is an unincorporated not-for-profit educational organization founded in 1906. The NCAA is the organization through which the colleges and universities of the nation speak and act on athletics matters at the national level. It is a voluntary association of more than 1000 institutions, conferences and organizations devoted to the sound administration of intercollegiate athletics in all its phases. Through the NCAA, its members consider any athletics issue that has crossed regional or conference lines and is national in character. The NCAA strives for integrity in intercollegiate athletics and serves as the colleges’ national athletics accrediting agency. A basic purpose of the NCAA is to maintain intercollegiate athletics as an integral part of the educational program and the athlete as an integral part of the student body.

The NCAA operates through a governance structure which empowers each division to guide and enhance their ongoing division-specific activities. In Division I, the legislative system is based on conference representation and an eighteen member Board of Directors that approves legislation. The Division II and III presidential boards are known as the Presidents Council; however, legislation in Division II and III is considered through a one-school, one-vote process at the NCAA Annual Convention. The governance structure also includes an Executive Committee composed of sixteen chief executive officers (member institution chief executive officers) that oversee association-wide issues which is charged with ensuring that each division operates consistently with the basic purposes, fundamental policies and general principles of the NCAA. The Executive Committee has representation from all three divisions and oversees the Association’s finances and legal affairs.

In September, 2005, the NCAA organized the NIT, LLC, a limited liability company. The NCAA is the sole member of the company. The NIT, LLC was organized as the entity that will administer the NIT Season Tip-Off and the Postseason NIT collegiate basketball events. The financial results of the NIT, LLC are consolidated in the financial statements of the NCAA. All significant intercompany balances and transactions have been eliminated in consolidation.

In January, 2007, the NCAA organized the Eligibility Center, LLC, a limited liability company. The NCAA is the sole member of the company. The Eligibility Center, LLC was organized for the primary purpose of performing academic and amateurism eligibility certification decisions for prospective student-athletes desiring to compete for NCAA Division I and II member institutions. In October, 2007, the Eligibility Center assumed the administrative responsibility for the National Letter of Intent program. The financial results of the Eligibility Center, LLC are consolidated in the financial statements of the NCAA. All significant intercompany balances and transactions have been eliminated in consolidation.

In May, 2007, the NCAA organized the Collegiate Sports, LLC, a limited liability company. The NCAA is the sole member of the company. The Collegiate Sports, LLC was organized for the primary purpose of being the sole member of the limited liability companies organized by the NCAA. The ownership of the NIT, LLC and Eligibility Center, LLC were transferred from the NCAA to the Collegiate Sports, LLC in May, 2007.

In August, 2007, the NCAA organized the College Football Officiating, LLC, a limited liability company. Collegiate Sports, LLC is the sole member of the company. The College Football Officiating, LLC was organized to pursue the development and maintenance of a national Division I college football officiating program. The College Football Officiating, LLC did not have any transactions in the year ended August 31, 2008.

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(7) National Invitation Tournament

In August, 2005, the NCAA and the Metropolitan Intercollegiate Basketball Association (MIBA) agreed to terms under which the NCAA purchased the rights and assets identified in organizing, promoting and administering the preseason and postseason National Invitation Tournaments (NIT). The NCAA agreed to pay MIBA $56,250,000 over a nine year period pursuant to the terms and conditions of a lawsuit settlement and an asset purchase agreement (the Agreements), including guaranteed minimum profit sharing payments of $250,000 in each of those nine years. The terms of the Agreements transfer the ownership of the tournaments and settle all litigation matters between the NCAA and MIBA.

Pursuant to a third party valuation, as of August 31, 2005, the value of the intangible assets acquired by the NCAA were $34,000,000 (before imputed interest of $8,304,717) resulting in $22,250,000 (before present value discount of $3,236,399) of settlement expense in the statement of activities for the year ended August 31, 2005. Imputed interest and present value discount rates were at 6%.

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(9) Commitments and Contingencies

The NCAA acts as the governing body for college athletics. In the course of carrying out its responsibilities, the NCAA is the target of litigation from student-athletes, coaches, universities and the general public. In addition, decisions made by the NCAA to enforce legislation and rules, as well as eligibility determination for student-athletes, are often challenged by the affected parties through lawsuits. These lawsuits range from seeking to overturn NCAA committee and legislative decisions to seeking monetary damages and reimbursement of legal fees.

The NCAA and its legal counsel are defending against lawsuits and claims arising in the normal course of its day-to-day activities. The NCAA does not believe the ultimate resolution of these matters will result in material losses or have a material adverse effect on the financial position, change in net assets or cash flows of the NCAA. The NCAA has incurred attorney’s fees in the process of defending against such matters, which are recorded in the accompanying consolidated financial statements.

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(12) Distribution of Revenues

In August 1990, the NCAA Executive Committee approved a plan to distribute revenues to member institutions for the year ended August 31, 1991, and each year thereafter. For Division I members, the plan consists of a basketball fund distribution based on historical performance in the Division I Men’s Basketball Championship, a broad-based distribution based on Division I sports sponsored and athletics grants-in-aid, an academic enhancement fund for academic programs for student-athletes, a student-athlete opportunity fund, a conference grant program and a special assistance fund for student-athletes to be used for emergency situations. For Division II members, the plan consists of a basketball fund distribution based on historical performance in the Division II Men’s and Women’s Basketball Championship, sports sponsorship, and an equal distribution among all active members.

….

(14) Television and Marketing Rights Fees

On November 18, 1999, the NCAA entered into an agreement with CBS (the CBS agreement) that provides CBS exclusive television broadcast rights for the Division I Men’s Basketball Championship along with other championship and marketing rights effective from fiscal 2003 and continuing through fiscal 2013. The agreement is for 11 years, with the NCAA having an option to renegotiate after eight years. [Ed. Note: The NCAA subsequently exercised their option and reached a 14 year agreement with CBS and Turner, the payments for which remain the same in the first three years of the contract as they were in the final three years of the previous contract.] The rights fees include: telecast rights, including over-the-air cable, satellite, digital and home video, marketing rights, championships publication program rights, radio rights, internet rights, fan festival rights, and selected licensing rights. The contract also includes year-round promotion of the NCAA and its championships.

The rights fee for this package is a guaranteed minimum of $6.0 billion over the 11-year contract. Pursuant to the agreement, for the year ended August 31, 2008, the NCAA received $529,000,000 ($490,000,000 for the year ended August 31, 2007). The NCAA will receive future television broadcast payments as follows [see Table 11]:

Table 11   Annual Payments from NCAA’s Division I Men’s Basketball Broadcasting Contract, 2009–2013

Fiscal year ending August 31
2009	$571,000,000
2010	617,000,000
2011	657,000,000
2012	710,000,000
2013	764,000,000
	$3,319,000,000

Source: National Collegiate Athletic Association. © National Collegiate Athletic Association. 2008–2010. All rights reserved.

On June 29, 2001, the NCAA entered into an agreement with ESPN (the ESPN agreement) that provides ESPN exclusive television broadcast rights for the Division I Women’s Basketball championship along with broadcast rights to other NCAA championships, excluding those to which rights have been granted to CBS. The contract is effective from fiscal year 2003 and continues through fiscal year 2013. The ESPN agreement is for 11 years, with the NCAA having an option to renegotiate after eight years.

The rights fee for this package is on a fixed, nonrefundable basis for the sum of $163 million over the 11-year contract. Pursuant to the ESPN agreement, for the years ended August 31, 2008 and 2007, the NCAA received $14,800,000 and $13,800,000, respectively.

The NCAA will receive future television broadcast payments as follows [see Table 12]:

….

[Ed. Note: See Table 13 for schedule of consolidating statement of activities.]

Source: National Collegiate Athletic Association. © National Collegiate Athletic Association. 2008–2010. All rights reserved.

Source: National Collegiate Athletic Association. © National Collegiate Athletic Association. 2008–2010. All rights reserved.

Discussion Questions