Critical Thinking

The is a financial disparity in the NCAA.

 

 

 

 

 

 

 

 

 

 

The Rich Get Richer

Andy Nolan

Ball State University

 

            “Our purpose is to govern
competition in a fair, safe, equitable and sportsmanlike manner, and to
integrate intercollegiate athletics into higher education so that the
educational experience of the student-athlete is paramount” (“NCAA Core
Values”, 2016). This is the purpose statement of the National Collegiate Athletic
Association. It is printed in big, bold letters on its website and bits and
pieces can be found in many of its marketing campaigns. The NCAA is a
non-profit organization designed to create an atmosphere where athletes can
excel in their studies and play sports on the side. It is a regulatory agency
that sets rules in order to create a level playing field among its institutions.

Or is it? While this purpose statement sounds fine and dandy, the current state
of Division I Athletics paints a very different picture. In a system that is
supposed to be equitable, there is a significant financial disparity between Power
5 and Group of 5 conferences. This is largely due to multimillion-dollar
television deals, a direct result of a 1984 Supreme Court case. This issue is
critical to understand because not only is it hypocritical to the NCAA’s
mission, but it also has had significant implications on the state of
collegiate athletics. While the future remains unknown, if the trend continues,
it would not be surprising to see a new division created specifically for Power
5 schools. Overall, it is clear. The rich are getting richer and it is becoming
more and more difficult for the poorer schools to keep pace. 

            After reviewing the finances of
several schools from different conferences, it is clear that there is a
huge gap in revenue between schools in a Power 5 conference and
conferences like the MAC. For example, in 2015 Texas A, a
member of the SEC, raked in well over $192 million of revenue. Meanwhile, the
highest revenue generating school in the MAC, Western Michigan, only
managed to bring in $34 million (NCAA Finances). Figure 1 and Figure
2, found in the appendix of this paper, are great visual representations of the
revenue generation difference between Power 5 schools and Group of
5 schools in NCAA Division I. The gap is astounding. In a level of sport
where competition is supposed to be equitable and fair, it is hard to
understand how mid-majors like Ball State are ever supposed to consistently
compete with schools in the Power 5. It is clear that there is a financial
disparity in the NCAA.

            A significant portion of the revenue
generated by Power 5 schools comes from the recent boom in television
contracts. According to Samson (2013), a deal between the PAC 12 and ESPN and
Fox Sports allows each institution to bring in over $21 million a year. The Big
12 has a similar deal that allows its institutions to bring in $20 million a
year. In comparison, 21 non-power 5 Division 1 conferences reported revenue
from TV contracts at less that $10 million a year (Samson, 2013). This is
before the revenue was split up among their institutions. That is right. Individual
institutions in major conferences are making twice as much as most entire
conferences in NCAA Division I Athletics. In an industry that struggles to
break even each year, this creates some serious issues. Smaller schools are
forced to make difficult decisions, such as cutting programs and/or gathering
revenue in other ways, in order to try and keep up with the arms race in
collegiate athletics and remain competitive.

            While there has always been some
inequity in the NCAA, the financial disparity has not always been this substantial.

In fact, it was a Supreme Court case in 1984 that sparked the issue. 

Back
in the 80s, TV contracts worked much differently than they do today. The NCAA
used to control TV contract rules and regulations and set limitations on the
amount of games that were broadcast each year. It granted two networks the
rights to negotiate TV broadcast games, ABC and CBS. The TV companies would
negotiate directly with the institutions in terms of the specifics of the deal,
but there were limitations. First, the price was essentially fixed, as it did
not vary based on size of viewing audience, number of markets in which game was
telecast, or characteristics of the game itself. There were also appearance
limitations. No institution was allowed to appear more than six times, four
times nationally, in a two-year period and those appearances were required to be
divided equally between the two carrying networks. It also limited ABC and CBS
to broadcast only 14 games total each year. Some larger schools, the Power 5
schools of today, did not like this. They thought they should be able to
negotiate their own deals, allowing them to get more exposure and essentially,
more revenue. 62 of the major football programs in the country joined together
to set up the College Football Association and began negotiating an outside
deal with NBC, a network that was not included in the NCAA plan (Siegfried
& Burba, 2004). In response, the NCAA threatened to ban any institution
that did not comply with their TV rules from all athletic contests. The boards
of Oklahoma and Georgia jointly sued the NCAA. The district court ruled in
favor of the schools. It was appealed. The appellate court affirmed their
decision. And the case made it all the way up to the Supreme Court, where the
Supreme Court affirmed and ruled in favor of the institutions. In their
decision, the court ruled that the NCAA’s TV deal violated the Sherman
Antitrust Act. Calling upon precedent, the court noted that the restrictions
set a fixed price and limited output, thus creating a monopoly for the NCAA
(Montez de Oca, 2008). The regulation unfairly restrained trade and the member
institutions were granted injunctive relief. It was “the first time the
Supreme Court had ruled amateur sport to be in violation of antitrust laws. The
justices ruled that the NCAA TV plan was a purely commercial venture in which
the universities participated solely for the pursuit of profits” (Smith,
2011, p.139). This major decision allowed individual conferences to make their
own TV deals and obtain the revenue from it. This was great news for Power 5
conferences, like the Big Ten, who not only were able to set major deals with
big name stations like ESPN and Fox Sports, but even created their own network
(Big Ten Network) to keep all the profits in house. Group of 5 conferences,
like the MAC, were unable to land nearly the same TV deals and the missing out
of these million dollar contracts led to the growing disparity we see today.

            The Supreme Court certainly made the
right decision, as the TV regulations were a clear violation of the Sherman
Antitrust Act. However, that decision certainly had a major impact on the
landscape of collegiate athletics. Why should one be concerned about inequality
in college sport? As Zimbalist (2013) explains, “it can impede the
accomplishment of two basic league goals: competitive balance and financial
stability” (p. 20).  The first point, competitive
balance, is a little more obvious. Teams like Alabama have the financial
resources to build the best facilities, hire the best coaches, and be
successful on the field. Schools like Ball State simply cannot afford to do so
and are left in the dust competitively. However, Zimbalist’s second point is a
little less obvious, but just as important. Because of increasing financial
disparity, schools like Ball State are required to subsidize to meet their
expenses, pulling from the school’s general funds, state funds, and student
fees (Slabaugh, 2015). Yes, all students at Ball State are paying for the
athletic department as part of their tuition, even if they never go to a game.

Whether this is right or wrong is another debate all together, but the point
is, Power 5 schools do not have to subsidize very often, many times not at all.

Looking just in state, as Slabaugh (2015) notes in The Star Press,
“While Ball State’s “athletic subsidy” was $38,425 per athlete
in 2013, Indiana University’s subsidy was only $3,876 per athlete and Purdue
University’s was zero” (Slabaugh, 2015, p. 3). We’re talking over a 70%
subsidy for schools like Ball State and no more than 10% for schools in the Big
Ten, often 0% (NCAA Finances).  On average, Lavigne (2016) notes that
Power 5 schools bring in around $100 million of revenue with only 5.4%
generated through university subsidies. Meanwhile, Group of 5 schools average
around $35 million of revenue with over 55% of that revenue coming from
subsidies (Lavigne, 2016). The difference is stark and concerning.

            While the financial disparity is
clearly an issue in NCAA Division 1 Athletics in terms of competitive balance
and financial stability, solving that issue is not cut and dry. The NCAA cannot
do much in terms of limiting TV contracts, as doing so would violate the
Sherman Antitrust Act, as showcased in the case that sparked this whole mess, NCAA v. Board of Regents of Univ. of Okla. (1984). However, there
are two realistic potential efforts that may help alleviate the problem. First,
the NCAA could look to allocate additional funds to schools that cannot receive
the same financial benefit from TV contracts as Power 5 schools can. As
Lawrence (2013) explains, “Providing support to financially weaker schools to
help them generate more revenues and beginning to close the gap between the
financially strong schools and the financially weak schools would improve the
student-athlete experience” (Lawrence, 2013, p. 39). The NCAA claims to be an
academic-first organization in place to create a level playing field. Yet, the
current distribution model of funds rewards athletic success. If the NCAA
really wants to be who they say they are, something needs to change. All
Division I institutions are expected to compete in the same championship, yet
that is no longer even remotely a realistic possibility due to the widening gap
in revenue generation. Simplifying the distribution model and allowing
smaller-conference teams to earn revenue from the NCAA in other ways may help
lessen the disparity. Another option would be to separate the Power 5 conferences
into a new division. This would essentially eliminate the problem altogether.

Giving majors and mid-majors their own separate National Championship would
even the playing field and allow for teams to compete with schools that mirror
them in terms of revenue generation. Financial inequality will probably always
exist in the NCAA, but there are things that can and should be done to tighten
the gap. Doing so will create a level playing field for member institutions and
help create financial stability.

            In conclusion, it is clear that
there is a substantial financial disparity between Power 5 conferences and the
rest of NCAA Division 1 conferences. This was, in large part, sparked from the
Supreme Court’s ruling in NCAA v. Board of Regents of Univ. of Okla.

(1984), which allowed schools to negotiate their own TV contracts without
regulation. This greatly benefits big name conferences that are able to
generate hefty revenue from TV contracts, and in turn, sign and retain the best
coaches, build the best facilities, improve recruiting, and not have to worry
about subsidizing. Meanwhile, schools in conferences like the MAC must make
difficult decisions and often even cut programs or subsidize just to stay in
business. The financial playing field is not level and because of this, the
actual playing field is not level. This has created prominent issues in the
current state of the NCAA, especially in terms of competitive balance and
financial stability. While there is no fix-all solution, reallocating funds to
the smaller conferences or creating a new division altogether may help to
lessen and eventually eliminate the gap. The disparity is astounding and
continues to worsen year after the year. If the NCAA truly wants to be what
their Purpose Statement suggests, they need to take steps to resolve the
problem. Until then, the rich will continue to get richer and the poor will
continue to get poorer.

 

 

 

 

 

 

 

 

References

Lavigne, P. (2016, September
06). Rich get richer in college sports as poorer schools struggle to keep up.

Retrieved December 10, 2017, from
http://www.espn.com/espn/otl/story/_/id/17447429/power-5-conference-schools-made-6-billion-last-year-gap-haves-nots-grows

Lawrence, H. (2013). The
Impact of Intercollegiate Athletics Financial Inequalities. Journal of
Intercollegiate Sport, 6, 25-43. Retrieved December 10, 2017.

Montez de Oca, J. (2008). A
Cartel in the Public Interest: NCAA Broadcast Policy During the Early Cold
War. American Studies 49(3), 157-194. Mid-American Studies
Association. Retrieved December 10, 2017, from Project MUSE database.

NCAA Core Values. (2016, July
06). Retrieved December 10, 2017, from
http://www.ncaa.org/about/ncaa-core-values

NCAA
Finances. (2015). Retrieved June 21, 2017, from http://sports.usatoday.com/ncaa/finances

NCAA v. Board of Regents of Univ. of Okla., 468
U.S. 85 (1984)

Samson, A. (2013). Financial
Sustainability of Today’s NCAA Division I Athletics. Insights To A
Changing World Journal, 2013(3), 126-137.

Siegfried, J. J., &
Burba, M. G. (2004). The College Football Association television broadcast
cartel. Antitrust Bulletin, 49(3), 799-819.

Slabaugh, S. (2015, April
20). BSU subsidy at $38,425 per athlete. Retrieved June 21, 2017, from
http://www.thestarpress.com/story/news/local/2015/04/19/bsu-subsidy-per-athlete/26029881/

Smith, R. A. (2011). Pay
for play: a history of big-time college athletic reform. Urbana, Chicago:
University of Illinois Press.

Zimbalist, A. (2013).

Inequality in Intercollegiate Athletics: Origins, Trends and Policies. Journal
of Intercollegiate Sport, 6, 5-24. Retrieved December 10, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appendix

 

 

 

 

 

 

 

 

 

 

Figure
1

 

 

 

 

 

 

 

 

 

Figure 2