Funny Accounting Drives Big-Time College Sports

By Ken Reed

For years, major college athletic departments have cried poor. Most of them say they’re actually losing money on their football and men’s basketball programs. Supposedly, according to NCAA execs, athletic directors and their apologists, only about 20 NCAA FBS Division athletic departments make money. Most people, including sports columnists and writers take these NCAA mouthpieces at their word.

But how can this possibly be? The NCAA’s college football and basketball TV contracts are going through the roof. (For example, ESPN recently paid $5.64 billion for the new College Football Playoff.) College football stadiums are jammed with 80,000+ plus fans paying huge ticket prices, plus seat ticket license fees, in a lot of cases. Suites and club seats are full.

Folks, college sports revenue is up, way up, even in a sluggish economy. From 2008 to 2013, the average revenue of a big-time Division I program increased by 32 percent. Meanwhile, during the same timeframe, median household income in America went down by 1.3 percent.

As sports economist Andy Schwartz points out, the key factor behind the “woe is me” persona of power five conference athletic directors is a unique brand of non-profit accounting.

“College sports have an honesty problem,” says Schwartz. “… most big-time football and men’s basketball programs aren’t losing money. It only looks that way.”

The reason it looks that way is a non-profit accounting system that produces a less-than-honest look at college sports finances. It’s “athletic department transfer-pricing chicanery,” as Schwartz labels it.

Transfer-price accounting (aka funny money accounting) allows colleges to call their college football and men’s basketball programs non-profits (wink, wink), put fake prices on things like an athletic scholarship, and move money around the campus to make it look like highly profitable ventures (like football and men’s basketball programs) are actually not making any money at all.

“[F]or those few university departments–like athletics–that generate revenue from outside the university, transfer prices don’t just help manage costs,” according to Schwartz.

“[Transfer prices] also can be used to shift profits away from the money-making department and towards the central administration by charging the department more than things actually cost. In other words, phony football expenses can hold football spending in check while also making sure the resulting profits end up benefiting more than just the football team.”

For more on the accounting games that college athletic departments play, and a look at a more honest alternative that would restore the economic rights of college athletes, among other benefits, read Schwartz’ excellent piece at Vice Sports called “College Sports Programs are Playing Poor, Here’s How to Fix It.”

— Ken Reed, Sports Policy Director, League of Fans