Why should you care about the finances of the OSU athletic department?

Money is a factor in collegiate athletic competition and it affects everything from success in recruiting to how much coach that your favorite sports program can afford.  The best recruits gravitate to programs that spend more on the sport and on facilities upgrades, the best coaches generally go to programs willing to pay the most, and so on.  Moreover, is there enough “profit” to cover the cost of non-revenue and money-losing sports?  This will be the first of a series of articles that I’m writing on the economic health of OSU’s sports programs.

Where does the money come from and how is it spent? 

This may seem like an easy question to answer – I buy a ticket and that money pays for the sporting event, right?  Well, not exactly – I’ll try to explain how this works and perhaps you’ll have a better understanding of the nature of the economics in OSU’s athletic department.

Revenues generated by the athletic department originate from a number of different sources.  These revenue sources can be divided into two basic areas; competition-related and non-competition related.  Competition-related revenues include ticket sales from sporting events, media revenues associated with specific sports, etc.  Non-competition related revenues include donations, OSU E and G (Education and General) Funds, Oregon sports action lottery, student fees, etc.

Expenses can be similarly divided into the two basic areas; competition-related and non-competition related.  Competition-related expenses include the costs of putting on the sporting events, staff salaries and benefits, scholarships, travel costs, etc.   Non-competition related expenses include payments on bonded indebtedness (facility construction loans), central athletic department expenses and salaries, administrative expenses and salaries, and short-term operating debt.

The graphics below depict the OSU athletic department revenues and expenses for fiscal year 2013 (OSU’s fiscal year 2013 started on July 1, 2012 and ended on June 30, 2013).  For the purposes of illustrating the importance of football to the financial health of OSU sports, the competition-related revenues and expenses have been further divided into football and all non-football sports.  Football provided 51% of the revenues in FY 2013 yet the sport accounted for only 23% of the expenses.  Football is without question the economic engine that drives OSU’s athletic programs.

All non-football sports at OSU earned 23% of revenues but they failed to cover the cost of these sports as they accounted for 33% of all expenses.  All told, non-football sports lost $5.62 million after expenses while football generated a “profit” of $16.77 million.  It is this “profit” from football that pays for the cost of running virtually all OSU athletic programs with the exception of men’s basketball.  Non-competition revenues generated another 20% of the total but expenses accounted for 37% of the total.  The greatest source of non-competition revenues is donations by way of Our Beaver Nation (formerly BASF).  The contribution from OSU E and G Funds rounded out the final 6% of revenues.  Long-term debt service on facilities projects was 6% of total department expenses.

Revenues fall short of covering the expenses of operating the athletic department without the institutional subsidy from OSU’s E and G fund.   OSU must balance the athletic budget each year and cannot run a budget deficit.  Institutional funds are used from OSU’s E and G Fund to close the revenue gap and balance the annual budget.  This institutional investment was first implemented during the tenure of former OSU President Paul Risser and has been continued under President Ed Ray.  Both acknowledged that these funds are a wise use of university resources and had to defend their use in this manner.

The estimated gross contribution to revenues of the Pac-12 media contract in FY 2013 was $7.61 million and much of this was reflected in the $10 million increase in football revenue over FY 2012.  Another $1.8 million of the increase in football revenues was attributed to the payout from the Alamo Bowl.  But the most surprising piece of information was that increased ticket sales resulting from the improvement from the 3-win 2011 season to the 9-win 2012 season only accounted for $385,000 of the increased revenues.

The purpose of this article is to provide a background on athletic department finances and to serve as the foundation for subsequent articles in this series.  In upcoming articles, OSU’s athletic department finances will be compared to Pac-12 competitors, revenue generation and expenses for individual sports will be profiled, OSU’s recruiting expenses will be compared to Pac-12 peers, and much more.

The sources for this and upcoming articles include:

http://ope.ed.gov/athletics/index.aspx

http://oregonstate.edu/budget/