The Surprising Economics of College Football

By Stephanie Taylor Christensen  NOV 11, 2011 2:10 PM

While college athletes are technically considered "amateurs," there's no mistaking that money changes hands in college athletics. Where does it all go?

 


Sports scandals have a way of garnering headlines -- particularly when the headlines involve college athletics. From the recent shake-up to the Ohio State University's football program, which ousted promising players and former coach Jim Tressel, to the recent firing of Penn State University Coach Joe Paterno, college athletics have gone through quite a bit of unwanted loss as of late.

When college football programs are faced with unwanted turmoil, no one wins. Fans are wounded, reputations marred, and promising young athletes' and coaches' future career plans become uncertain. While such damage pales in comparison to the lifelong emotional and mental damage that victims of the Penn State sex abuse scandal are left to handle, the fact remains that loss of all kinds runs deep. There are also the financial aspects of college football to consider -- and the numbers aren't small. Here's a look at the economics behind college football programs.

While college athletes are technically considered (and mandated to behave as) "amateurs," there's no mistaking that money changes hands in college athletics. If you've ever tuned into a college football game, you've surely noticed that plenty of big-name sponsors, media personalities, and advertisers have an apparent stake in the game. If you're an alumni, fan, or student of a school with a major collegiate football program, you also know that tickets aren't cheap, or easy, to come by. To say there's a lot of money at stake in college football is an understatement.

According to the Business of College Sports (a site founded by ESPN's Kristi Dosh), the most profitable college football program in the 2009-2010 school year was at the University of Texas -- raking in profits of $68,830,484. Following in second place was the football program at the University of Georgia. It garnered a profit of $52,529,885. Penn State University finished as the third most profitable program with just over $50 million.

Considering that the players aren't technically compensated for their performance (aside from scholarship offers, exposure and a promising athletic career future) -- who gets all the money? There are a few main "benefactors," but surprisingly, all that money doesn't go quite as far as you'd expect.

Coaches by the Numbers (CBTN) provides an analytical view of college football coaches and their value, based on a variety of numerical data points like salary, home-game attendance, wins, and losses.

On paper, some of the more known football coaches in college athletics appear to be doing pretty well. Before scandal rocked the football program at Ohio State University, for example, Dosh reports that former coach Jim Tressel was paid $652,000 by the university for his services, though his total annual income was actually closer to $3.7 million, thanks to broadcast contracts, endorsements and the like. Of course, there's additional compensation attached to getting a team into championship games, winning titles and graduating players.

Amidst the on-campus outrage and barrage of headlines surrounding the firing announcement of Penn State University head coach Joe Paterno, CBTN concludes that based on the data, the Nittany Lions have lost "one of the most successful college football coaches in history." Yet compared to his 46-year tenure and number of wins, it also says that Paterno actually commanded a "below market" salary.

In a salary analysis, Dosh explains that "in most instances, a college coach's compensation package is only about 25% salary. The rest is funded from broadcasting and apparel deals and other outside sources." Just how much money comes from other sources? It depends on the school, popularity of the program, and the relationship it has with the sponsor. University of Michigan appears to have the most lucrative deal with its eight-year-long Adidas (AAADY.PK) sponsorship, totaling $66.5 million. Coming in second is the University of North Carolina with a $33.7 million, 10-year Nike (NKE) contract. Despite the recent football program scandal, Nike announced that it has no plans to amend its sponsorship and outfitting agreement with Penn State.

The athletic department of a college also benefits when a team goes on to win a title, but football programs aren't the only sports an athletic department supports. In many cases, however, it is the football program (and in some cases, men's basketball) that is the revenue generating "engine" for an entire athletic department. According to the "Nittany Lion Club 2010 Annual Report," Penn State's football program provided for 46% of "intercollegiate athletics revenue." The Nittany Lion Club, which relies on support from donors and alumni and provides "grant-in-aid for Penn State student-athletes" and finances for "operational, academic, medical, individual endowment and capital project support for student-athletes," accounted for 13% of the 2010 revenue stream with support totaling $27.7 million. Sponsorships and men's basketball, on the other hand, accounted for just 4% and 3% of that revenue, respectively.

Despite the appearance of mega profits, most college athletic departments are in fact, operating at a deficit. For example, the Ohio State University "total coaching and staff salaries, wages and benefits are over $44 million," despite the fact that the entire football program will turn a profit of less than that, at a projected $35 million, according to Dosh.

Why would a school spend more on its athletic program than it takes in? In a word -- exposure. Not only does a stellar college football program make recruitment of athletes, staff and students less of a burden, it often leads to a more successful donor and alumni program. At the end of the day, that's what the keeps the university competitive and attractive to future generations (and their tuition-paying parents).

Charles Clotfelter is a professor of public policy, economics and law at Duke University and the author of Big-Time Sports in American Universities.

He explains that a recognizable and respected sports program "helps maintain support from taxpayers and politicians" -- especially for state schools. When a college has a reputable football program, it's not unusual to see recognizable faces (with deep pockets) sitting in the luxury bosses.

The school themselves often benefit as well. Dosh notes that the Ohio State University, Louisiana State University and University of Florida football programs all gave money back to their respective schools to alleviate budget constraints and support various facility renovations.

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