Schooled:The Price of College Sports (student athlete or unpaid employees)

[Pompous Elitist]

The only problem with that analysis is that athletic departments engage in creative accounting and have no incentive to be profitable. If they make more money then they spend they simply engage in profligate spending. They put the money in unscheduled capital improvements in the never ending arms race and pay coaches in low revenue sports lots of money. An article I read a few weeks ago made this point by illustrating how an athletic department had tons of leftover money so it decided to pay its volleyball coach 350k a year. I will find the article later and link it.

Needless to say, athletic many departments could turn a big profit if they had to or wanted to.

Here's the link. Also, I was wrong about the volleyball coach. It was $300k not $350k.

http://espn.go.com/espn/otl/story/_...ved-economic-downturn-earning-record-revenues

Hey, we agree on something! I think this is progress.

The accounting methods obscure the real data, and the revenues are very badly managed. If the primary mission is indeed education...it's shameful. Human failings, I suppose. The absurdity displayed in your example is dismaying.

I'm going to get some popcorn and watch how this all plays out. My hope is some good will result and some sanity will come forth in both parties.

 

[Deleted_User]

Hey, we agree on something! I think this is progress.

The accounting methods obscure the real data, and the revenues are very badly managed. If the primary mission is indeed education...it's shameful. Human failings, I suppose. The absurdity displayed in your example is dismaying.

I'm going to get some popcorn and watch how this all plays out. My hope is some good will result and some sanity will come forth in both parties.

Judge Miles Lord already stated that there is doubt that athletes are scholars. This view could very well change given graduation rates.

 

[Deleted_User]

The only problem with that analysis is that athletic departments engage in creative accounting and have no incentive to be profitable. If they make more money then they spend they simply engage in profligate spending. They put the money in unscheduled capital improvements in the never ending arms race and pay coaches in low revenue sports lots of money. An article I read a few weeks ago made this point by illustrating how an athletic department had tons of leftover money so it decided to pay its volleyball coach 350k a year. I will find the article later and link it.

Needless to say, athletic many departments could turn a big profit if they had to or wanted to.

Here's the link. Also, I was wrong about the volleyball coach. It was $300k not $350k.

http://espn.go.com/espn/otl/story/_...ved-economic-downturn-earning-record-revenues

And the forensics destoy the financials.

 

[Gopherguy0723]

And the forensics destoy the financials.

As they say in law school, it's the why or the how that matters, not the final equation itself.

 

[Deleted_User]

As they say in law school, it's the why or the how that matters, not the final equation itself.

Thank you for your contribution to the discussion.

 

[Gopherguy0723]

Hey, we agree on something! I think this is progress.

The accounting methods obscure the real data, and the revenues are very badly managed. If the primary mission is indeed education...it's shameful. Human failings, I suppose. The absurdity displayed in your example is dismaying.

I'm going to get some popcorn and watch how this all plays out. My hope is some good will result and some sanity will come forth in both parties.

The accounting is atrocious and shameful no matter what side of the argument you agree with, but it makes sense why athletic departments do it. Athletic directors wouldn't be able to get money out of boosters to fund more projects, bigger salaries, and more extravagance if boosters see the athletic department making millions of dollars every year. Moreover, the athletic department isn't accountable to anyone. There are also no shareholders to please and pay. So, the only thing to do is to hide the profits or immediately reinvest them into what many of us would consider waste.

I suspect almost every BCS school could come up with millions (in some cases 10s of millions) every season to pay handsome stipends to all athletes (after all $1 million pays 1,000 scholarships $1000 per year, and there are much less than 1,000 full scholarship athletes at Minnesota and other big schools), worker's comp, full freight of scholarships, and other items without any harm to the department itself. At worst, extravagance and salaries of coaches and administrators gets trimmed. Do all that and allow players to profit off of the likeness and I would be mollified.

 

[Killjoy]

That's interesting considering I win cases in court and you sit in an ivory tower.

I also notice you keep ignoring the question posed to you. I suspect it is because you can't handle to truth, to borrow a phrase.

That explains why you are such a jerk! It seems to be an occupational hazard of being a lawyer.

 

[atsgopher]

The only problem with that analysis is that athletic departments engage in creative accounting and have no incentive to be profitable. If they make more money then they spend they simply engage in profligate spending. They put the money in unscheduled capital improvements in the never ending arms race and pay coaches in low revenue sports lots of money. An article I read a few weeks ago made this point by illustrating how an athletic department had tons of leftover money so it decided to pay its volleyball coach 350k a year. I will find the article later and link it.

Needless to say, athletic many departments could turn a big profit if they had to or wanted to.

Here's the link. Also, I was wrong about the volleyball coach. It was $300k not $350k.

http://espn.go.com/espn/otl/story/_...ved-economic-downturn-earning-record-revenues

I actually contemplated the adding the accounting disclaimer, but figured that nuance is lost on most. It will certainly have an affect.

GAAP comparisons are hard, here because there are so many differing expense allocations. Moreover, the athletic departments are a minor side item when these financial statements are taken as a whole, so the specific numbers for football (insert any sport) are lost, not by design, but through the cost benefit problem associated with massive organizations. Universities and their auditors don't focus on these issues, not because they wouldn't care, but mostly because there not worth the time given their relative weight in the University system is small.

However, I think your right on this being a problem, I don't think the motives are generally dishonest. These are audited and "creative" accounting is probably a misleading term as opposed to saying "priorities are elsewhere." In Accounting, there is a consistency standard, so the University accountant is going to set his allocations based on activities that drive the overall organization, and the athletic department is simply going to be along for the ride.

I know for a fact that the U of M shows less profit here relative to the big ten, because of this very issue (or at least had in the past). I know, because they explain it in great detail. There cost allocations hits the Athletic books differently than all other big ten schools. However, they are still GAAP compliant.

As for profitability, because of the lack of consistency across Universities one will not see perfect numbers, but they should be thrown out cynically. I think University numbers are not directly comparable line by line, without the FS notes and a professional to interpret (CPA). However, because of the Smoothness effects of GAAP and law of large numbers, industry numbers will probably give a good feel. Say if I was preparing this argument in a litigation support scenario, the profitability figures would a carry a range. I'll fully admit, that 2009 study is low, but it was done by CPA and serious University accounting expert. Nonetheless, even if you double everything to account for slack, your still not talking about huge profits.

The "Volleyball" example is a sore spot for me, as I'd bet (from direct experience) that particular University has a "Use it or lose it" budget policy. The US Gov does this, and it's common in bureaucracies. It sucks, because it forces waste. The problem is, departments that don't use funds, don't get them the next year. The US army literally has a week they call spendex week. Last week in September (fiscal year end). All excess ammo that was and pinched and conserved all year (to accommodate training schedules), is then literally sent to ranges and fired as fast as it can be. US forts sound like DDay. All so they can money the next year; otherwise, the DoD would be more than happy to send it off to build a replacement fighter jet that we don't want, need, and that sometimes doesn't even work (see F-35).

I won't dispute the assertion that Athletic departments could turn a big profit. Yet, let's call it like it is, they would need to seriously cut almost all sports. The U would keep 3 for sure, then you'd evaluate each's affect on the overall margin after cutting. Maybe 5 would remain, but probably 3 (assuming no Title IX). There goal isn't profit, and it shouldn't be.

 

[Gopherguy0723]

I actually contemplated the adding the accounting disclaimer, but figured that nuance is lost on most. It will certainly have an affect.

GAAP comparisons are hard, here because there are so many differing expense allocations. Moreover, the athletic departments are a minor side item when these financial statements are taken as a whole, so the specific numbers for football (insert any sport) are lost, not by design, but through the cost benefit problem associated with massive organizations. Universities and their auditors don't focus on these issues, not because they wouldn't care, but mostly because there not worth the time given their relative weight in the University system is small.

However, I think your right on this being a problem, I don't think the motives are generally dishonest. These are audited and "creative" accounting is probably a misleading term as opposed to saying "priorities are elsewhere." In Accounting, there is a consistency standard, so the University accountant is going to set his allocations based on activities that drive the overall organization, and the athletic department is simply going to be along for the ride.

I know for a fact that the U of M shows less profit here relative to the big ten, because of this very issue (or at least had in the past). I know, because they explain it in great detail. There cost allocations hits the Athletic books differently than all other big ten schools. However, they are still GAAP compliant.

As for profitability, because of the lack of consistency across Universities one will not see perfect numbers, but they should be thrown out cynically. I think University numbers are not directly comparable line by line, without the FS notes and a professional to interpret (CPA). However, because of the Smoothness effects of GAAP and law of large numbers, industry numbers will probably give a good feel. Say if I was preparing this argument in a litigation support scenario, the profitability figures would a carry a range. I'll fully admit, that 2009 study is low, but it was done by CPA and serious University accounting expert. Nonetheless, even if you double everything to account for slack, your still not talking about huge profits.

The "Volleyball" example is a sore spot for me, as I'd bet (from direct experience) that particular University has a "Use it or lose it" budget policy. The US Gov does this, and it's common in bureaucracies. It sucks, because it forces waste. The problem is, departments that don't use funds, don't get them the next year. The US army literally has a week they call spendex week. Last week in September (fiscal year end). All excess ammo that was and pinched and conserved all year (to accommodate training schedules), is then literally sent to ranges and fired as fast as it can be. US forts sound like DDay. All so they can money the next year; otherwise, the DoD would be more than happy to send it off to build a replacement fighter jet that we don't want, need, and that sometimes doesn't even work (see F-35).

I won't dispute the assertion that Athletic departments could turn a big profit. Yet, let's call it like it is, they would need to seriously cut almost all sports. The U would keep 3 for sure, then you'd evaluate each's affect on the overall margin after cutting. Maybe 5 would remain, but probably 3 (assuming no Title IX). There goal isn't profit, and it shouldn't be.

I think there is a disincentive to be positive on the balance sheet. Boosters are more likely to donate when the athletic department only breaks even or is losing money. In order to get more money to invest into various programs or facilities big money boosters are necessary. Moreover, it gives the athletic department a bigger sob story to sell the public at large in order to try to obtain public money for various projects. I'm not claiming all athletic departments are flush with cash, but I think they aren't nearly as strapped as people believe they are. Without seeing the books and knowing the reasons for investments on the books, I would bet all or nearly all the Big Ten athletic departments could clear a couple million in "profit" without cutting programs.

I'd love to see how much these athletic departments actually make if you could eliminate optional and wasteful spending in order to make the books look attractive to boosters and the public for donations.

 

[Deleted_User]

I actually contemplated the adding the accounting disclaimer, but figured that nuance is lost on most. It will certainly have an affect.

GAAP comparisons are hard, here because there are so many differing expense allocations. Moreover, the athletic departments are a minor side item when these financial statements are taken as a whole, so the specific numbers for football (insert any sport) are lost, not by design, but through the cost benefit problem associated with massive organizations. Universities and their auditors don't focus on these issues, not because they wouldn't care, but mostly because there not worth the time given their relative weight in the University system is small.

However, I think your right on this being a problem, I don't think the motives are generally dishonest. These are audited and "creative" accounting is probably a misleading term as opposed to saying "priorities are elsewhere." In Accounting, there is a consistency standard, so the University accountant is going to set his allocations based on activities that drive the overall organization, and the athletic department is simply going to be along for the ride.

I know for a fact that the U of M shows less profit here relative to the big ten, because of this very issue (or at least had in the past). I know, because they explain it in great detail. There cost allocations hits the Athletic books differently than all other big ten schools. However, they are still GAAP compliant.

As for profitability, because of the lack of consistency across Universities one will not see perfect numbers, but they should be thrown out cynically. I think University numbers are not directly comparable line by line, without the FS notes and a professional to interpret (CPA). However, because of the Smoothness effects of GAAP and law of large numbers, industry numbers will probably give a good feel. Say if I was preparing this argument in a litigation support scenario, the profitability figures would a carry a range. I'll fully admit, that 2009 study is low, but it was done by CPA and serious University accounting expert. Nonetheless, even if you double everything to account for slack, your still not talking about huge profits.

The "Volleyball" example is a sore spot for me, as I'd bet (from direct experience) that particular University has a "Use it or lose it" budget policy. The US Gov does this, and it's common in bureaucracies. It sucks, because it forces waste. The problem is, departments that don't use funds, don't get them the next year. The US army literally has a week they call spendex week. Last week in September (fiscal year end). All excess ammo that was and pinched and conserved all year (to accommodate training schedules), is then literally sent to ranges and fired as fast as it can be. US forts sound like DDay. All so they can money the next year; otherwise, the DoD would be more than happy to send it off to build a replacement fighter jet that we don't want, need, and that sometimes doesn't even work (see F-35).

I won't dispute the assertion that Athletic departments could turn a big profit. Yet, let's call it like it is, they would need to seriously cut almost all sports. The U would keep 3 for sure, then you'd evaluate each's affect on the overall margin after cutting. Maybe 5 would remain, but probably 3 (assuming no Title IX). There goal isn't profit, and it shouldn't be.

F-35 is a bad example. In a recent war game in AK, against allied planes with advanced fighters and avionics, an F-35 squadron defeated 186 aircraft to zero losses. In deployments, it can and does often sneak up to flight formations and join the flight without being noticed. It has done it to so many fighters collecting data on the EW flights testing our air defenses that the opposing flights come back with nothing as we escort them silently away. This is why last week orders from Australia went up to 72 on order from 56 (paid in cash up front). Japan and S. Korea had similar orders two weeks ago. The flight of the week was against Iran. They sent several attack aircraft toward a battle group. F35 waltzes up their tale, does the top gun canopy routine, then lights them up. They ran home. F35 is a very bad example of waste. Don't believe the bad press.

 

[atsgopher]

F-35 is a bad example. In a recent war game in AK, against allied planes with advanced fighters and avionics, an F-35 squadron defeated 186 aircraft to zero losses. In deployments, it can and does often sneak up to flight formations and join the flight without being noticed. It has done it to so many fighters collecting data on the EW flights testing our air defenses that the opposing flights come back with nothing as we escort them silently away. This is why last week orders from Australia went up to 72 on order from 56 (paid in cash up front). Japan and S. Korea had similar orders two weeks ago. The flight of the week was against Iran. They sent several attack aircraft toward a battle group. F35 waltzes up their tale, does the top gun canopy routine, then lights them up. They ran home. F35 is a very bad example of waste. Don't believe the bad press.

Well, I took this unscientifcally from feedback from Air force test pilots that I read complaining about passing out.

I could be wrong, and am biased to believe when I hear these tales. I am ex Army Airborne Infantry and have been on test runs for other "revolutionary" equipment (cargo planes) that not only didn't work, but turned out to be a detriment, and dangerous. Those are currently in service and passed with flying colors. Of course, being on the detail to conduct the tests, I'll note that every test we conducted failed. Of Course, somehow, once the data was aggregated and the report was prepared, all the tests passed. Also, have been issued "superior" equipment, that was superior to nothing outside of using rocks. They'll issue you things to carry that don't even work in garrison, much less the field. The good ol' GI always comes up with their own hacks that make things work, but you'll have to excuse me if I'm overly skeptical here.

 

[Gopherguy0723]

Nevermind.

 

[atsgopher]

I think there is a disincentive to be positive on the balance sheet. Boosters are more likely to donate when the athletic department only breaks even or is losing money. In order to get more money to invest into various programs or facilities big money boosters are necessary. Moreover, it gives the athletic department a bigger sob story to sell the public at large in order to try to obtain public money for various projects. I'm not claiming all athletic departments are flush with cash, but I think they aren't nearly as strapped as people believe they are. Without seeing the books and knowing the reasons for investments on the books, I would bet all or nearly all the Big Ten athletic departments could clear a couple million in "profit" without cutting programs.

I'd love to see how much these athletic departments actually make if you could eliminate optional and wasteful spending in order to make the books look attractive to boosters and the public for donations.

I agree on the incentive. It is a very strong possibility that profit could be squeezed out. However, these are independently audited. There is slack, but that slack is likely within a mathematical range that makes it tolerable in the grand scheme.

The auditor has the opposite incentive. They are not likely to make sufficient money from a University engagement, that justifies jeopardizing the money they make from other engagements. Generally Accepted Auditing standards actually require this to be the case. So, in order for this to be a system wide problem, that is a lot of collusion, from a lot of auditors, who have a heck of lot more to lose than fees on the one engagement.

The thing where the accounting can be criticized is level of precision. Unfortunately, it's just not economical. To seriously get a true and accurate level of precision required to eliminate this type of slack would cost so much (both in dollars and economic resources), that work required to attain it would make our discussion moot. It literally would cost unbelievable amounts and you'd go roughly from about 98% to 100% assurance (as measured on the grand scale), and it would take a year to do. The medicine would be far worse than the disease.

I will grant you though that some crap will get through. And the issue definitely favors the NCAA side in court. Nonetheless, it's a red herring in court. If the players beat it up, they'd lose hands down, no discussion. It is more than defensible and you'd just get crushed, because 1) they are legally required to follow GAAP, and it it independently, certified consistent with GAAP. 2) the scope of the issue goes far beyond the little were discussing. In a legal sense, it would be akin to trying to ignore precedent, while simultaneously suing all the corporations in the country. A huge mountain to climb.