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Deflating The Chronicle of Higher Ed's "Boom" in FCS Costs

(Graph Credit: Chronicle of Higher Ed)

It's amazing to me how statistics are so frequently presented to attempt to "shock and awe" the viewer.

Today, it's the Chronicle of Higher Ed's turn to mislead using statistics:

If you haven’t seen it, you should check out Libby Sander and Andrea Fuller’s piece this week highlighting the spending patterns in lesser-known Division I programs. The story found that nearly a third of the 125 athletic departments that compete just below the NCAA’s elite level increased their expenditures by more than 40 percent during a recent five-year period. Public universities, many of them grappling with overall financial cuts, had some of the fastest-growing athletic budgets.

It sounds shocking - until you analyze the situation for, say, about five minutes. (more)

For context, here's the beginning of the piece referred to by the first posting (which is behind a pay firewall):

Nearly a third of the 125 athletic departments that compete just below the NCAA's elite level increased their spending by more than 40 percent during a recent five-year period, a Chronicle analysis of federal education data has found.

As expenses have ballooned and revenues stagnated, the median deficit at those programs has grown to more than $9-million.

It's fashionable in the football-bashing world these days to say that "expenses have ballooned! Shock! Awe!", especially in the world of FCS football.

And a "deficit" of $9 million - which also seems like a poll-tested word, in this world of spending and deficits in all levels of government - sounds like a lot of money.

What's missing from the breathless articles that's visible to the public, however, are vital questions: where, pray tell, is that $9 million going, and how are they coming up with those numbers for expenses.

Fortunately, these questions are easy to answer.

Let's start with the question of expenses.

In FBS, athletics programs are genuinely extremely large.  They also have lots of bits of administration, revenue, and expenses they generate.

But at the FCS level, by far the largest piece of the athletic budget comes from scholarship expenses. As I've mentioned before in reference to Hofstra's football program, the Pride spent $2.5 million of their $4.5 million of football "expenses" on scholarships, not ivory backscratchers.  When they closed up that football program, the biggest possible "savings" would come from no longer offering scholarships to athletes.

Such breakdowns of scholarship money to overall athletic budget are extremely common at scholarship FCS football programs.

Since the largest hunk of athletic "expenses" come from scholarships, you'd think that most of the "boom" in athletics spending at the FCS level could, possibly, be explained by tuition increases.

As it turns out, that turns out to be right:

A good rule of thumb is that tuition rates will increase at about twice the general inflation rate. During any 17-year period from 1958 to 2001, the average annual tuition inflation rate was between 6% and 9%, ranging from 1.2 times general inflation to 2.1 times general inflation. On average, tuition tends to increase about 8% per year.

So, let's do the fifth-grade math. 8% a year of tuition inflation * a 5-year period = a 40% increase in the amount spent on scholarships. That explains almost all of the increase over the last five years.

Easy, right?

*****

Now, the more challenging piece - how did the folks at Inside Higher Ed come up with the $9 million "deficit"?

They appear to have done so by simply looking over the revenues and expenses in the athletics budget, subtracting the amount called "institutional support" - money paid to the school to support the athletics department - and then calling the resulting balance a "deficit".

That's hardly an accurate way to think about the expenses and revenues of an athletics department - but more on that later.

"That's nearly twice as fast as academic spending," the piece seems to say breathlessly. And to support their argument, an "upcoming report from the Knight Commission" was cited. This foundation also issued a similar report about FBS last year, and it's probably correct to figure that they came to similar conclusions:

Over 18 months, the athletic reform commission compiled data on college sports finances and found that at institutions belonging to major athletics conferences, median spending per athlete ranged from four to almost 11 times more than median spending on students for educational purposes. In 2008, median per capita athletics spending for Football Bowl Subdivision conference institutions was $84,446, compared to a median $13,349 per capita for academic spending.

This is incredibly misleading, because the Knight Commission is comparing apples and oranges - and it seems like they followed the same flawed comparison of "athletic spending" and "academic spending" this year.

The numbers for their graphs and report come from two sources, thank to information buried in the end notes of their 2010 report: the USA Today's NCAA Athletics Finance Database, and the IPEDS database to compute the full cost of "education spending per full-time equivalent student".

Looking further into the notes, it also mentions that it's the Delta Cost Project where the Knight Commission got the net of the academic spending information from the schools themselves.

The Delta Project actually looks at the overall costs of tuition and determines where the sources of the increases come from, and is a good source of data on that topic.

However, when you're comparing athletics expenses and the Delta Cost Project's computation of scholastic expenses, that's where the problems start.

The statistics in this report focus on operating expenditures only – or spending by the institution (not by students), to pay for educational costs. Capital outlay costs are excluded, as are institutional spending for research and service.

You probably didn't realize it, but you just saw a huge amount of the collegiate balance sheet erased from the analysis. Put it this way: if your school is spending $100 million of the "capital outlay" on real estate and construction costs on new dorms, that's not included in your expenses.

Importantly, though, this was NOT factored out of the athletics expenses.

So, if your school built new locker rooms for your men's and women's basketball teams - those count towards "athletics expenses".  Yet if a school buys a new dorm, that's not counted in the numbers.

A philosophy department doesn't have the expense of a new building on their expense report - that's on the balance sheet of the school, not the department - but for the sake of the Knight Commissions' report, construction costs are expenses for athletics departments.

Does that seem like a fair comparison to you? It doesn't to me.

But that's not all. Continuing:

The figures are also averages, and thus mask differences in costs and subsidies, including use of tuition revenues, within institutions. Cross-subsidization is endemic in higher education. For instance, revenues generated from undergraduate students who enroll in low-cost disciplines such as humanities and social sciences, help pay for high-cost disciplines – fine arts, agriculture, law, and engineering, for example.

Spending on athletics subsidizes education for its participants - as a matter of fact, it's by far the largest line-item on their balance sheet, as I pointed out.

But further complicating matters is that, at the FCS level, institutions frequently give "institutional support" to the athletics department.

That money isn't tied to spending in particular - but considering that more than 1/3 of athletics budgets at the FCS level go to financial aid, it's right to come to the conclusion that the "institutional subsidy" is really paying for scholarships.

Take the example of the University of Maine, a member of the CAA. Their "institutional support" of $9.7 million in effect pays for all the athletic student aid of $5.7 million, which makes up more than 1/3 their entire athletics budget according to the USA Today database.

So FCS athletics departments are futher punished by the analysis by the Knight Commission because they're spending on providing scholarship money to students that the school itself, in effect, is providing to it.

Think of it this way: My employer pays me $50,000 to spend on supplying food to the local food pantry.  On my own, that's a big part of my "budget".

Every year, the costs on supplying that food go up - and my employer supplies me the difference every year.

In the Inside Higher Ed and Knight Commission world, the audit of my finances would say that my "spending" is going up every year - even though I'm being given money for that purpose, and I have no control over those costs.

Puts "athletics spending" in a different context, doesn't it?

It's easy to say, "slash spending". It's a lot different than saying "slashing scholarships," which is what the Knight Commission and the writers at Inside Higher Ed are, in effect, advocating.

*****

What's incredibly distressing about this report and these articles, though, is that you can count on the fact that scores of people will seize upon this shoddy reporting to support their preconceived notions about FCS.

It won't just be the "we oppose any spending on athletics, ever" crowd, either.

Folks who want their football teams to go to FBS will also seize on the incorrect data in an attempt to portray FCS as a "money-losing" conference - with the only option, of course, being a move to an FBS conference to "save" an athletics program from extinction. At least in Bowl Subdivision, proponents argue, there's a hope of "making money" on your program.

A dream of "making money" on your athletics program will not happen if you're not in a BCS conference in football, and even then it's not a guarantee. Precious few Division I athletics departments cover expenses.

But the Knight Commission report, and articles like the ones posted by the writers at Inside Higher Ed, will go a long way towards justifying their beliefs that the only way to go is to go FBS.

I don't think that's what the Knight Commission had in mind with their report, but that's going to end up being the upshot of this data for way too many athletics directors.

The thing is, though, that both conclusions are wrong.  FBS football is not a respite from athletics expenses, and it's not wrong that athletic department expenses exist.

FCS football is a sensible level of football whose general purpose isn't to balance the books - but to provide opportunities for athletes to get an education.

At the level that sponsors FCS football, athletics departments are in the scholarship business, not the money-making business. 

And that should be the conclusion of their analysis - not that there is a "spending boom" on athletic departments with FCS football.  The boom is actually in the cost of tuition - something that's not exactly news.

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