The Price of a Victory in Big-time College Football

(Well, this is an easy bump.  Excellent work. -- RB)

Money. There was one story this college football offseason, and that story was money. Yes, there were the usual distractions. College athletes behaving badly, and college coaches too. An unexpected reality show broke out at WVU. But in the end that's all those stories were were - distractions. This offseason was about money.

Nebraska got its invite to the Big Ten because of money. Texas kept the rest of the Big 12 together for money. The MWC fractured - BYU went independent, Utah went to the Pac 12 and TCU to the Big East(!?) - for a lack of money. The Pac 12 signed a three billion dollar TV deal. A THREE BILLION DOLLAR deal.

There has always been money in college football. It's entertainment, fans will pay to see it and schools are happy to support the teams and players. But not money like this. What do multi-billion dollar TV contracts and multi-million dollar coaching salaries mean for the future of college football? Its a question we can only hope to answer with a good understanding of the finances underlying BCS-level college football. Luckily, there are two excellent resources out there that make gaining such an understanding (somewhat) possible. First, the Equity in Athletics database makes available the athletic spending at NCAA institutions broken down by sport and gender for the years 2003-2009. Secondly, the USA TODAY college athletics finance database makes available athletic department revenue categorized by source (eg. ticket sale/donations/subsidies) for the years 2004-2009. Now, each of these databases individually has some shortcomings but the combination of the two gives us a chance to really get a handle on the evolving relationship between money and college football.

More and more, year after year

It doesn't take a fancy database to make out the headline of the money-in-college-football story. A quick glance at the salary of the head coach at your favorite team would suffice. College football programs are spending more money than ever before, every year. It might be a matter of opinion as to whether the college football is growing up or blowing up, but there is no doubt that it's changing:

The growth of spending on college football at the BCS level has been meteoric over the past decade. Football spending increased by 2/3 between 2003 and 2009, making an average annual increase of 10%. That's faster than health care costs, that's faster than college tuition, that's way beyond inflation. An athletic director at a BCS program today is presiding over a multi-million dollar operation, and every one of them is assuming that they will have to support double the current level of football spending within the decade. And that's just to stay even with everybody else.

Money can buy you wins

It's tempting to think that the money-side of college football can be separated from the sport itself. The athletic ideal that contests are decided solely on the field, not off it, certainly has a kernel of truth to it when Iowa State can beat Texas in Austin and Boise State can top Oklahoma in the Fiesta Bowl. But don't let the exceptions make you think that money doesn't matter on the field. Because money does matter on the field - it matters a lot.

In order to understand how big an advantage higher spending can be I went through the results of every game between BCS conference opponents from 2003-2009. Each game I noted which team was the higher spending side, and then recorded whether or not that higher spending team won the game. The result of that was that I was able to then calculate the fraction of games in which the higher spender was also the winner. To put this exercise in perspective, I repeated the same analysis for a number of additional factors such as home-field and recruiting rankings. So what do the numbers say? How big an on-field advantage is gained by outspending your opponent?

The amount a football program spends is more important than home-field advantage. It is a better predictor of the outcome than team W-L records more than a year in the past. It is more important than the relative strength of the recruiting classes that make up the teams! The program that spends more on football wins 63.4% of BCS-level football games. Let me stress, this isn't an artefact of BCS teams beating up on the little guys, only games between BCS programs are included in these numbers. This is the competitive advantage provided by spending - money can buy you wins.

The Revenue Arms Race by Conference

Every AD in the country knows that football spending is skyrocketing and will continue to do so. Every coach in the country knows that more spending will help them win more out on the field. And as sure as night follows day, the pressure is on at every athletic department in the country to get richer faster. One of, if not the, biggest factor influencing athletic revenue at individual programs is their conference affiliation. It's not the whole story, but last year's conference reshuffle made clear that it is a vital part of it. So, let's take a look at how the revenue arms race is shaping up between the BCS conferences.

Before going further its important to make clear that we'll be looking at the revenue of entire athletic departments, not the "football revenue" that has been reported on elsewhere. The reasons for this are twofold. First, the "football revenue" numbers that come from the Equity in Athletics database are problematic in ways that can make them very misleading. Those "football revenue" numbers include income that isn't really revenue such as direct institutional support. And the categorization of athletics revenue by sport is poorly standardized from school to school. For example, some Big Ten teams assign zero revenue from BTN to football while others assign 65% of BTN revenue to football. Second, football programs are not financially independent entities, and therefore there is no direct link between "football revenues" and the football spending that is really what matters competitively. It is the athletic department as a whole that ultimately must balance its books, not the football program. In fact, because of a number of constraints on major college athletic departments there is very little room for variation in the percentage of spending devoted to football. Every BCS conference (except the Big East) devotes between 24% and 26% of its athletics spending to football, as seen below. As a consequence, the ability of a school to increase its spending on football is almost directly tied to the ability of its athletic department to increase its total revenue.

The fraction of total athletics spending devoted to football and basketball for each BCS conference.

A real understanding of the revenue differences between the BCS conferences requires us to dig a little deeper than just the total number, the source of incoming revenue is also a key element. There are three very different types of revenue streams in college athletics: Earnings - tickets sales, merchandising, media rights and so forth; Donations - gifts from individual to the athletic department; and Subsidies - funding provided by the University to the athletic department. To convey the revenue differences in both quantity and composition between the conferences I created pie charts for each conference. The three slices represent the relative contributions of Earnings, Donations and Subsidies, and the radius of the pie is proportional to the per-program revenue in that conference (all numbers are averages over the years 2004-2009).

The fraction of athletics revenue from Earnings, Donations and Subsidies for each BCS conference.

The top line numbers are interesting and not unexpected. The Big Ten makes the most with the SEC is in close second and the Big 12 taking third. Then there is a reasonable drop off to the ACC in 4th while the Pac Ten in 5th and Big East in 6th fall well behind. But in addition to the total revenue numbers, there are important differences between the conferences in the composition of their revenue streams. Most notable, the Big East stands alone with respect to the high level of subsidies that its athletic departments rely upon. Less dramatic but also interesting, the Big Ten separates itself from its peers by the high fraction of its revenues that come from Earnings, and the relatively low fraction from Donations and Subsidies. These facts are important for the outlook of both conferences going forward because the growth in athletic revenue is being driven by a growth in Earnings, not Donations or Subsidies.

The BCS average revenue from Earnings, Donations and Subsidies over the time period 2004-2009.

There are a number of interesting things these pictures tell us about the state of major college athletics. For one, BCS athletic departments are largely self-sufficient and are primarily funded by Earnings, but there still are, and will continue to be, a significant number of BCS programs that require significant subsidization. It is also clear that while BCS level athletics seems fairly financially health, there are real differences between the conferences. The Big Ten and the SEC lead the BCS pack and appear very well-positioned for the future. The Big Ten looks especially strong after factoring in its addition of Nebraska and the large fraction of its revenues that come from the fast-growing Earnings category. The Big 12 looks just fine at the conference level, although averaging over the conference is hiding the intra-conference revenue dynamics that are the real long-term threat to its stability. The ACC and Pac 12 with its new media deal look like they will be able to remain financially competitive with tbe Big Ten and SEC, while not likely to achieve equality in the medium-term. The Big East, however... The financial position of the Big East raises real concern about its long-term viability as a BCS conference.

The financial problems facing Big East football are serious and multi-faceted. The Big East spends less on football than any other conference because of its vastly lower revenues. The conference is overly dependent on Subsidies which are likely to decrease over time. And furthermore, the Big East is already spending a higher fraction of its athletics revenue on football than any other conference. Worse again, while the Big East's Earnings are increasing, the fact that Earnings make up such a relatively small part of the conference's overall revenue means that total athletic revenue growth is likely to lag behind that of the other conferences. If there is one clear story to take away from these numbers it is this - the future ranks of the BCS conferences may not include the Big East.

The Highest Revenue BCS Programs

The conference comparisons are interesting, but as Texas could tell you, they don't tell the whole story when it comes to individual programs. Pie charts for dozens of schools is clearly overkill, so instead I broke out the top 10 and bottom 3 (and Iowa) programs for each category of revenue: Earnings, Donations and Subsidies. The numbers represent total revenue in that category over the time period of 2004-2009. There is one big caveat to these lists: private schools and Penn State (PA law) were not required to report their revenue, and thus could not be included.

There are a number of interesting stories that pop out of these rankings. The T. Boone Pickens effect is on full display as Oklahoma State wins the Donations race going away. After OK State the SEC dominates the Donations top 10. They say football is a religion down south, and the SEC fans are tithing like Catholics. The most surprising number to me, however, was the incredible earnings power of Iowa football. Above Iowa on the earnings table sits only Florida, Wisconsin and 8 of the top 12 all-time winningest football programs. To be fair, Penn State would be a lock to go above Iowa if included, and potentially Notre Dame as well, but that is still rare company. What it says to me is that Iowa football is more than just a great coach, its a program with real long-term vitality.

Money is Money and Everyone is Paying

The incredible growth of college football has changed it irrevocably and will continue to change it in the future. The sheer numbers involved are becoming staggering in the era of multi-billion dollar TV deals. Its hard to wrap your head around.

What struck me the most as I wrote this up was the juxtaposition of this offseason of money with the various NCAA infractions cases rattling around the college football world. I don't apologize for the rule-breakers - while NCAA rules can seem arbitrary at times there do have to be rules. Most of the NCAA rules even make make sense upon taking a step back and remembering that the student in student-athlete is a reality for most of the kids in college football. But while I'm not going to apologize for the rule-breakers, I also think a little bit of perspective is in order. Ohio State and USC broke the rules, but its also reality that money is money and we're all paying. If you're paying with rounds of golf or paying with state-of-the-art purpose-built housing complexes - you're still paying. If you're paying with jewelry or paying with massive dedicated practice facilities - you're still paying. If you're paying with tattoos or paying with massive stadium renovations - you're still paying. Don't pretend. Whatever college football team you call your own, while they might not be handing cash to players they are still paying for their wins.

Methods: All information on athletics spending was taken from the Equity in Athletics Data Analysis Cutting Tool. All information on athletic revenue was taken from the USA Today college athletics finance database. Earnings were defined as revenues from the following categories: Ticket sales, Guarantees, NCAA/conference distributions including all tournament revenues, Broadcast, television, radio, and internet rights, Program sales, concession, novelty sales, and parking, Royalties, licensing, advertisements and sponsorships, Sports camp revenues, Endowment and investment income, Other. Donations were defined as revenues in the following categories: Compensation and benefits provided by a third party, Contributions. Subsidies were defined as revenues in the following categories: Direct state or other government support, Direct institutional support, Indirect facilities and administrative support, Student fees. Game records were taken from James Howell's database. Recruiting classes were rated using Rivals team recruiting rankings. Conference affiliations and BCS membership were assigned as per the 2010 season as this was the configuration that held over the time period studied. This means that Nebraska and Colorado are in the Big 12, and TCU and Utah are not in the BCS.