college-sports

No, that’s not a typo. These days, it seems, it is all about the dollars. Even in college sports - or maybe especially in college sports.

The headline on this week’s Philadelphia Inquirer, Sunday Edition, blared “Raising Funds - and eyebrows” - the story about the push to raise money for colleges through athletics made the front page. It seems especially fitting to run the story during football season (and maybe just a little self-serving that it focused on Temple and Penn State Universities less than a week before the well-known Nittany Lions pick on the Owls in Philadelphia) but it’s hardly news. The role of the dollar in college sports has been under fire for more than a year now, from the IRS inquiry into whether the tax-exempt status of colleges should remain considering the “empires” that have been built on the backs of taxpayers to the controversial salaries paid to coaches to Congress’ debate about the role of sports in secondary education - including basketball. What has come out of this debate is largely nothing - a lot of drama on both sides about the value (or not) of sports programs at colleges and universities. While there should be pressure to answer this debate in a very public way, there isn’t. Perhaps it’s impolitic to do it with football play-offs looming in the distance - too many OSU fans in Congress (yes, that’s OSU pictured above)? And then there’s basketball… And then, baseball. It’s just so darned inconvenient. Only Senator Charles Grassley (R-IA) has dared bring it up again recently; he promised last month to take another look at whether tax-exempt status was appropriate - but then, who are we kidding? He went to the University of Northern Iowa.

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NCAA President Myles Brand has (finally) responded to the ongoing inquiry into the tax-exempt status of the organization in a 25 page letter (Download the letter as a pdf here) posted on the organization’s web site.  The response initially had an October deadline - I guess somebody forgot to tell the folks in Committee that it’s college football season.  You can’t expect a serious debate about academics in the middle of football season, and just as basketball is gearing up the school semester.

It’s worth noting that the first three pages of the letter don’t address the tax-exempt status question at all.  Much of the rest attempts to link "life lessons learned" in sports to the educational purpose of NCAA athletics.  This should give everyone in Committee a chuckle.

You see, other than the occasional athletic superstar, the economics (and make no mistake about it, economics is really what we’re talking about here) of college athletics and treatment afforded those who participate (coaches included) do not mirror real life.  In real life, no one pays you millions and billions of dollars to watch you do your job.  You don’t get lavish perks for showing up to work.   And perhaps, most telling in the tax world, you don’t get a pass on your taxes because the institution you work for happens to do some good along the way… 

Mr. Brand argues, however, that the U.S. Supreme Court has already sanctioned the college sports tradition in NCAA v. Board of Regents of the University of Oklahoma 468 U.S. 85 (1984), when the Court opined:

“The NCAA plays a critical role in the maintenance of a revered tradition of amateurism in college sports. There can be no question but that it needs ample latitude to play that role, or that the preservation of the student-athlete in higher education adds richness and diversity to intercollegiate athletics and is entirely consistent with the goals of the Sherman Act.”

And in theory, that makes a lot of sense.  And maybe in 1984, it made a lot more sense.  That was before the NCAA started collecting billions on lucrative television packages.  Before coaches were paid millions of dollars and treated like royalty.  Before alums were squeezed for extra dollars to score highly desirable game tickets.  Before companies like Nike started paying to have their logo plastered all over the uniforms of college athletes.  Before college sports began to be merely a stop along the way to professional sports.  In that regard, "the revered tradition of amateurism in sports" really doesn’t exist at all.

And what about those outrageously high college coach salaries?  Brand claims they’re not high at all.  In fact, he writes that "coaches’ compensation packages, especially those with seven-figure packages, include institutional salaries commensurate with other highly paid and highly recruited faculty and staff."  Someone should tell that to the president of Duke University; as previously posted, Coach Krzyzewski is the highest-paid employee at Duke University, with a salary nearly nearly three times as much as Duke’s president.  The idea that these salaries are commensurate with other "highly paid and highly recruited faculty and staff" is highly amusing - unless, of course, Brand was referring to other coaches.

He spends much of the remainder of the letter touting how the $7.8 billion budget for NCAA (yes, with a b) really, really helps the students who are not participating in sports achieve.  I’ll bet that makes those students thankful for the $74,000 of expenses attributable to football players per year and the staggering $158,000 of expenses attributable to men’s basketball players per year.  It’s especially appalling when you consider that the average cost of expenses for a student athlete is $39,000 per year.  I guess that means the lacrosse and wrestling teams cost, what, $5 a person?

You can practically feel the desperation.

Brand wraps up, more or less, with this unbelievable statement:  The ability of the NCAA to influence spending is limited.  So their argument is what, exactly?  That they have created a monster that they can’t control?  That college sports has become Frankenstein?  And for that, they should be rewarded?

Don’t get me wrong.  I love college sports.  I love Duke basketball, back from the days when Jay Bilas, Mark Alarie and Johnny Dawkins played.  I watch college football on television; I was one of those millions of folks who tuned in to watch Ohio State play Michigan.  But you know what?  I watch it for entertainment.  And those millions of other folks who watch?  For entertainment.  At the end of the day, we’re watching a game - a game that makes a whole lot of money for a whole lot of people.  And there’s nothing wrong with that.  I just happen to believe it’s not a tax exempt purpose.

A spokesman for the Committee said lawmakers did not plan to comment yet on the response.

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Following up on my recent post about the NCAA, college sports and tax-exempt status, take a look at  this tidbit in USA Today which reports college coach salaries.

I’ll bet Jim Tressel thinks his approximately $500k advantage over Lloyd Carr is worth it following this weekend’s Ohio State-Michigan game…  Of course, that begs the question, why is Oklahoma’s Bob Stoops picking up nearly $3.5 million per year when his team didn’t even crack the top ten?

It’s more than just curious fans checking out these numbers.  With 119 coaches averaging $950,000 per year - not including perks - you can bet IRS is taking a gander, too.

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Back in February, Madeline authored an interesting post about the tax implications of college football. Not to be outdone at the beginning of football season, DevilGrad followed up on an inquiry by some Congressional officials into the tax-exempt status of college sports. It seems, these days, that as the popularity of college sports grows, so, too, do the questions about the economics.

It seems awfully straightforward, doesn’t it? Kids go to school, some of them play a little ball, they all get an education and life goes on. But recently, a number of practitioners, policymakers and even the IRS have paused to wonder if maybe it’s a little more complicated than that. They have begun to publicly question whether college football, college basketball and other college sports are, in reality, less about education and more about industry. And, perhaps most significantly, that has lead to a question from many that asks if college sports are a multi-million dollar business, why are they exempt from federal taxation? If the only tie-in to education is the shared name of the college on letterhead and athletic marquees, does that count? And should it?

Let’s talk numbers. Penn State reportedly has an athletic department budget in excess of $40 million each year. Sound high? Its rival, Ohio State, has an annual budget for its athletic department which is more than $80 million. Duke University, lauded for its college basketball program, is reported to have an annual athletic budget around $30 million.

While a piece of these budgets may be athlete-scholarship oriented, the “outside costs” are staggering. Particularly of note are the costs of compensating coaches. Recently, LSU paid Michigan State’s Nick Saban more than $6 million over five years, making him one of the highest paid college football coaches – that figure is approximately 17 times more than the average compensation for an LSU professor. He joined more than 50 other college coaches in the millionaire’s club including USC’s Steve Spurrier (football); Florida’s Billy Donovan (basketball); former Texas A&M’s R.C. Slocum (football); Louisville’s Rick Pitino (basketball); Florida State’s Bobby Bowden (football) and of course, Duke’s Mike Krzyzewski (basketball) who is the highest-paid employee at Duke University, with a salary nearly nearly three times as much as Duke’s president. Those numbers do not take into account perks, which can include free housing, luxury transportation and retirement packages, or bonuses which are tied to winning championships. Sometimes, these compensation packages are funded or increased by outside funds, such as booster groups, radio, television and internet contracts and merchandising.

And who pays for it? We do, as taxpayers. Nearly all of the revenue generated by ticket sales, television deals, bowl games and corporate sponsorships flows tax-free to the colleges as part of the school’s tax-exempt status. Total revenues that stream into colleges from ticket sales, booster payments, corporate sponsorships and radio, television and internet sales are thought to top $4 billion each year. Yes, billion, with a b.

The argument for exempting such large sums from taxation is that these programs are still part of the academics at the schools, and provide opportunities for student athletes to succeed. That, of course, begs the question, what is the measure of success?

The NCAA actually allows athletes who score a mere 400 on the SAT (the lowest possible score) to participate in athletic programs provided that their GPAs are appropriate. In some cases, the cost to provide private tutors and academic “assistance” to athletes climbs as high as $100,000 per student athlete, up to ten times the cost of tuition at some schools.

And the result of these efforts? All over the map.  Some schools such as Duke and Penn State graduate more than 80% of their student athletes; in contrast, LSU, Florida International University, Clemson and Weber State are among NCAA schools that graduate less than 50% of their student athletes.  It’s worth noting that many of these schools (such as Ohio State) have their overall program numbers buoyed by graduation rates of student athletes of lesser known programs such as lacrosse and volleyball.  You can check rates of schools by division and by program here.

With all of the emphasis on winning, for many schools, student athletic programs have become less about the business of teaching students and more about making a name for the individual schools. Jim Delany, commissioner of the Big Ten since 1989 even went so far as to tell the Philadelphia Inquirer, “We’re definitely in the entertainment business, and I think we have been for a long time.”

And yet, the IRS is still treating these programs as if they’re in the education business. Stay tuned for more.

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Madeline had previously posted an interesting query about the economics and tax implications of (gulp) college football.  It’s worth another look in light of this recent post by DevilGrad on a similar issue.  There’s even more analysis here.

The real question at issue is "Why is a multi-million dollar business, which is not effectively related to a charitable purpose, exempt from federal taxation?"

Okay, an argument can be made that football is related to a charitable purpose…  You can claim that the revenue from football (and other college sports) is used to provide an education for its athletes.  Additionally, the NCAA boosts its owns claims to tax-exempt status by claiming that "95 percent of its money is returned to individual athletic programs in the form of payments and services. That helps fund the entire athletic department, including its lower-profile sports."  Athetics is, no question, a huge part of the collegiate experience - even at an all-women’s college with a low profile athletic program like mine.  But what if it becomes bigger than the college itself?

The NCAA is, according to many reports, not worried about the inquiries into its status.  The IRS makes that decision.  And, the IRS Commissioner is not a grad of Notre Dame, Duke, UNC, PSU or other sports power-house.  Mark Everson counts Yale and NYU as his alma maters.  So, relying on sentiment about college sports (allegedly one of the NCAA’s aces in the hole) is not enough…

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The madness of March just got a little… madder?

In an article from the Chronicle of Higher Education, it was reported that an inquiry has been launched in Congress as to a number of potential tax abuses.

We all know that college sports are money-makers.  The amount of revenue generated by ticket sales, merchandising, broadcast rights and donor contributions is staggering.  And, oh yeah, colleges and universities are treated as tax-exempt organizations.  Soooo…. what happens to the money?  It’s tax free to the university, of course.

A committee is now investigating whether this cash should, in fact, be taxed as "unrelated trade or business income".   In fact (gasp), Congress believes that college sports may actually be vehicles for entertainment and only slightly related to education.  Say it ain’t so! 

The committee is also investigating compensation of coaches and directors for college sports - something near and dear to the hearts of many these days.  And finally, the committee is also asking questions about alumni donations for prime viewing locations - sky boxes and courtside seating.

This isn’t news to most of us who are college sports fans (Go Duke!).  College sports has long been evolving into a money-making operation with all of the potential for abuse.  Look at the football scandals (thanks, Ohio State) and now basketball scandals (um, thanks again, Ohio State) that have made recent headlines.  There is no question that college sports equals money.  The bigger question is whether college sports should equal tax-exempt money.  Is it just a mask for professional sports after all?

We’ve commented before on the blog about sports and taxes, check out Madeline’s post about scholarships.  As our resident sports enthusiast (a.k.a nut), we hope she’ll have more to say about this matter.

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