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 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 who wonder 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 of 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 that 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.
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.