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Friday, January 24, 2014

How does college sports make money?

Many individuals believe college sports is about making money. The reality is quite the opposite. The question, "How Does College Sports Make Money?" needs to be answered at the highest level with the NCAA organization and at the next level with the colleges and universities.

The NCAA's responsibilities

Merchandising involves partenerships with clothing firms
Championship ticket prices build revenue
First, it should be noted the NCAA operates as a non-profit organization. Their main responsibility is to oversee the rules and regulations imposed on schools for all sports.

Their other duties include public promotion of collegiate sports and finally, they negotiate national television contracts with the media for NCAA tournament events such as "March Madness," the "College World Series" and the "BCS Bowl Series." The only other source of revenues would be member dues.

They are responsible for collecting the television contract revenues, but 96% of the proceeds are distributed to member schools and the other 4% is along with the dues are used for administrative and tournament costs.

How are funds distributed to the member schools?

A portion of the revenues are distributed to all member schools as reimbursements based on specific criteria. The criteria used includes each school's number of student athletes and the number of sports in which each school participates. Those are considered direct cost reimbursements for things like academic enhancement, conference grants, grants-in-aid, sports sponsorships and a student assistance fund. The rest of the revenue is distributed based on participation in the specific championship tournaments under contract.

How do schools make money?

The short answer is that all schools create some revenues from sports, but only a very small percentage of the NCAA member schools make an actual profit. So, "how do schools make revenues?" is a more meaningful question. Most colleges and universities earn revenues from four primary resources.

1. Ticket and merchandise sales
2. Distributions from the NCAA
3. Local media contracts and sponsorships
4. Booster donations

Ticket and merchandise sales

These revenues are created from ticket sales made to students and the general public for regular season games for most sports. The merchandising revenue comes largely from licensing agreements with apparel and product manufacturers.

Distributions from the NCAA

The direct cost funds are distributed as mentioned above. The participation funds are determined by the number of games a school plays in the specific tournaments under contract. For example, any team that plays in the 64 team March Madness Tournament (basketball) earns a specific amount for each game it plays and a bonus for making it to the championship game.

Local media contracts and sponsorships

Most colleges and universities have a substantial community following large enough to justify radio and/or television coverage for some or all of the games in the more popular sports such as football, hockey, basketball and baseball. Also, some schools receive sponsorship monies from local businesses or entertainment facilities.

Booster donations

Many schools receive annual donations for alumni. This resource is highly regulated by NCAA rules. The donations are to be directed towards equipment and facilities, not for the direct benefit of the student athletes.

With are these revenues flowing into the athletic departments, why did only 14 out of over 1,100 member schools show a profit in 2010? While a division I basketball or football program may generate huge revenues, those funds go to support the entire athletic program. They pay for the existence of swimming teams, tennis teams and other less popular sports that generate little or no revenues. These revenues also pay for all scholarships, sports facilities, equipment and administrative costs. In the end, most college sports programs usually don't make money contrary to public perception.

About the author: Lesley writes on her own blog, Allpro Sports, about sports as well as being a paid writter on many sports websites.

Image license: terren in Virginia, CC BY 2.0

1 comment:

  1. In some schools they make their students to pay for sport. I am afraid that it can become the reason why students don`t want to go in for sports. Maybe they forgot that these athletes are just children whose right and duty to study and they have to be busy with writing their coursework (click for dissertations for psychology help ) but not trying to find money for sport. I will not be surprised if students will strike to defend their rights. It is clear that they try to get some extra money but I is not the best thing to steal them from children.