Nov 18, 2016 BACK
Volume VI, #24
As a Canadian, I’ve always been jealous of America and its super-cool cast of founding fathers – a unique constellation of political geniuses who inspire patriotism, gratitude, devotion, and now groundbreaking Broadway rap musicals. It’s hard to imagine a musical about Canada’s founding father. Canada’s first Prime Minister and the Father of Confederation, Sir John A. MacDonald, was an alcoholic and equal opportunity racist. He supported slavery and the Confederacy (hence the term “confederation”), implemented a policy of forced starvation to clear First Nations from the Canadian prairies, and said that taking the vote away from the Chinese was his “greatest achievement.” The only thing he inspires is nausea (but perhaps a nicer, Canadian form).
While there’s no Canadian university named after Sir John, America’s founding fathers have provided plentiful naming opportunities for its colleges and universities. There’s George Washington University, Washington University, Washington and Lee, Washington and Jefferson, Monroe College. There’s also James Madison University, which is currently in the news for a surprising reason: football.
At last month’s meeting of the Knight Commission on Intercollegiate Athletics, James Madison University’s athletic director made two statements that, combined, surely had the institution’s brilliant and logical namesake rolling in his grave. First, that $34M of the university’s $47M athletics budget is funded by student fees. And second, that the University – fresh off the $62M renovation of its football stadium – is currently deciding whether it should “move up” to the Football Bowl Subdivision (FBS) of Division I athletics.
While it’s now generally understood that only 10% (23/228) of NCAA Division I universities generate enough revenue from their athletic programs to cover their expenses, this number is misleading as 16 of those 23 programs only broke even as a result of alumni contributions directed to athletic programs (some of which, presumably, would have found their way to alma mater independent of sports). So only 3% (7/228) truly break even on an operating basis. The rest are funded in part or virtually in whole by state subsidies, or – more commonly – student tuition and fees. According to Robert Kelchen, Assistant Professor at Seton Hall, since 1999, mandatory student fees have risen 30% more than tuition at public four-year schools. Last year, the average mandatory fee was $1,700.
Division I schools with football spend over $90k per athlete on sports – seven times average spending per student. While universities claim much of this spending is for additional student aid, that’s inaccurate. 84% is on athletic staff salaries, game expenses and – increasingly – pro-level facilities to attract top recruits. Division I college sports lose money and result in higher student tuition and fees.
It’s clear what James Madison University is aiming for. The target is 671 miles southwest in Tuscaloosa, Alabama, where the University of Alabama has used its three national football titles in the past seven years to fuel, in the words of the New York Times, “a powerful engine for the university’s economic and academic growth.” In the last decade, Alabama has increased enrollment by more than 55%, with more than half from out of state. Alabama’s Honors College has grown by 250%. And Alabama has become more selective, reducing its acceptance rate from 72% to 54%. During the same period, the University has raised more than $1.7 billion and invested in new facilities, as well as in the engine itself: the athletic budget has swelled from $37M to $153M.
Although it’s difficult to verify whether the quality of Alabama’s academic programs has improved (as Dr. Allen Sack, professor emeritus at the University of New Haven and a member of the Drake Group, which pushes for educational improvements in college athletics, asks “Where is that money going? How much of it is going into laboratories and academics? Nobody really knows those answers.”) Alabama’s enrollment increase demonstrates an obvious marketing benefit. As a result, universities like James Madison are attempting to emulate the Alabama model. It’s yet another example of pernicious isomorphism in higher education. Just as every school models its academic program on the Ivy League elite, every school is now attempting to model its athletic program on Alabama.
The problem is that there’s a clear pecking order in college sports. There’s the so-called “Power Five” conferences (Southeastern, Big Ten, Pac-12, Big 12 and Atlantic Coast), comprising 65 universities (50 public and 15 private), and then there’s everyone else. The 23 schools with athletic programs that breakeven? They’re all Power Five schools. Which leaves 42 Power Five schools losing money, even including directed alumni gifts.
This was clear in a recent USA Today analysis which added back revenue paid to universities for facilities use or scholarships to athletic budgets and recalculated whether sports programs were self-sufficient on this basis. Looking at college sports this way, all 50 public institutions in Power Five conferences were cash positive. Beyond the Power Five, only three Division I and two Division II or III schools had sustainable programs.
Bottom quartile FBS schools fund their athletic budgets as follows: 33% from student fees; 29% from direct university (i.e., tuition) or state funding; 9% from alumni contributions; and only 29% from ticket sales, television and other actual athletic program revenue. If these institutions’ athletic programs were businesses, they would have folded long ago.
So beyond the Power Five, big time college sports must feel like a Ponzi scheme. Universities pay and pay and pay, but because they’re late to the party, they never see any payback. So while everyone wants to be Alabama, just because you want something doesn't mean you blindly invest millions of dollars to pursue it. I mean, I would like my book – College Disrupted: The Great Unbundling of Higher Education, available NOW on Amazon in hardcover for only $22.47 – to be #1 on the New York Times Best Sellers list. But that doesn't mean I spend millions of dollars buying up copies. (Although I must admit it would be more tempting if I could spend millions of dollars from student tuition and fees.)
Back in Virginia, the legislature recently passed a law that limits the funding of athletic programs from student tuition and fees. Virginia schools in Power Five conferences can’t take more than 20%. For other universities, like James Madison, the limit is 70%, although institutions don’t have to reach this target until 2021.
If a 70% subsidy sounds ridiculous, it’s rivaled by the direct state funding of athletic programs at non-Power Five schools like Wyoming and Utah. Wyoming lawmakers approved $4M in taxpayer funds for the University of Wyoming athletics department. Then one week later Utah’s legislature approved $1.5M for Utah State (Wyoming’s competitor in the Mountain West conference). It’s an athletic arms race, or – more plainly – a marketing arms race. Regardless, it looks awful. Last spring, the University of Idaho announced it could no longer afford to compete in FBS and moved down a level. At last month’s Knight Commission meeting, Penn State’s Athletics Director and Tulane’s President called the status quo “unsustainable.”
James Madison was the Father of the Constitution and the Bill of Rights. Although Americans have no right to avoid bad decisions, the famously taciturn Madison understood there are things worth taking seriously. And if higher education isn’t one of those things, we’ve truly lost our way. The “more perfect union” envisioned by founding father James Madison would be a little less imperfect if we stopped spending student dollars on public entertainment and institutional marketing.
University Ventures (UV) is the premier investment firm focused exclusively on the global higher education sector. UV pursues a differentiated strategy of 'innovation from within'. By partnering with top-tier universities and colleges, and then strategically directing private capital to develop programs of exceptional quality that address major economic and social needs, UV is setting new standards for student outcomes and advancing the development of the next generation of colleges and universities on a global scale.