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April 30, 2009 - Major college sports spending up nearly 11% annually

The USA Today and Chronicle of Higher Education reported on a recently released study from the NCAA which states that major college athletic programs (in the Football Bowl Subdivision) increased their expenses 10.7% more per year between 2004 and 2007, from $31 million in 2004 to $42.2 million in 2007.  The spending was more than twice than the 4.9% annual rise in universities' overall spending over the same period.  During that same period of time, athletic revenues grew from $27 million to $37 million.  Furthermore, the study found that at colleges with budgets of $2 billion or more, athletics accounted for about 3% of all expenses; for colleges with budgets less than $1 billion, athletics accounted for 5% to 15% of total budgets.

"It's unsustainable. Those trends cannot continue," said Peter Likins, former University of Arizona President and former member of the Knight Commission on Intercollegiate Athletics, who headed a high-level NCAA panel that looked into financial and other athletic issues four years ago. "The real important question for people to ask — for alumni, for taxpayers and tuition-payers — is: Where is the (additional) money coming from? If it's coming from the university while that university is firing people and reducing programs and diminishing services to the students it's intended to serve, that is worthy of protest."

The study estimated the potential athletic success from spending more money in football and basketball.  On average, an extra $1 million spent on football increases winning percentage by 1.8 percentage points and the chances of a top 25 finish in the Associated Press media poll by 5 percentage points. Notably, a top 25 finish returns on average  $3 million more in revenues prior to expenses to compete in a bowl game.

In basketball, the study found no connection between coaches' salaries and winning.  The study found that "the only category of spending that has a statistically significant effect on performance is 'team expenditures'  — recruiting, equipment and other "game-day expenses."

"There's a lot of pressure on university presidents to hire an expensive coach," said the report's co-author, Jonathan Orszag, an economist who once served on President Clinton's National Economic Council and as assistant to the Secretary of Commerce, "but the evidence suggests that spending more on coaches does not bring the benefit to the university that they expect."