Fiscal Reform and Accountability Needed for College Sports

Fiscal Reform and Accountability Within the Nonprofit Sector:
An Analysis of the Commercialization of Amateur Athletics
By
Ed Eckhardt III
Master’s Thesis/Capstone Project
Submitted in partial fulfillment of the
Requirements for the degree of
Master of Sports Administration
June 2008

Abstract
Collegiate athletics, considered the highest level of amateur level competition, continue
to endure an upward trend of financial success and immense popularity. At the forefront of this
stabilized industry are numerous National Collegiate Athletic Association (NCAA) football and
men’s basketball programs that compete at the elite (Division I) level.
Exposure is the engine driving both the success and the debate as to whether college
athletic departments operate as profit-driven professional sports franchises despite the
classification status and educational qualification of a nonprofit entity. Television contracts
between major Division I conferences and national media companies have surpassed similar
broadcast revenues in the four major professional sports leagues including Major League
Baseball, National Basketball Association, National Football League and the National Hockey
League. Additionally, compensation packages of varsity football and basketball coaches are
three to four times higher than earnings of university chancellors. These factors contribute to the
notion that the immense commercialization of “big-time” college athletics has overtaken the
importance and value of important fundamental educational experiences.
There is currently a severe lack of fiscal responsibility of external revenue sources that
are paid to Division I athletic departments, and the financial success of college sports has blurred
the concept of whether or not athletics is an integral part of the overall purpose and goals of
educational institutions. After extensive research on the business and financial models that are in
place at the non-professional collegiate level it was decided that this topic is of credible and
continued analysis, investigation and summation.
After examining the current financial and legal structure of the nonprofit NCAA and its
900-plus member institutions, it is evident that the current methods of athletic department
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operations have severely jeopardized the primary educational missions at public and private
universities nationwide. As a result of financial-led undertakings the gulf between academics
and athletics has reached a record-setting level. Additional research and relative interviews with
high-ranking sports industry executives has led to the conclusion that: Intercollegiate athletics
have positioned itself as an isolated entity from academic matters and has separated
extracurricular sports from the core-educational missions of the American university.
Without administrative restructuring within individual universities their athletic
departments will continue to operate under untaxed budget surpluses, exploit student-athletes,
pay coaches multi-million dollar salaries, further distance themselves from educational missions
and cast doubt over specific nonprofit legislation and tax laws.
The commercialization of amateur athletics needs immediate reform and athletic
programs need to be aligned more with educational priorities at colleges and universities. Lack
of reform will cause athletic departments to become individual private sector businesses with no
regard to education. Higher education and academic integrity will no longer be a valuable
component of this model. The current tax exemption model within the nonprofit sector needs
similar reform. Liberal nonprofit tax laws have enabled the education industry to avoid paying
the Federal government income tax on revenue from endowments, donations, charitable
contributions and corporate sponsorships. Lawmakers must pass legislation that holds large
nonprofit organizations like the NCAA more directly accountable for their exempt purposes.
Failure to do so will enable the nonprofit sector to operate without fiscal control and will
continue to amass untaxed and unrecorded profits without reporting important financial data to
the Federal government and Internal Revenue Service.
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Table of Contents
Introduction 4
Statement of Problem/Research Question 6
Justification 7
Supporting Literature 9
Summation of literature of a congressional committee inquiry of the NCAA
Summation of literary resources on the commercialization of college athletics
Analysis, Interpretation, and Findings 21
Description and Analysis of contributing factors
Compensation study of varsity coaches
Compensation study of university presidents
Employment contract analysis of criteria including athletic and educational-based incentives
Research Content and Relative Subject Matter
Summary of Interview with Dr. James Duderstadt
Financial Influence of Donors, Boosters and External Sources
Tax Law and Unrelated Business Income Issues within Nonprofit Organizations
Successful Models of Commercialized Reform Currently In Operation Domestically and Internationally
Conclusion and Implications 53
References 55
Appendices 58
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Introduction
"The simplest way to characterize the problem with college sports is to recognize that it is a very
profitable commercial entertainment business that is moving farther and farther away from its
original academic purposes of the university."
--James Duderstadt, former president, University of Michigan
As quoted in the November 1, 2006 edition of the Wall Street Journal
Ironically, the NCAA has evolved into a tremendously profitable nonprofit organization.
The largest source of revenue (85%) is paid via a multi-year contract with CBS for the rights to
televise the NCAA Men’s Basketball Tournament, totaling about $545 million annually. As a
result of the NCAA’s financial dominance, mainly due to its tax-exempt status, elected officials
have recently approached the NCAA with a barrage of questions, and several factors led to a
landmark Congressional inquiry in late 2006. The main purpose of the investigative inquiry
focused on the oversight of the tax-exempt sector and relative activities that further a sector’s
tax-exempt purposes. In this particular case the investigative approach focused on the tax-
exemption status of intercollegiate athletics, mainly large revenue produced by men’s football
and basketball programs.
Charitable groups, including educational organizations, have also received an increased
amount of investigative taxation inquiries from Congress in recent years. Many extracurricular
programs offered by educational institutions including theatre, drama and sports help to
strengthen the tax-exempt status of a university. Intercollegiate athletics, despite providing vital
revenue sources for institutions, have been under intense scrutiny for maintaining tax-exempt
status.
In all, major college athletic programs add significantly to the bottom line of a university
in a variety of ways. Examples include game day revenue from parking, concessions,
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merchandise, ticket sales, corporate sponsorship agreements, the lease of luxury suites inside
football and basketball facilities and uncapped monetary donations from alumni and boosters.
More often than not these untaxed revenue streams have no connection to academics and do not
directly correlate or associate with any educational missions that justify a universities nonprofit
status. Although lesser-known non-athletic programs may also impact the financial status of
higher learning institutions, intercollegiate athletics have evolved into independently operated,
well-structured and highly profitable enterprises.
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Statement of the Problem/Relative Research Questions
The increasing commercialization of highly visible and popular collegiate athletic
programs has generated record-setting net revenues for a substantial number of athletic
departments at public and private universities. This thesis will present factual evidence and
applicable research that there is a lack of fiscal accountability and control in place aimed at
curbing multi-million dollar profits that NCAA and Division I athletic departments generate
annually that are infrequently applied and used for academic purposes. A significant portion of
this thesis will argue that any prolonged absence of institutional control by university presidents,
chancellors, athletic directors and qualified faculty members will enable college athletics to
severely erode integral priorities, values and importance of American higher education.
Additionally, the current tax-exempt status of the nonprofit NCAA will be questioned in an
attempt to fully justify whether or not intercollegiate athletics are considered to be an integral
component of the educational missions at public and private universities. Similar and relative
questions of importance and research findings will also focus on the status of amateur athletics
and argue that there is too similar of relationship that exists between the NCAA and professional
sport franchises.
All arguments in this thesis will help to confirm the belief that Congressional action and
legislative changes need to be enforced in order to: distance the relationship between college
athletics and professional sports franchises and ensure that athletic departments do not assist in
the justification of the nonprofit tax exemption status that institutions of higher learning receive.
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Justification
In October 2006 the U.S. House of Representatives Committee on Ways and Means, the
organization that oversees tax issue legislation within the nonprofit sector, sent a letter signed by
Chairman William Thomas to NCAA President Dr. Myles Brand. The sole request of the
committee’s letter was to evaluate whether or not intercollegiate sports plays a significant role in
determining the overall tax-exempt purpose of the NCAA as well as its member institutions. In
the beginning of his letter Chairman Thomas reminded Dr. Brand of the committee’s
involvement and commitment in regards to regulating mega-sized industries within the tax-
exempt sector. The 25-page letter also stated that educational institutions account for one of the
largest untaxed nonprofit entities within the nonprofit sector. The committee’s letter also
involved in-depth questioning of the NCAA’s tax-exempt status, including questions about the
NCAA’s core educational mission and questions relative to NCAA finances.
In a return letter signed by Brand in November of 2006 the NCAA responded to each of
the 25 questions originally asked by the Committee on Ways and Means. Although no
congressional action or tax law reform has occurred since the NCAA’s response, a historic
milestone appears to have been reached with the beginning discussions involving significant
reform of amateur athletics.
A few national reform groups have attempted to curb the excessive commercialism
within the NCAA. The most prominent and popular of these groups is the Knight Commission
on Intercollegiate Athletics. The Knight Commission’s mission statement, as stated on its
website, was formed in 1989 to, “…recommend a reform agenda that emphasized academic
values in an arena where commercialization of college sports often overshadowed the underlying
goals of higher education.”
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In regards to the congressional questioning of the NCAA in 2006 Amy Perko, the
executive director of the Knight Commission explained via email in early 2008 that, “…although
there has not been any action on the NCAA’s response, many experts still believe this is an area
of vulnerability for the NCAA.”
As the governing body of intercollegiate sports, the NCAA has become one of the most
successful and controversial entities within the tax-exempt sector in American history. The
common notion that the NCAA operates in a similar fashion to that of a cartel has made this
topic worthy of further analysis and investigative research. This thesis will also expand on
several of the more pertinent finance-based responses that the NCAA provided to the U.S. House
of Representatives. Additionally, this research will develop a positive correlation between the
current lack of widespread fiscal control found within Division I intercollegiate sports and the
ever-growing long distance relationship between academic missions and athletic priorities that
have plagued the fundamental values and ethics at American universities.
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Supporting Literature
Since late 2006 members of Congress, university administrators and NCAA executives
have engaged in progressive conversations regarding initiating reform within intercollegiate
athletics. This contingent of highly educated professionals and elected government officials has
put a key question at the forefront of those involved with reshaping the future of college sports:
are lucrative and highly profitable athletic-based endeavors at all relative to the overall missions
and goals of educational institutions?
Many scholars in higher education and professionals within the sports industry agree that
the excessive commercialism that is prevalent in college sports is in need of constraint and fiscal
control. However, it is important to note that this is not a new problem. Nor will immediate
directives of change from Capitol Hill be initiated as quickly as the pro-reform groups would
prefer. There have been numerous attempts by similar groups within the past quarter century
aimed at curbing the fiscal, and often times controversial, environments that athletic departments
create directly or indirectly. The efforts of these pro-reform groups will be discussed later in this
thesis.
Many of the responses that Dr. Brand provided Chairman Thomas and the Committee on
Ways and Means in November of 2006 provide valuable insight on the NCAA’s views regarding
jeopardizing academic integrity for athletic business opportunities and whether or not athletic
departments are truly helping educational organizations justify their exempt purposes. The
original Committee on Ways and Means letter included 25 question devoted to the NCAA’s
educational mission and finances. Not all answers that the NCAA provided will be examined in
this thesis, as some are unrelated to the commercialization of college athletics. However, this
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thesis will detail several of the questions that were asked of the NCAA and will cite expert
opinions and recently published literature devoted to change and reform.
A question to the NCAA regarding educational missions asked, “How does the NCAA
accomplish its purpose of maintaining the athlete as an integral part of the student body?”
(Thomas, page 3). Brand’s response alluded to the fact that athletics provides a source of
“enrichment” as part of the overall college education experience. However, Brand did not
expand on how varsity sports participation provides academic enrichment or improves the
educational experiences. Brand stated, “…participation in varsity athletic programs is another
key way in which young men and women enrich their educational experience beyond the
classroom. What they learn on the playing field or court is integral to their educational
experience as well…” (Brand, page 4).
When asked what actions the NCAA has approved in order to ‘retain a clear line of
demarcation’ between college and professional sports, Brand claimed that the distinction
between both levels of competition is clear. He replied, “…professional sports’ sole purposes
are to entertain the public and make a profit for team owners. The purpose of the collegiate
model is to enhance the educational development of student-athletes…those who participate in
college sports are students and are not employed to play sports…” (Brand, page 5). Brand
further attempted to distinguish the two by stating, “They (college sports) are demarcated by
their purpose and motivation rather than their scale of public or media fiscal support.” (Brand,
page 5).
The NCAA was questioned, from the standpoint of a Federal taxpayer, about specific
benefits that the NCAA provides to taxpayers in exchange for its exempt status. Brand replied,
“Those who represent the federal taxpayer, Members of Congress, have long recognized the
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educational value of athletics competition at the college or university level, and that income
derived from intercollegiate athletics competition is substantially related to the educational
functions of colleges and universities.” (Brand, page 7). Brand did not include or expand on
specific educational functions that have benefited from athletic revenue and offered little validity
that the relationship between athletics and academics is healthy. There is no credibility in
Brand’s response that revenue is “substantially related” to academics and he offered no evidence.
Brand may have satisfied this question more accurately had he focused only on the relationship
between athletic activities and an institution’s academic priorities and not the incoming profits.
The second portion of this question directed at the NCAA focused on the monitoring of
incoming revenue from external sources. The letter asks the NCAA, “Why should the Federal
government subsidize the athletic activities of educational institutions when that subsidy is being
used to help pay for escalating coaches’ salaries, costly chartered travel, and state-of-the-art
athletic facilities?”
Brand’s response to coaching salaries, as further research will demonstrate, is focused
primarily on base salaries and not additional compensation from performance bonuses and
external sources. Brand’s response to Congress regarding coaching compensation was, “…
compensation packages, especially those with seven-figure packages, include institutional
salaries commensurate with other highly paid and highly recruited faculty and staff. The salaries
are negotiated at arm’s length and are within the range of reasonable compensation as defined for
federal tax purposes...” (Brand, page 8).
Another question from the congressional committee involving tax exemption was
presented to the NCAA based on the notion that revenue from athletics is frequently applied to
non-athletic programs. Once again the common denominator is that the tax-exempt status only
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applies if the activity can be translated to an overall accomplishment of the educational purpose
or mission. The committee asked, “How does playing major college football or men’s basketball
in a highly commercialized, profit-seeking, entertainment environment further the educational
purpose of your member institutions?” (Thomas, page 8).
Though Myles Brand’s responded thoroughly, his response requires further elaboration of
the actual appropriation of funds that athletics produces and how much athletic money is given to
non-athletic causes. Consider Brand’s response, “…the modern comprehensive university and,
indeed, American higher education would not exist without the ability of some disciplines and
activities to generate income that helps pay for other disciplines and activities…higher education
takes in revenue from all its sources and then redistributes those resources to meet its mission.”
(Brand, page 8). Brand’s reply did not provide specific examples as to how these funds are
allocated or if in fact athletic revenue has been used to fund academic purposes. Brand ended the
question by stating, “The fundamental purpose of intercollegiate athletics is the education of
student-athletes in both the classroom and on the field or court.” Further thesis research will
prove that this is not entirely true.
The second portion of the congressional committee’s letter to the NCAA asks questions
relative to athletic related finances of the NCAA. Not all questions will be referenced in
following paragraphs, but supporting research will provide additional insight in the later portions
of this thesis. The financial questions excel at highlighting the major revenue sources and
systemic problems that have pulled the weight of big-time athletics away from the educational
missions and purposes of higher education.
One question includes specific cost data, including the $545 million payment that CBS
pays annually to the NCAA for the exclusive rights to televise every game during the month-
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long men’s basketball tournament and the fact that television revenue accounts for 85 percent of
all incoming NCAA revenue. The NCAA was asked, “How does the transformation of the
NCAA men’s basketball championship into commercialized entertainment further the
educational purpose of the NCAA and its member institutions?” (Thomas, page 21).
Brand’s reply was somewhat hypothetical. Using education as his pillar Brand indicated
that if the American television audience had interest in watching French lectures or accounting
classes like they do athletics, television would be “just as eager” to broadcast these events.
Brand said, “Transforming those academic offerings into commercialized events would not
undermine the educational purpose for which the offerings are made,” (Brand, page 21). Brand’s
statement is accurate that a commercialized French lecture would in fact not undermine the
educational purpose of a university. However, the argument against Brand’s reply is that there is
not a strong level of consumer demand to attend these events on college campuses nor is there
any applicable amount of consumer demand to view these lectures on public access channels,
broadcast or cable television. The complete opposite is prevalent in athletics as proof of the
lucrative television contracts the NCAA has secured with CBS, Fox Sports and ESPN. Brand’s
answer supports this as he stated, “The fact that television networks are interested in purchasing
the rights to telecast college events is the result of the popularity of those events to American
taxpayers.” Brand’s stance is strongly unrealistic that lectures will become successfully
commercialized events.
Another question from Chairman Thomas expands on further investigation into the
immense and uncontrolled amount of money that is funded by television. At question is the
$100 million that the NCAA funnels each year to Division I institutions from its well-labeled
“Basketball Fund.” According to the NCAA’s official website (ncaa.org) the basketball fund,
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“provides for money to be distributed to Division I conferences based on their performance in
the Division I Men's Basketball Championship over a six-year rolling period…independent
institutions receive a full unit share based on its tournament participation over the same rolling
six-year period.” The basketball fund payments are then distributed annually to each
conference’s corporate office and to all member institutions within each conference.
Congress asked the NCAA two significant questions pertaining to revenue. The first
pertained to the ignored efforts of rewarding scholastic achievement. “Why does the NCAA
distribute more than $100 million each year based on athletic rather than academic
performance?” (Thomas, page 22). Dr. Brand replied, “More than three-quarters of a billion
dollars will be distributed over the term of the CBS contract for direct support, including
academic support, of student-athletes.” (Brand, page 22). The second question asked what
percentage of NCAA revenue is spent (by universities) solely on academic matters. Dr. Brand
simply answered, “We do not collect data on expenditures for academic support by member
schools in sufficient detail to respond to this question.” (Brand, page 22). The missing data is
critical for future analysis of revenue allocation as it is distributed to academic support.
Other questions in the committee’s letter probe some of the most significant, albeit
controversial, financial problems found within intercollegiate sports as they relate to the core
values of education. One by one the NCAA was asked in detail to articulate and provide insight
on the current status of the record levels of coaches’ compensation, the tax deductible benefits of
charitable contributions to athletic departments and the tax exemption that major corporate
sponsors receive for payments they make to the nonprofit NCAA.
The answers that the NCAA provided in its response are brief and offer little insight as to
the impact on overall educational values and integrity. As a result the three main issues
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mentioned above will continue to be cross-examined and further scrutinized. However, it is
important to first review the NCAA’s responses to these anchor problems of intercollegiate
athletics commercialization.
The letter from Congress states that more than 35 college coaches earn at least one
million dollars per year. These salaries, found primarily in football and men’s basketball, also
serve as one of largest expenses within an individual athletic department. The NCAA was asked
to justify the excessive compensation and if the priorities of educational institutions are in order.
Brand’s answer included, “Compensation packages are negotiated at arm’s length in a very
competitive environment and should not be considered “excessive compensation” under tax law
principles…” (Brand, page 23). Brand also attempted to justify that academic compensation is
treated in similar ways and that tenured faculty also receive income from external sources. “…
this approach parallels the way in which many of the top faculty at these same institutions are
compensated…” Brand did not provide specific dollar amounts or examples of external pay to
fulltime faculty members. Following thesis research will indicate the compensatory imbalance,
both internally and externally, between athletic coaches and top faculty. Consider Dr. Brand’s
closing remarks regarding coaches compensation, “…none of these salaries are quantified by the
educational benefit they bring, but rather by the competitive market from which they are hired.”
(Brand, page 23).
Data taken from coaches’ contracts will show that many varsity football and basketball
coaches are paid relatively modest six-figure base salaries but have reported earned incomes of
well over $1 million. The controversy of where and how the remaining pay is derived from has
raised the attention of reformists. Many are lobbying for stricter remuneration accountability
from various external sources.
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When asked what actions the NCAA has taken to encourage its member schools to limit
excessive compensation of coaches, Brand replied, “…we have urged moderation in the growth
rate of athletics budgets. However, the NCAA’s ability to influence them is limited. One court
found a cap on the compensation of assistant coaches to violate the antitrust laws.” (Brand, page
24).
As previously stated, external funding of intercollegiate athletics is unregulated and has
spiraled out of control. Ironically, the income supplements that have raised eyebrows are
actually furnished by tax-deductible donations. Money given to an athletic department is
considered a charitable donation to the educational institution, and, a donor can legally deduct 80
percent of the contribution amount on their income or business tax return. However, charitable
gift giving tax breaks benefit the individual and not the academic institutions or educational
missions of an institution. Individual athletic departments are simply receiving external revenue
in different payment arrangements and providing wealthy donors and booster club members easy
tax write-offs.
When the committee asked the NCAA about specific donation totals in 2005, including
the right to purchase season tickets, the NCAA’s response was, “The total donations and
contributions to Division I athletics departments for 2004-05 were approximately $845 million.”
(Thomas, page 24). Factor in the 80 percent charitable deduction for donors and that figure is an
astounding $676 million in tax write-offs. There is no evidence, based on the NCAA’s response,
that any portion of these funds were applied towards academically based programs or initiatives.
There is a severe lack of fiscal accountability of incoming revenue that is paid directly to athletic
departments.
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The last significant question asked by Chairman Thomas involves the revenue impact of
NCAA corporate sponsorships. While the focus has been on the lucrative television dollars,
what needs further insight and clarification is the tax-exempt status that corporations benefit
from when making financial contributions to nonprofit organizations. When asked how much
annual corporate sponsorships generate for NCAA member institutions the NCAA stated that,
“Corporate sponsorships generate approximately $275 million in annual athletics revenues.”
(Brand, page 25). The key word in this response is “athletics.” Brand made no mention of
education or money from corporate partnerships that directly benefit the educational purpose at
colleges or universities.
The Wall Street Journal interviewed Brand after he and the NCAA received the letter
from Chairman Thomas. Brand’s bold response to the congressional letter indicates that major
revenue generating athletic programs may continue to deteriorate the academic and educational
missions of institutions of higher learning. “The real issue that the letter brings us is whether
there should be a new statute passed by Congress that takes football and basketball and makes
them for-profit," he said. "I don't see in the near future that will be a serious issue.” (Rozin
2006). Brand may be correct in assuming this not to be a serious issue in the future but Brand
never gave insight on the status of academic priorities in the event football and basketball
programs convert to for-profit status. This, not new legislation, is the real future issue.
These factors, as this thesis will prove, have fueled the separation between athletics and
academics and have left university board members and top-tier administrators grappling with
which sector symbolizes the backbone of an institution’s welfare. Change and reform have
never been as vital to the overall well being of college sports as they are today. Several
published books provide a comprehensive litany of the systemic problems of commercialization
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in college athletics. Each of these literary works details the need for radical reform and valid
theories to strengthen the academic and athletic relationship.
In his book Air Ball author John Gerdy (2006) provides insight and analysis regarding
how close the business models of intercollegiate athletics and professional sports franchises have
become. “In short, American higher education has absolutely no business being in the business
of professional athletics” (p. 189). The commercialization of college athletics effect on
education according to Gerdy is, “…eroding academic values and institutional integrity” (p.78).
Gerdy’s relative insight that intercollegiate athletics are professional sports franchises leads him
to believe that a necessary remedy of change is the elimination of athletic scholarships. The
athletic scholarship, or “full ride” according to Gerdy, is simply an employment contract
between a coach and a collegiate athlete. Gerdy’s statement confirms the belief that academics
will return to the forefront of the educational enterprise. “The elimination of the athletic-
scholarship will provide American higher education with the much needed opportunity to
recalibrate every aspect of its relationship with athletics” (p.186).
This concept has strong merit. The signing of a grant-in-aid (all expenses paid)
scholarship enables coaches the full ownership and management power of the students that they
coach. In reality a student becomes part of the athletic department. Due to the contractual
obligations within a scholarship contract educational importance fades away. A coach, not a
student, decides the annual renewal of an athletic scholarship.
Despite college sports becoming a billion-dollar business tarnished by occasional, and at
times serious, cases of corruption and fraud, Gerdy’s underlining message is positive. Gerdy
suggests amateur level athletics still has the potential to remain a viable and successful enterprise
if it is managed and controlled entirely by the university.
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Gerdy’s pro-commercialization reform stance on collegiate sports is rooted by the notion
that change is in the best immediate interests of many to maintain an improved relationship
between athletics and academics. “Upon closer examination, there are many signs suggesting
that we may finally be approaching the tipping point for revolutionary change.” (p. 89). Gerdy
fully realizes that the large magnitude of college athletics (over 900 member schools) is a crucial
link of harmony between sports and society. “To achieve systemic reform of an institution such
as big-time college athletics requires a change in the many external and cultural forces that
influence the enterprise” (p.90).
Andrew Zimbalist, a Smith College economics professor and author of several books
devoted to NCAA reform, conveyed similar thoughts in many of his reports and editorials
involving amateur athletics and the NCAA. His book, The Bottom Line: Observations and
Arguments on the Sports Business (2006) includes his own excerpt from a 1999 Sports Business
Journal article on changing the landscape of college sports. “Any effective reform must begin
with a repudiation of tinkering. The underlying incentive system must be attacked, and real
resources need to be dedicated to its enforcement” (p. 236-237).
In his book Unpaid Professionals: Commercialism and Conflict in Big-Time College
Sports (1999) Zimbalist reflects on society’s love affair with college athletics despite the need
for change and increased support of education-centric agendas. “College sports are too popular
and too ingrained in our culture to re-engineer them from the ground up. Even though the vast
majority of athletic programs run a deficit, college athletics create significant positive
externalities and have powerful support constituencies.” (p. 196).
Murray Sperber, another college professor and popular critic of college athletics,
provides insight on the volatile relationship of priorities between sports and education. Change
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is among the top of Sperber’s list of major next steps for reforming commercialization. In Beer
and Circus: How Big-Time College Sport Is Crippling Undergraduate Education (2000) Sperber
states, “…the one certainty is that current conditions within general undergraduate education and
big-time college sports are so unstable that major changes will happen in the next decade
whether Big-time U’s want them or not.” (p. 262).
College Athletes For Hire (1998) offers further credibility that commercialized reform
must place education as the main purpose for student-athletes to attend college versus strictly
participating in intercollegiate athletics. “For all those who believe that college sport works best
when it is an extracurricular activity, rather than a full-time occupation, amateurism is the best
choice for the twenty-first century.” (Sack & Staurowsky, page 145). Ten years after this literary
work was published, and well into the 21st
century, the momentum of commercialization reform
within intercollegiate athletics has arrived at the right place and at the right time.
The remainder of this thesis will discuss and analyze specific evidence and statistics of a
wealthy industry and will build a formidable case as to why the road connecting unregulated
fiscal accountability to commercialization reform is shorter than it has ever been. The literary
sources in the remainder of this thesis will strongly indicate that academic success and
importance have very little relevance within the intercollegiate sports landscape.
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Analysis, Interpretations, and Findings
The majority of literary sources, databases and articles reviewed for this thesis confirms
the fact that intercollegiate athletic departments operate almost like sports franchises. Equally as
detrimental, as prior thesis research has detailed, is the complete detachment and isolation of
athletics from the core academic foundation of a university.
It is important to note that many athletic departments at the Division I level do not earn a
profit for the university. However, the successful athletic departments that annually churn large
financial surpluses are spearheading the distance between the haves and the have-nots. Many of
these programs are members of the “power conferences” that include the Southeastern
Conference (SEC), Big Ten Conference and the Big Twelve Conference. With a lack of fiscal
control in place these successful conferences continually raise the bar in terms of generating net
revenue from unlimited, uncapped and unregulated sources.
Quite misleading and often overlooked is the fact that only about two dozen or so athletic
departments, primarily from these major conferences, operate in the black. While hundreds of
lesser-known athletic programs struggle financially, the findings and interpretations in this
section will focus heavily on the wealthy athletic departments that have helped pave the path for
commercial reform.
An initial and logical approach is to investigate current trends within the intercollegiate
athletics landscape that suggest evidence of financial imbalance. One main component that has
received sharp criticism in recent years is the escalating compensation and incentive packages
being awarded to head football and men’s basketball coaches. According to a 2006 USA Today
study devoted to coaches pay, “At least 42 of the 119 Division I-A coaches are earning $1
million or more this year, up from five in 1999” (Upton and Wieberg).
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The article reiterated an earlier point of emphasis in this thesis regarding the small
number of power conference schools that are financially self-supporting. “Overall salary
packages are the biggest in college football's six biggest, richest conferences — the Atlantic
Coast Conference, Big East, Big Ten, Big 12, Pacific-10 and SEC. There, excluding bonuses,
USA Today found the average coach's salary is $1.4 million, more than three times the average of
$419,000 in Conference USA, the Mountain West, Western Athletic, Mid-American and Sun
Belt” (Upton and Wieberg).
To further understand the makeup of coaching compensation packages it is necessary to
review the actual terms within an employment contract. The first such compensatory case study
in this thesis will examine that of Mark Richt, the University of Georgia’s head football coach.
Coach Richt, randomly chosen in this analysis, is the fourth highest paid SEC football coach
according to the salary data gathered by USA Today.
Richt’s 27-page employment contract was renewed on January 1, 2006. From the
renewed contract obtained by USA Today Richt is paid an annual salary of $270,000, but Richt’s
overall compensation in 2006 totaled $1.7 million. Critics of big-time college athletics and pro-
reform activists undoubtedly have questioned where the remaining $1.4 million of Richt’s earned
income is generated. The answer, in short, is from sources that have minimal relevance to the
education of the student-athletes and these sources are detailed in the following compensation
analysis.
Richt receives $800,000 annually from radio and television shows, programs and
interviews that focus on the Georgia Bulldog football program. Richt also receives $100,000 for
the sole operation of conducting summer football camps held on campus in Athens, Georgia, and
he receives guaranteed money regardless if the football camp is offered. As Richt’s contract
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clause states, “…compensation for his efforts in furtherance of any such proposed football
camp.” Richt receives $530,000 per year in “equipment endorsement compensation” for the
rights of his entire football program to wear and promote Nike products.
Bonus incentives paid to Richt comprise a large portion of his annual earned income. In
the event the Georgia Bulldogs win the SEC’s Eastern Division Richt receives $25,000 and
$75,000 if Georgia wins the overall SEC Championship. Richt also has the earning potential to
be paid an additional $200,000 if his team finishes the football season ranked fifth or higher.
Winning a national championship would earn Richt an additional $150,000 in bonus pay.
Research indicates that additional compensation and bonus incentives for tenured,
academic faculty ranks significantly lower than athletic department personnel. According to
salary data obtained by the Chronicle of Higher Education, University of Georgia President
Michael Adams earned a base salary of $354,604 during the 2006-07 academic school year.
Adams total compensation was $558,432. The difference between his base pay and his total pay
was from income including deferred compensation, retirement and longevity pay. According to
the data one vehicle and one home residence were also provided by the state of Georgia to
Adams. The real bottom line in this scenario is the payment structure at Georgia indicates a $1
million dollar difference that favors athletic department compensation versus educational
compensation.
Steve Spurrier, South Carolina’s head coach, receives the SEC’s eighth lowest salary.
Spurrier’s base salary is $257,500, and after researching the “other income” portion of Spurrier’s
earnings it is clear that perks, incentives and bonuses are driving salaries to new heights in the
football tradition-rich SEC. Spurrier’s 19-page contract begins with bonus incentives instead of
base pay. Spurrier could pocket $25,000, either by being named “SEC Coach of the Year” by
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the media or from an aggregate total of votes from all of the SEC football coaches. In addition to
his base pay Spurrier may receive so called “annual guaranteed compensation increases”
depending on the on-field success of the Gamecock football program. For example, if Spurrier
guides his team to an eight-win season he would receive a $50,000 bonus. This amount doubles
to $100,000 if the Gamecocks win nine or more games.
Off the football field Spurrier receives $500,000 annually for any type of television, radio
or commercial endorsement and at least $500,000 from the apparel company that provides
uniforms, shoes and equipment to his staff and team. Other perks in his contract include; up to
24 tickets to each post season bowl game that his team plays in, 12 tickets to all SEC road games
that South Carolina plays, the right to use a 16-person executive skybox (and an additional eight
tickets) at all South Carolina home games, two free country club memberships and two leased
vehicles with all maintenance and insurance fees paid in full by the university. Andrew
Sorensen, South Carolina University’s president, earned a base salary of $247,482 from pubic
sources, $305,000 from private sources, one vehicle from the state of South Carolina valued at
$10,000 and one country club membership. His total compensation in 2006-07 was $562,482.
The rise in coaching salaries is currently uncontrollable and emphasis on rewarding
coaches for academic achievement is practically ignored. In 2006 Oklahoma University head
football coach Bob Stoops received nearly $3.4 million in compensation. As seen in prior
compensation records it is the performance bonuses for winning that have enabled football
coaches at state university football factories to receive financial freedom for life. The bonus
structure for Bob Stoops is no different. The following are listed in Stoops contract based on
postseason accolades:
• $60,000 for playing in the Big 12 Conference Championship game
• $80,000 for winning the Big 12 Conference Championship game
• $65,000 if Oklahoma appears in a non-BCS bowl game
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• $100,000 if Oklahoma plays in a BCS bowl game
• $150,000 if Oklahoma plays in the national championship game
• $250,000 if Oklahoma wins the BCS national championship
• $75,000 if Oklahoma is ranked in the top ten after the season
• $50,000 if Oklahoma is ranked in the top 20 after the season
• $30,000 if Stoops is named Big 12 coach of the year
• $60,000 if Stoops is named Associated Press coach of the year
Oklahoma University President David L. Boren earned $412,017 in total compensation in
2006-07. This included a base salary of $361,553, one vehicle from private sources, one home
provided by the state of Oklahoma and a retirement plan worth $50,464. No private funds were
distributed to Boren’s salary according to the Chronicle of Higher Education. For a short time
Stoops was the highest paid football coach until the University of Alabama awarded its football
coach, Nick Saban, a compensation package worth $4 million per year.
It is interesting to note that during this time a second Congressional committee, this time
the Senate Finance Committee, stepped forward and voiced concern involving the record levels
of coaches’ compensation. After Saban’s contract was made public in early 2007 Senator
Charles Grassley (R-Iowa) was quoted in the USA Today as saying, “When I see big salaries for
sports coaches and money for stadium sky boxes while tuition skyrockets, I wonder whether the
university trustees are doing their jobs.” (Wolf 2007). Grassley, while continually taking aim at
high-ranking campus leaders also said, “They need to justify those expenses as part of the public
obligation that comes with tax-exempt status and make sure the colleges are meeting their
priorities. The priorities should be ensuring that a good education is available at a reasonable cost
to every student.” (Wolf 2007). Interestingly, Alabama’s president, Robert E. Witt, earned
$572,620 in total compensation in 2006-07 as stated by the Chronicle of Higher Education.
None of Witt’s income came from private sources.
The staggering amounts of money that have filled the pockets of amateur level football
coaches dwarf the pay of coaches within the National Football League. This supports the debate
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that so called nonprofit college sports programs and professional sports are too closely related.
In his book, The Bottom Line, author Andrew Zimbalist centers on compensation at the college
level. “The Southeastern Conference in college football has the highest average team revenues,
at $26.9 million. The average NFL team has revenues of more than $130 million. How can the
top college coaches be making as much (or nearly so) as the top NFL coaches?” (Zimbalist
2006).
Total compensation of several successful Division I men’s basketball coaches has also
approached record levels in recent years. As is the trend with football pay there is no significant
evidence that suggests excessive basketball pay is trending downward. Like football the top paid
college basketball coaches come from big name power conferences. USA Today obtained similar
compensation records of basketball coaches that participated in the 2006 NCAA Men’s
Basketball Tournament. Although football coaches are earning more than basketball coaches,
many basketball coaches are earning hefty seven-digit salaries. Similar to the football coaching
incentives minimal attention was placed on total team academic performances of head basketball
coaches. Also evident in the following research is the consistent pattern of disparity between
academic compensation of faculty leaders and athletic department pay for certain varsity
coaches.
Thad Motta, Ohio State’s head basketball coach, will have earned nearly $1.3 million in
guaranteed pay between July of 2007 and June of 2008. This compensation includes a base
salary of $375,000, a $450,000 payment for handling media, promotions and public relations
duties and a $450,000 payment for conducting summer basketball camps and promoting Ohio
State’s shoe and apparel sponsorship with Nike. Motta’s bonus package is heavily reliant upon
the success of his program’s play during two postseason basketball tournaments. In the event
27

Ohio State was to win the Big 10 Conference Basketball Tournament and finish the regular
season as conference champions, Motta would receive a $60,000 bonus. If Ohio State were to
qualify as a Final Four team and win a national championship Motta would receive $120,000 in
bonus revenue.
The president of Ohio State University, Karen A. Holbrook, earned $758,700 in total
compensation in 2006-07, according to the Chronicle of Higher Education’s salary data.
Holbrook received a base salary of $380,164 and the remaining amount ($378,536) included
deferred compensation, retirement pay and performance bonuses. Holbrook’s contract did not
itemize specific external or private compensation sources as her contract states, “The Board of
Trustees expects and encourages you to engage in outside activities, such as serving on for-profit
and nonprofit boards of directors, delivering speeches, writing, and consulting services, and to
recognize that such contacts will benefit the university.” (Holbrook, page 2).
Zimbalist firmly believes that the excessive compensation paid to coaches will continue
to escalate within the next decade and he offers two valid reasons supporting this. The first is the
operation of the NCAA as a trade association. The second is that the final step in limiting
nonprofit employee compensation involves congressional antitrust laws. Zimbalist believes that
neither will happen soon. He states, “First…the NCAA basically functions as a trade association
of athletic directors and coaches. Why would they vote to reduce their own compensation?
Second…I can think of no good reason why Congress would not cooperate on this (antitrust
exemption) if asked by the NCAA.” (Zimbalist 2006).
Another contributing factor that favors coaching pay stems from a Supreme Court
decision in the mid-1990’s that essentially blocked coaches’ compensation packages from being
capped. Lawsuits were filed against the NCAA as it continued a 10-year period of imposing
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salary limits on “restricted earnings” coaches (REC’s). The restriction applied to low-end
coaches on varsity sports teams as the NCAA mandated that these coaches could not earn
income that exceeded $12,000 annually. In the 1995 case of Law et al. v. NCAA the Antitrust
Bulletin reported that, “…the NCAA informed all Division I schools that the court had ordered
them to cease enforcing the REC rule, and by implication that schools were free to set REC
salaries without NCAA oversight or restriction.” (Hamilton 2003). This decision not only denied
any price-fixing of low-paying athletic faculty positions, but it may have indirectly influenced
the skyrocketing base salaries of head varsity coaches since no limits were placed on maximum
earnings.
After reviewing and analyzing the aforementioned coaching contracts (several of which
included 30 pages or more) it is evident that the employment agreements binding athletic
coaches and their institutions of higher learning include minimal emphasis on performance
incentives for academic accomplishments. The current compensation method of bonus and
incentive payments indicates that winning games and championships is of higher significance
than is the academic success of a football roster with 100 scholarship athletes or a basketball
squad with 13 scholarship athletes.
The number of coaching contracts studied in this thesis that did not contain any form of
academic achievement incentives grossly outnumbered the contracts that included rewards for
scholastic accomplishments. Unfortunately, educational components are absent from many
incentive clauses studied in this thesis. Even more disturbing, from an education point-of-view,
is the fact that academic incentive compensation for some coaches is substantially lower than the
athletic incentive compensation. The following contact data indicates financial inequalities
between athletic and academic achievement.
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Oklahoma University coach Jeff Capel receives $5,000 if his basketball team maintains a
3.0 cumulative grade-point-average (GPA) for one academic semester. The head basketball
coach at Murray State University, William Kennedy, is paid an academic incentive of $1,000
annually if his team achieves an Academic Progress Rate (APR) score of 925. The APR is a
metric used to track how individual NCAA schools monitor the graduation success rate of
student-athletes. A score of 925 out of a possible 1000 is the same as a 50% graduation rate.
College teams that fall below a total score of 925 are assessed a penalty and could forfeit
scholarships. The University of Tennessee’s Bruce Pearl receives $15,000 if his basketball team
maintains a cumulative GPA of 2.75 or higher. Pearl’s academic clause also states that he is to
receive $10,000 if he can post a “graduation success rate” of 80 percent. The University of
Arizona rewards its head football coach Mike Stoops $10,000 if the Wildcat football team
maintains a team GPA of 3.1 or higher, or if the team graduation rate is 69 percent or higher.
The head basketball coach at George Mason University earns an academic bonus equal to only
two percent of his annual salary ($375,000) if his team keeps a 3.0 GPA or higher and an APR
above the NCAA’s agreed upon “cut score.”
Research of employment contracts also indicates that a vast disparity exists between the
highest earnings potential for academic achievements and athletic accomplishments. In other
words, the appearance of a football program in a post-season bowl game offers a one-time bonus
payment that is two to three times larger than the highest academic bonus incentive. Les Miles,
the head football coach at Louisiana State University, receives a bonus payment of $25,000 if his
program maintains an APR score of 950 or higher and $50,000 if his team earns a 2.8 GPA. The
on-field incentives are doubled, consider this statistic: should LSU play in a Bowl Championship
Series (BCS) game Miles is paid $100,000 and a bonus in the amount of $175,000 is paid to
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Miles if LSU plays in the national championship game. However, Miles should receive a
substantial academic bonus if his program finishes a season with the highest APR score or the
highest team GPA of all eligible BCS schools. Yet this academic incentive concept is not
currently being used and needs to be implemented to stay consistent with athletic bonuses.
More proof that educational priorities are largely overshadowed by athletic success is that
winning the final football game in a single season carries a value that is nearly higher than what
academic leaders are being paid. This is the case at Louisiana State University as its president,
Sean C. O’Keefe, earned a base salary of $375,000 in 2006-07. The current compensation
structure for running the largest public university in Louisiana barely surpasses the bonus money
that its varsity football coach receives for appearing in and winning a national championship
game (as Miles would earn $275,000).
Basketball bonus compensation offers similar disparities between athletic and academic
achievements. University of Arizona head basketball coach, Lute Olson, earns an academic
bonus of $25,000 if his basketball team maintains a 3.4 GPA or higher or a team graduation rate
of 73 percent or higher. On the basketball court Olson is paid an athletic achievement bonus of
$40,000 if his program wins at least 25 basketball games during a single season. This equates to
a $1,600 bonus per game won. Olson also receives $40,000 in the event he wins the “National
Coach of the Year” by the Associated Press. It is important to note that Olson’s coaching
contract was amended in 2004 and that his academic bonus of $25,000 remained unchanged
although the team GPA was increased from the original threshold of 2.7 to the current 3.4
average. Basically Olson earns the same bonus if his team achieves a higher academic score.
Comparatively, University of Arizona President Robert N. Shelton’s total compensation
in 2006-07 was $570,020 according to the Chronicle of Higher Education. Shelton did not
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receive any base pay from nonpublic sources as only $54,400 from private funds was allocated
towards his car and his home. The remaining pay included deferred compensation and
retirement pay. Shelton’s 2006 seven-page contract did not indicate any guaranteed external
payments from private sources as it stated, “University President shall provide an annual
disclosure statement describing all organizations University President is affiliated with to the
Board.” (Shelton, page 4).
When asked about future change regarding the monitoring of million-dollar coaching
salaries Dr. James Duderstadt offered his thoughts on fiscal accountability reform. During a
phone conversation on April 9, 2008 he said, “That’s the one thing the Senate and the IRS I think
can do and probably will do, they’re going to require full compensation accounting and those
will be the numbers that will be reported. Since these are guaranteed payments they really do
fall under the requirements of full reporting…they’ll (salary amounts) have to be defended.” In
other words, all compensation sources that are paid to coaches will be subject to an investigative
audit. This accounting principle will greatly assist in the dissemination of the vast differences in
base pay from a university and total compensation that is paid from external sources.
The astronomical athletic salaries have intensified as questions and debate regarding
whether or not university presidents and chancellors should be compensated equally to or higher
than football and basketball coaches. This has become a controversial topic within the higher
education community as to who actually is worth more to a university and who is in charge of
running a university. The following essay research will analyze salary information of several
university presidents. The salary differential data is consistent with the previously stated
research suggesting that a substantial gap exists between extracurricular athletics and academic
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missions. Record-level compensation of varsity coaches should be considered as a contributing
factor in the separation of academics and athletics.
According to a Chronicle of Higher Education survey regarding compensation of top
university professionals, “At public research universities, the minimum compensation among the
big players is roughly $450,000. In the 2006-7 fiscal year, 56 of the 182 public institutions in the
survey paid their president at least that amount.” (Chronicle of Higher Education survey
11/16/2007). According to the article only eight public institutions in the survey paid their
presidents at least $700,000 and 81 presidents of private schools made more than $500,000 in
2006. The article appropriately stated, “Still, none of the higher-paid presidents at public
institutions made as much as there head football coaches.” (Chronicle of Higher Education
2007). Analyzing individual presidential salaries provides proof of the financial imbalance
between the employees who are responsible for running higher education institutions and the
employees who are responsible for coaching varsity football and basketball teams.
The one million dollar salary benchmark provides evidence that university presidents are
rapidly losing ground to varsity coaches. Numerous coaches now earn three to four times more
per year than the presidents at their respective institutions. Twelve education executives earned
in excess of $1 million according to the Chronicle’s data. Of the Division I basketball coaches
that appeared in the 2006 NCAA Men’s Basketball Tournament 20 coaches earned more than $1
million in annual pay. According to 2007 USA Today salary records 50 head football coaches
earned $1 million or more in annual compensation. It may soon become the norm for a coach to
earn $2 million on annual basis.
Scholarly reasoning and research suggest that the visibility of college athletics and the
will to win may be the driving forces as to why athletic employees earn more than all other
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university employees, including presidents and chancellors. As one previously mentioned
university president, Michael Adams, (University of Georgia) told the Chronicle of Higher
Education, “We’re seeing renewed interest in looking harder for solutions to high coaches pay…
the competitive pressures are as great if not greater than they have ever been” (Wolverton and
Lipka 2007).
Another valid reason is the celebrity status of many well-known coaches and the public
stereotypes that arise from the fame and immense media saturation levels that surround a football
or basketball season. Dr. Duderstadt, a former president of the University of Michigan, echoes
this notion in his book, Intercollegiate Athletics and the American University. Duderstadt claims
that coaches and their programs operate separately from the university and are disconnected and
out-of-touch with the daily operation of academic-based priorities. Coaches, in his mind, are
simply separated from the entire university. “The bigger problem is that many celebrity coaches
have become so isolated form their universities that they no longer can tell the difference
between right and wrong…many are blind to the academic purpose of the university.”
(Duderstadt 2000).
Dr. Duderstadt expanded on this statement in his phone interview. His comments support
the fact that coaches have little regard for the academic progress and classroom achievements of
their athletes. He said, “I think the real issue here is the degree to which coaches, who have a
serious vested interest in this because of the compensation, exploit student-athletes particularly at
the expense of their academic opportunities…coaches really have very little interest in their
students academic progress…the difficulty here is that the university, through benign neglect,
has pretty much advocated its responsibility for the students academic opportunities and the
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coaches have no significant interest in that side of it because that doesn’t contribute to their own
financial bottom line.”
Duderstadt also credits the exterior influences on varsity coaches as a contributing factor
to the over-exposed and sensationalism of certain athletic employees. These include the impact
from booster clubs, donors and sports-crazed alumni. As Duderstadt states, “…they are
surrounded by powerful legions of loyal boosters and supporters…when celebrity coaches
attempt to pressure the university through the influence of powerful financial contributions…
both the president and the university can be at great risk.” (Duderstadt 2000).
The remaining portion of this thesis will analyze the various external revenue sources that
feed directly into intercollegiate athletic departments, the NCAA and the major athletic
conferences. College sports reformists argue that external funding is uncontrolled and
unregulated. Many believe that athletic department donors and booster clubs have significant
decision making authority based on the large financial contributions and involvements that these
groups participate in. This has led to the assumption that wealthy athletic supporters and booster
clubs have more influence on athletic department matters than university chancellors do.
Again, it is important to note that hundreds of Division I athletic departments do not
generate an annual profit and are not self-supportive. Donations and funding to these programs
can be considered non-existent, as they are simply not as visible as schools from the more
prominent and athletically dominant conferences. The most highly profitable athletic
departments, capable of producing $20 million, are the cause for the recent spike in
congressional inquiries into the controversial business endeavors of college sports.
One contributing factor surrounding the avalanche of money that falls into the laps of
collegiate athletic departments is from booster clubs. The controversies that stem from booster
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groups usually involve substantial amounts of money that provide tax benefits for donors. One
such prominent and successful booster group is Gator Boosters. This is the nonprofit “friends of
the program” club that supports the highly successful football program at the University of
Florida. According to a New York Times article, “In 1997, Gator Boosters Inc. raised $16.2
million in contributions, according to its 990 tax filing, a form used by nonprofit organizations.
In 2002, it brought in $23.7 million in public support -- or more than a third of Florida's athletic
budget.” (Roberts 2005).
The incoming revenue at Florida hasn’t showed signs of slowing down since 2002.
According to Forbes, “That doesn't happen without gobs of money, and thanks to the Gator
Boosters, Florida has plenty. In 2006 the school's athletic department took in $82.4 million in
revenue.” (O’Keefe 2007). Gator Boosters is a highly profitable business for Florida’s athletic
department. According to Forbes, “More than a third of the athletic department's revenue--$38
million in 2007--comes from these folks.” (O’Keefe 2007).
Gator Boosters has developed its own internal, multi-tier structured membership system.
To join the club there is an annual $50 dollar entry fee that doesn’t include tickets to Florida’s
home football games --it is simply a ground level right to earn booster status. The next level,
Bull Gators, includes the right to purchase football tickets, and the minimum donation to do so is
$12,000. According to the Forbes article there are nearly 900 Bull Gator members. By factoring
membership and donations Bull Gators alone has generated nearly $11 million in tax-deductible
earnings.
Florida’s biggest in-state football rival, Florida State University, has also masterminded
generating revenue from its own booster group, Seminole Boosters Inc. The New York Times
reported, “Many variables influence giving, but Florida State may provide the most direct link
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between winning and wealth, pride and pocketbook. In the year before Florida State won the
1999 national title, Seminole Boosters Inc. recorded $16.6 million in support. In 2000,
contributions jumped to $31.4 million.” (Roberts 2005).
The individuals responsible for managing these donor groups are earning substantial
salaries as well. Their sole responsibility is to increase donations that support athletics.
According to the New York Times, “The president of Seminole Boosters received $221,241 in
compensation, according to the organization's 2002 990 tax form.” (Roberts 2005). But the
abundance of donated money often times will be put in places that have little to do with
improving the athletic department or subsidizing nonrevenue varsity sports like wrestling and
men’s and women’s rowing. Instead these funds directly benefit football and basketball coaches.
This is the case at Florida State. The New York Times reported that, “On its 2002 990 tax form,
Seminole Boosters reported $260,000 to buy out coaches' contracts.” (Roberts 2005).
These booster clubs have nothing to do with improving or maintaining the college
education experience for student-athletes. In fact, they have actually assisted in the separation of
athletics from academics. The wealthy donors and charter members of these for-profit fund
raising firms funnel their donations directly into the athletic department, not the general fund of
the university. They have become the best friends of head coaches and athletic directors, and
this circle of friends has also blocked university presidents from becoming involved with daily
management of athletic-based donations that groups like Seminole Boosters and Gator Boosters
generate. Perhaps an additional question to the NCAA from commercialization reformists and
congressional committees should ask is, whether the academic mission of a university
strengthened when a private third party’s foundation six-figure buyout clause is included in the
contract of a head football coach.
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Individual (non-booster affiliated) donations are another significant source of financial
success to athletic departments, and they have also been under scrutiny. The root problem of the
donations from individual donors is the tax deductions that donors receive for financial
contributions to athletic departments. As previously mentioned, recent congressional inquiries
have questioned whether or not an athletic department’s tax exempt status is consistent with the
academic mission and integrity of a university.
Like the deep-pocket booster organizations the focus of private individual donations have
centered on the success of prominent athletic programs within the handful of major
intercollegiate conferences. The biggest caveat for the individual gift givers is that they can
claim up to an 80 percent tax deduction of their total chartable amounts given to athletic
departments.
Consider the new era of giving that began in early 2006. According to Inside Higher
Education, a sports enthusiast and a millionaire alumna of Oklahoma State University
“announced a gift of $165 million in cash to build an athletics complex for the university’s
teams. The gift is the largest ever made to a college sports program.” (Lederman 2006).
Proceeds from this record-setting donation, according to the article, will involve construction of
a refurbished endzone seating section inside Oklahoma State’s football stadium, a multi-purpose
indoor practice facility, new soccer, track and tennis facilities, a new equestrian center, a new
baseball stadium and new outdoor practice facilities.
However, no portion of this gift was intended for academic purposes, and one faculty
member spoke out about the one-time record donation. Bob Darcy, a professor and the
chairperson of the university’s general faculty said, “The priority of this university for the past
30 odd years has not been education, and that priority has communicated itself to all kinds of
38

people, including donors…the help is on the way, but this gift shows that the priority continues
to be athletics, not academics.” (Lederman 2006).
Oklahoma State isn’t the only athletic department that has received substantial donations
from prominent and independently wealthy alumni. The University of Oregon became the
recipient of a healthy $100 million donation in 2006 from Nike founder Phil Knight. According
to Inside Higher Education Knight’s contribution is, “…the largest single philanthropic donation
in Oregon’s history and sets up an endowment that the university says will help sustain the entire
athletics department.” (Powers 2006).
Similar to Oklahoma State critics of over commercialized athletics at Oregon have
vented their frustrations publically over the institutions educational priorities. A biology
professor, Nathan Tublitz, said, “Priorities have shifted from academics to athletics…the real
question here is do we want to let donors dictate the direction of the university?” (Powers 2007).
Tublitz also serves as the co-director of the Coalition on Intercollegiate Athletics, a national
group of faculty leaders that oppose the enterprise that college sports has become. Phil Knight,
founder of Nike and perhaps the most prominent Oregon alumnae, has also sparked debate from
within Oregon’s athletic department.
As large donations like Knight’s may now serve as the norm, Oregon may have crossed
the political-financial line of questionable ethics by hiring Patrick Kilkenny. The university,
according to Inside Higher Education, recently hired a former booster club member and one of
Knight’s close business friends, Patrick Kilkenny, as its athletic director in February of 2007.
The message is that money, politics and corporate networking have enabled Oregon’s success
while placing limited emphasis on academics and a college education. In addition, the hiring
decisions in the athletic department revolve around donations of their own staff members. A
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Chronicle of Higher Education article stated that the Oregon athletic department, “…has 40 fund
raisers, nine of whom work for the athletics department…” (Fain 2007).
Senator Grassley, in a written statement obtained by and printed in the Chronicle of
Higher Education adequately summarizes the donor-dominated effect on intercollegiate sports
by stating, “When I hear stories about top donors to college athletic programs getting a free seat
on the team plane I wonder what the public gets out of that. We need to make sure that taxpayer
subsidies for college athletics-program donations benefit the public at large.” (Wolverton 2007).
The former president of the University of Michigan, James Duderstadt, cited earlier for
supporting college sports reform, has also participated in congressional investigations regarding
nonprofit taxation issues. Prior to the 2006 letter that the House and Ways Committee sent to the
NCAA Duderstadt told the Chronicle of Higher Education, “…as I see it, the NCAA is primarily
involved in promoting and maximizing the commercial value of intercollegiate athletics. They
are getting farther and farther away from the educational mission of higher education.”
(Wolverton 2006).
Duderstadt’s quote accurately describes the current commercial interests of the NCAA.
The NCAA continues to receive millions, and in some cases billions, of dollars that go untaxed.
By maximizing on the current tax laws of nonprofit entities the NCAA has escaped paying
significantly high taxes on athletic revenue. Another relative issue is the fact that as more money
is contributed by boosters and corporations the accountability of tracking where the funds are
applied is a cumbersome project and process. Basically these funds go untaxed, unregulated,
uncapped and sometimes unaccounted for. Duderstadt accurately referred to this as scenario as
an “arms race” in college sports.
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This has led to increased pressure from congressional committees as they increase
investigate efforts of financial giving within the nonprofit sector. The NCAA is one of the
largest nonprofit groups as it continues to receive millions of dollars from television deals and
large corporate sponsorship agreements. Much of the controversy lies within the unrelated
business income tax (UBIT) category as to whether or not income from high profile athletic
events qualify as “academic purposes” set forth by a university. An Inside Higher Education
article states, “To be tax exempt, the activity itself must contribute to the accomplishment of the
university’s educational purpose (other than through the production of income.)” (Powers 2006).
In other words, a sponsorship payment of a basketball tournament is in fact unrelated business
income because the money that is paid to a university’s athletic department (and in most cases
the NCAA) has little to do with any educational component of the tournament.
Also contributing to this issue is the actual percentage of UBIT that the NCAA does not
pay to the Internal Revenue Service from athletic proceeds. The current business income tax
amount is 35 percent. An example of the current UBIT system is when a university enters into
an agreement with an apparel company. The clothing company agrees to pay the university $3
million per year for the right to have all varsity sports wear that apparel company’s uniforms,
shoes and possible equipment. Of the $3 million, about 25 percent ($750,000) covers advertising
production costs absorbed completely by the clothing company. The remaining $2,250,000 is
paid directly to the university as the actual net sponsorship amount. Of this amount the standard
business income tax levy of 35 percent would cost the state university a tax payment to the IRS
in the amount of $787,500. Large sums like this are currently not being paid by nonprofits and
as a result have driven the attention of congressional committees. Equally as controversial is
whether these large sums of incoming money are used at all for educational purposes.
41

The Virginia Tax Review reported in 1997 that the NCAA has basically inherited a
special tax free category among the nation’s largest nonprofit entities. The tax review states, “In
the meantime, colleges and universities have received generous UBIT treatment creating
precedent under the issued guidelines that target them directly. Thus, colleges and universities
are in fact moving into a position of special UBIT protection that does not benefit other types of
exempt organizations.” (Roberts 1997). This may be due in part to the strong presence and
spectator affinity that college sports, mainly football, has in modern day society. Another valid
reason may be the strong passion of college sports within the congressional sector and possible
donor-influenced decisions that may impact political decision making authority. In other words,
it is possible that sports-crazed politicians, many that donate to their alma maters, could
ultimately be the individuals that decide on whether or not to approve future nonprofit tax
legislation.
A Washington Post article opposing the current untaxed model of the NCAA states, “But
the mere threat of taxation by Congress could be useful, in doing what the NCAA won't: act as a
reformer. If you want to force athletic departments to behave like educational bodies again, the
only way to do so is with leverage. Congress should use the threat of taxation to force the NCAA
to enact effective reforms.” (Jenkins 2003).
Andrew Zimbalist mentions similar opposition in regards to the tens of millions of
untaxed dollars that the NCAA does not report to the IRS. “The UBIT is levied on nonprofit
organization revenues garnered from activities that are not substantially related to the exempt
purpose for which the organization was formed.” (Zimbalist 1999). Reformists like Zimbalist
believe that the numerous million-dollar corporate marketing partnerships paid to the NCAA
have very little to do with any academic priorities of educational institutions. Until now,
42

however, congressional decision makers have yet to pass legislation that would change the
current taxation laws of nonprofit groups that generate revenue from activities unrelated to a
nonprofit’s exempt purpose. As a result the not-for-profit NCAA continues to operate as a
highly successful for-profit incorporated business without paying business income taxes.
The Washington Post accurately describes the situation, “If a university is going to do
things that are profit-like and unrelated to the central mission of a school -- such as jump
conferences purely for TV money, and engage in a $20 million Bowl Championship Series cartel
-- then the profit should be subject to levy.” (Jenkins 2003).
Bruce Hopkins, a tax law professional, agrees that continued congressional investigations
of the NCAA’s tax-exempt status could trigger a landmark legislation reform movement within
the nonprofit sector in years to come. “This is a major development in the evolution of the law
of tax-exempt organizations. Just as hospitals are being challenged by the (House and Ways)
Committee (and the IRS) to justify their tax-exempt status, colleges and universities are now in a
similar spotlight…this is why a serious and thoughtful response from the NCAA is warranted, to
quell this controversy now.” (Hopkins 2006).
Aside from the lucrative seven and eight-figure marketing agreements that enable
Fortune 1000 corporations to align their brands with NCAA audiences, similar taxation
controversies exist with the role of additional corporate income that is paid for naming rights and
high-end premium seating at pubic assembly facilities, mainly large university football stadiums.
At issue are the liberal tax laws that presently enable individuals and corporations to
claim deductions as charitable contributions. In other words if a small business owner decides to
lease a corporate suite at a 90,000-seat college football stadium he or she can deduct a large
portion of the annual lease amount from their income. This, according to a Wall Street Journal
43

article, was fully backed by the Federal government. “Under a 1988 federal law, taxpayers may
deduct 80% of payment for the right to purchase seating at a collegiate sports event -- though not
a professional one -- as a charitable contribution.” (Golden 2006).
It is not uncommon, even within the amateur level NCAA, that corporations submit
payments of up to $100,000 for the annual lease of corporate suites. The financial impact of
premium seating, though unrelated for purposes of this thesis, is well worth further research as
the number of renovated college football stadiums and additional skybox capacities are on the
rise. This gratuitous law does not cover similar tax write-offs for the direct payments of single
game tickets, food and parking passes, however, these items can be written off in other ways,
namely as client entertainment expenses.
Naming rights revenue, as is the case with professional sports facilities, at the amateur
level is on a steep upward trend and also provides generous tax breaks for corporations that
increase their brand awareness. Like tax deductions for the rental of a 16-person all-inclusive
suite firms are allowed to deduct these mass payments as a donation or an expense, legally.
According to the Wall Street Journal, “Under a 1997 federal law, colleges don't pay taxes on
revenue from naming rights, which are considered part of their nonprofit mission rather than
unrelated business income.” (Golden 2006).
This tax law has allowed many universities to build new stadiums or complete massive
renovation projects on existing stadiums. Since universities are exempt from paying taxes on the
corporate naming rights revenue the incoming corporate funds are essentially put towards
construction costs. Everyone wins as the expenses are deducted by corporate America (they also
receive free advertising) and the universities and colleges enjoy the luxury of not paying any
business income taxes.
44

This is another key issue that blurs the academic integrity altogether. Apparently,
though, not in the eyes of large donors. The Wall Street Journal interviewed one donor of the
University of Texas who leases a corporate suite inside the university’s football stadium. “I
don't see a thing in the world wrong with the 80% deduction,” says oil executive W.A. ‘Tex’
Moncrief Jr. “That money is used to further many educational activities.” (Golden 2006). This
is a bold statement by a wealthy and proud donor but the reality is that there is minimal evidence
to support the belief that donations for skyboxes directly benefit academic programs. A
university president, or the athletic director, should be responsible for reporting the full
disclosure of where donated funds are applied versus the general confirmation that these gifts are
deposited into an athletic department’s general fund.
In addition to a operating a highly successful football program, the University of Texas
athletic department is a substantially profitable business venture that has excelled at securing
corporate sponsorship revenue. The main question of this model is how much of the incoming
revenue is appropriated for educational purposes. The baseball program at Texas, consistently
ranked among the highest in Division I, generates nearly $867,000 per year from a corporate
sponsorship agreement with a local credit union. The Chronicle of Higher Education reported in
late 2006, “…University Federal Credit Union has pledged $13.1-million dollars over the next
15 years to renovation of the university's baseball field. That ‘donation’ comes in the form of
advertising fees.” (Palaima 2006).
The credit union also donates directly to the university for educational purposes but
according to the Chronicle of Education the total academic donation to the university library
system is far less than the varsity baseball field renovation project. “The credit union likewise
“donates” $50,000 per year to our Central Libraries…What does it say about our priorities that a
45

not-for-profit organization gives 16 times more money yearly to big-time sports than it gives to
education?” (Palaima 2006). One logical reform method for future donations to athletics and
academics may call for an even split of the total sponsorship amount. In other words, the athletic
department would receive one half of the total amount and, in the Texas example, the university
library would receive the other half. This would end the imbalances between education and
athletics and the fiscal accountability would be simplified and a streamlined disbursement plan
would minimize the temptation of athletic departments to negotiate future agreements behind the
backs of academic programs. All individuals involved would be informed of how single
charitable gift amounts are to be allocated. Including university presidents or faculty
representatives to participate in these sponsorship agreements would also decrease any athletic
department bias and it may be in the best interest for all involved to not have varsity coaches and
athletic directors engage in these agreements. This would provide an opportunity for academic
faculty leaders and professors to be involved with gift giving that incorporates academics and
athletics.
Recently built basketball arenas, major renovations of football stadiums and new sport-
specific practice facilities should serve as strong evidence that corporate interests and
investments in big-time sports dominate the financial landscape of amateur athletics. Consider a
statistic from the Wall Street Journal, “The enormous financial rewards for successful programs
have fueled an arms race among schools to build larger, more lavish venues that can ring up
millions from luxury suites and sponsors. Over the past five years, schools in the NCAA's top six
sports conferences raised more than $3.9 billion for new sports facilities…” (Weinbach 2007).
Eliminating the athletic component from the existing educational experience and current
academic model will undoubtedly cause immediate concern and public backlash. Although
46

athletes will no longer retain scholarship status and university affiliation as student-athletes, the
athletes will still have the option to register and attend classes should they choose to do so.
Nonprofit groups like the NCAA will defend the separation of athletics from academics and
demand that the system stay intact, most likely for financial reasons and not academic benefits.
There are current business models in place that are highly successful that support this
recommendation. One profitable global organization that deserves analysis and study is the
European football league empire Futbol Club Barcelona, or FC Barcelona. Headquartered in
Spain FC Barcelona is a dominant athletic corporation run by a 17-person board of directors and
a current investment group that includes over 150,000 shareholders. The club owns 15 different
football teams and owns and operates six sports facilities that host football and hockey contests.
According to its website The FC Barcelona organization has the largest football club
membership in the world.
The FC Barcelona similarities are consistent with U.S. university athletic departments.
They offer a strong allegiance of spectator affinity, each own modern facilities that can
accommodate large audiences, they generate substantial corporate sponsorship income, ticket
sales and national media attention. The main difference, and most critical, is that FC Barcelona
is operated properly leaving minimal suspense and political intervention pertaining to fiscal
accountability and financial insecurity. The Barcelona model would allow athletic departments
to operate individually as publically owned corporations with an elected board of directors
serving as the ownership group responsible for all daily operational decision making authority.
Each athletic club would either own their practice facilities and arenas or have the option to lease
facilities from a university. Each individual franchise would be responsible for reporting all
financial audits to its board of directors and shareholders on a quarterly basis and all fiscal profits
47

and losses would be made public. The accounting structure will alleviate the scrutiny, blame and
controversies that are commonplace in the current financial system within the NCAA.
At the conclusion of the April phone conversation with Dr. Duderstadt he spoke about the
potential of European football serving as a valuable system that intercollegiate athletics should
consider adopting. He commented on what he believes may be the key to future reform if
amateur athletics operated as a public corporation. “Its integrity has been preserved because
nobody pretends that the players that play on their football team are students…maybe the
direction we’re headed is to go ahead and let the commercial forces drive things away from the
university. Let’s reconfigure them kind of like an initial public offering that is no longer owned
by the university.”
Duderstadt hinted that commercialization, despite decades of controversy within
intercollegiate sports, could be the momentum that aligns intercollegiate reform to the current
method in place with FC Barcelona. Duderstadt admitted, “I am beginning to think that maybe
we’ve got it wrong by trying to throttle commercialization, that maybe what we ought to do is to
actually use these incredibly powerful forces of commercialization to break these things away
from the university, but in a very constructive way. Europe is providing that as a model.” This
global model, worthy of consideration and change, is too extreme to adopt in the near future for
U.S. amateur athletics.
Another athletic reform solution that has restored the integrity of higher education is
already in place and university presidents and trustees should monitor the impact and results.
Vanderbilt University, a member of the highly athletically dominant Southeastern Conference,
restructured the functionality of its athletic department in 2003. The decision to do so has
received full endorsement from many within the education sector. A complete overhaul of
48

Vanderbilt’s athletic department shifted all athletic matters under the watch of an academic
department.
Vanderbilt essentially eliminated the role of the athletic director and shifted all sports
programs from the athletic department into the department of student life. The same leaders that
manage intramurals, club sports and community sports programs now monitor intercollegiate
athletics. The main purpose of this process was to more properly align athletics within the
academic mission of the university. The merging of the athletic program into the student life
division also integrated the athletic budget into Vanderbilt’s central budget. As a result all
athletic revenues no longer operated individually and separate from the university budget. All
athletic priorities are now combined with other strategic programs and initiatives.
This benchmark decision was the work of then-chancellor Gordon Gee. In a Phi Kappa
Phi Forum education feature Gee summarizes his decision of weaving Vanderbilt’s athletic
programs into the student life department. The new department is now known as the Office of
Student Athletics, Recreation, and Wellness. “When we incorporated the athletics program at
Vanderbilt into the Division of Student Life, we did so to ensure the operations of our athletics
program would always be in alignment with our mission and goals as a university.” (Gee 2005).
Gee, quoted in a USA Today interview in 2007 said, “I believe that the future of intercollegiate
athletes is on the line right now, we’re either going to make a decision that we’re going to
become a college system, or we’re going to become a farm system for the pros.” (Weir 2007).
Myles Brand reacted to Gee’s decision in 2003 in a statement obtained by the Atlanta
Journal -Constitution. Brand said, “It is a major shift in the collegiate sports culture. It will be a
model for how to embed the operations that have been isolated from the university with similar
functions throughout the campus. Their model may not be right for everyone right now, but it is
49

sure to be a topic of discussion as universities manage their athletics programs in the future.”
(Barnhart 2003).
Vanderbilt’s newly adopted organizational chart and restructuring is one that should be
watched closely, and perhaps duplicated, by other universities that are in dire need of aligning
athletics more closely with university matters pertaining to education. In place of a true athletic
department managed by an athletic director Vanderbilt blended all athletic matters with
important core student groups. Varsity sports are now united with intramurals and various
community sports programs. The new division is under the direct supervision of a vice
chancellor for student life and university affairs. Those responsible for athletic decision making
determine scheduling and budgets for their sports, handle operational matters and have similar
responsibilities regarding student life, but the key difference is they all report directly to an
academic vice chancellor and not a director of athletics.
David Williams, one of Vanderbilt’s six vice chancellors, is the individual in charge of
the revamped department and he told Inside Higher Education, “We felt that athletics had drifted
toward an isolationist view on campus. You had the university and then college athletics. We
saw conflicting messages — and in our view, athletics is part of the university.” (Powers 2006).
William’s confidence should serve as a motivating force for other athletic departments at
public and private universities seeking to return their athletic departments into the academic
system. This can be done successfully without jeopardizing the well being of student-athletes
and disrupting a university’s governance. The Vanderbilt example illustrates both criteria can be
done successfully. This newly adopted system should be followed because fiscal responsibility
can now be tracked and controlled since athletic revenue now filters through one main and
centralized university budget. It is one small step in the right direction to fiscal accountability
50

within the nonprofit sector. The likelihood of large donations and revenue set aside strictly for
athletics is now shared evenly with other scholastic divisions that are designed to improve other
educational programs like music, theatre and performing arts. Student-athletes, in the Vanderbilt
model, coexist with regular full-time students and are no longer an outcast and unattached part of
the general student population. This model also offers athletically gifted students ample
opportunities to interact with non student-athletes more frequently and cohesively as athletes
have been woven back into the general student body population.
From analyzing a statement made by Williams it is clear that the academic missions and
educational opportunities at Vanderbilt are properly aligned for student-athletes. Consider his
quote to Inside Higher Education regarding the reform initiatives before the new system was
adopted, “…Vanderbilt athletes were having a “vastly different experience” than the average
student and having to make too many concessions…they weren’t taking part in other
extracurricular activities. They weren’t studying abroad. Many couldn’t do summer internships
because their training schedules called for them to take summer school. Coaches often
discouraged players from joining fraternities and other clubs.” (Powers 2006).
Another revealing statistic that Vanderbilt may have initiated the most logical and
academic-centric reform movement in higher education to date is the compensation structure of
key university employees. According to the Chronicle of Higher Education, Vanderbilt paid its
then-chancellor E. Gordon Gee a total compensation package over $1.8 million in 2005-06.
Gee’s base salary was $925,192 making him one of the highest paid chancellors in the nation.
According to a website (coacheshotseat.com) devoted to collegiate coaching statistics,
Vanderbilt head football coach Bobby Johnson received a total compensation package worth
$950,000. This amount placed him 67th
out of 120 coaches according to the data. Although
51

Johnson’s salary was higher than Gee’s, Vanderbilt has placed a higher level of importance on
compensating an educational leader instead of a varsity coach. This is the first known case study
in this thesis that presents factual evidence that a university president earned nearly twice the
amount of income than a head coach from the same institution during the same year.
As stated, athletics at Vanderbilt is now part of the university, in numerous categories,
due to the overhaul that began in 2003. This dramatic change within the higher education field
provided proof that strategic restructurings of lucrative and controversial operated athletic
departments can fully function when combined with other educationally-based programs and
departments. Duplicating this reorganization overhaul at other colleges will take time and the
end result will restore credibility to education at a time when this enormous nonprofit entity is in
desperate need of fiscal change. Curbing the continuation of independent athletic departments
will restore financial integrity and one central budget will aid accounting and auditing
procedures. Tracking athletic revenue will no longer be an unregulated mystery. Athletics will
provide visible proof, and without congressional attention and debate, that intercollegiate sports
are substantially related to the educational functions of colleges and universities. The five-year
old Vanderbilt model is vastly underrated and is a landmark icon of reform for higher education.
During a May 7, 2008 telephone conversation the Knight Commission’s Amy Perko
commented on the overall success of Vanderbilt’s internal consolidation. When asked about the
elimination of the role of athletic director and the removal of an entire athletic department Perko
said, “I think the more effective measure is the practice not necessarily the structure…
eliminating the AD (athletic director) or the athletic department may not be the answer at other
institutions but it’s really what the end result is and what the goal is, which is integrating
athletics into the university mission…so it’s really that goal of integration not only of the athletes
52

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