The Misconception of Revenue Generation in College Athletics

In the wake of the House v. NCAA settlement, the narrative around college athletics is poised for a significant shift — particularly when it comes to revenue generation.

Traditionally, college sports have been divided into revenue-generating and non-revenue-generating categories, often focusing on the financial output for sports like football and basketball. However, this dichotomy fails to capture the broader financial landscape and the nuanced realities of college athletics.

Rethinking Revenue-Generating Sports

The term “revenue-generating” is misleading when evaluating the financial health of college sports programs. While certain sports bring in substantial revenue, they also incur significant expenses that often exceed their income. This leads to a skewed perception of profitability.

The focus on revenue generation overlooks the comprehensive financial picture, including the costs associated with maintaining these programs and the subsidies required from universities to support them.

When a ticket is sold for a college sports event, it indeed generates revenue. However, equating this transaction with the profitability of a business venture is misleading. In many cases, the income generated from ticket sales and other sources is funneled back into the athletic programs to support athletes and maintain facilities. (It’s akin to when dividends from mutual funds are reinvested to grow the fund rather than distributed as profit.)

Benefits for Athletes

The narrative regarding athlete benefits should shift from a simplistic revenue-focused view to a more holistic understanding of the value and costs associated with college athletics. Athletes in college sports already receive numerous benefits, including scholarships, healthcare, costs of living and other education-related stipends above and beyond scholarships. More recently, they have resources to assist them with earning from their name, image and likeness (NIL). These benefits are substantial and should be factored into any financial assessment of college sports programs.

The revenue generated by college sports is often reinvested directly into the programs themselves, including funding services that directly benefit the athletes. The primary goal is to enhance the athlete experience and provide them with the resources they need to succeed, both on and off the field.

A Call for Comprehensive Financial Evaluation

To foster a more accurate understanding of college athletics’ financial dynamics, institutions should adopt a profit and loss (P&L) approach by sport. This involves bifurcating shared revenue and athlete expenses from subsidized revenue and related expenses. Such an analysis would provide a clearer picture of each sport’s financial impacts on the university and help in making informed decisions that align with the institution’s broader goals.

Recognizing that college sports are not traditional revenue-producing ventures is crucial for understanding their true financial dynamics. By focusing on reinvestment and support rather than profit generation, universities can better align their athletic programs with their education and community-oriented goals.

While it’s true that certain programs within the Power 4 conferences—such as football and men’s basketball—can generate significant profits through media rights, sponsorships and ticket sales, this is not the norm across all college sports. Beyond the high-profile programs, many sports operate at a loss or break even at best. Each program operates under unique circumstances, with varying levels of financial support, expenses and revenue potential. Even within football and basketball, profitability can vary significantly from one institution to another.

The Path Forward

As college athletics navigate the post-settlement era, the narrative needs to move beyond the outdated revenue-generating label. Instead, it should foster a more accurate picture of college athletics finances.

It’s important to adopt a balanced perspective that acknowledges both the pockets of profit and the broader context of reinvestment and support. By doing so, stakeholders can engage in more informed discussions about the financial realities of college sports and make decisions that reflect the diverse needs and goals of their athletic programs.

University and athletic department leadership should reassess their strategic goals at the sport-specific level. This involves placing each of your sponsored sports into one of the following tiers:

• Sports that are genuine profit centers (if any)
• Sports requiring continued investment due to their importance to the university’s brand
• Sports that should maintain a balanced investment to support athlete experience and equity without excessive spending

Sports can no longer be treated as “one size fits all.” Those profitable sports are not likely going to be able to continue supporting your other sports financially in the wake of revenue share, changes to roster sizes and elimination of scholarship limits.

Ultimately, institutions need to adopt a tailored approach, assessing each sport’s unique contribution to the institution’s mission and financial and strategic goals. By doing so, they can make informed decisions that align with their mission, support their athletes and ensure sustainable growth as change continues to impact the industry.

Now is the time to start evaluating finances by sport and thinking about these strategies, even if you come up with multiple plans. Waiting for the settlement to be final will put your strategy at a disadvantage. Our collegiate athletics CPAs and consultants can guide your team, offering strategic advice, assessing risks and rewards under various scenarios and sharing industry best practices.

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