Sunday, May 27, 2012

When "Subsidies" Really Are Investments: Rutgers Athletic Department Unfairly Trashed

Carl Laemmle in his younger years.
[OK, so he is not really a monster.  But Carl Laemmle was the producer of all the original monster hits--Dracula, Frankenstein, The Mummy, and The Invisible Man.  Maybe somebody else would have anyway, but he did it.]

Just recently, the athletic department at Rutgers was trashed vigorously in the press for the largest per student subsidy of athletics of all FBS schools.  Berkowitz and Upton at, Adelson at, and Reed at Ralph Nader's League of Fans blog.  In 2010, Rutgers received $27 million from the university and student fees (42% of the department budget); $115 million in total since 2006.  I calculate that to be a growth rate of about 7.4%.  This put them at the top of some sort of ranking of university support and student fees in the FBS for 2010.


The USAToday article quotes Patrick Nowlan, executive director of the Rutgers teachers' union, "A student doesn't come to Rutgers to attend a football game.  They come here to get an education--and then maybe to attend a football game."

But (according to the same article) AD Tim Pernetti puts it this way, "With athletics being the big window into everything we do here at Rutgers, and being that we've been able to do it in a positive way, it is an investment in the branding and marketing of the entire place, not just the athletic department."

As with all things, the answer is surely in the middle.  Sports are neither a recess awarded to students chained to their desks all semester nor the end all and be all of branding the entire university.  But what does ring true is that university support of athletics is an investment with a return.

Interestingly, not a single article I could find put it in these terms:  "Investment in athletics at Rutgers grows 7.4% annually since 2006."  Instead, we get the following headlines.  From the USAToday pair, "Rutgers athletic department needs fees, funds to stay afloat"; from the ESPN writer, "Rutgers relies heavily on subsidies"; from the Nader blog, "Rutgers students forced to pay nearly $1,000 each to fund athletics."

This is the worst type of thoughtless shrieking and casts university support of athletics as a requirement to cover bad management at best and extortion from students at worst.  Nothing could be further from the truth.

Jason Winfree, my colleague here at Michigan, and I, in our upcoming Stanford University Press book, document the following from the work of many economists:

  • University support of athletics is small relative to university revenues.
  • There are returns to the university support of athletics.
  • The returns are small in absolute terms.
  • The rate of return on university support (as opposed to its absolute level) is quite sufficient.

For example, Rutgers' total university revenues for 2010 were in the neighborhood of $1.9 billion (Tuition and Fees, Grants and Contracts, Auxiliaries, State Appropriation, Federal Appropriation and Endowment Income).  So university support of athletics was in the area of 1.4% of Rutgers' revenues.  It doesn't take much return in terms of gains elsewhere across the university to make an acceptable return (student application quality, faculty quality, donations at large, appropriations from the legislature).

[By the way, academic support was $610 million, 32% of its total revenues, or 23.5 times larger than university support of athletics.  Moving the entire $26 million athletic support over to academics would represent a 4% increase.]

Do ADs ask university administrators for money?  Yes, at all but a very few universities.  Do university administrators have to give it to them?  No, and often they don't (during the recession, numerous ADs have had their support from their universities cut).  So why do administrators fund athletics?  Because the investment pays, just as it does for the English department or the Engineering School.  If ADs show increased value to the university, they get a larger allocation just as does any other department that can do the same.

By all means, there should always be an ongoing dialogue about the proper place of any activity at the university.  But a thoughtful and careful assessment would be wise rather than barely concealed self-interested ranting and raving by faculty and college sports haters.  For university administrators, athletic departments create value just as do the other departments on campus.  Investment is the better word than subsidy in this case.