As someone who frequently speculates on high-risk penny stocks, I never could have imagined that buying tickets to my alma mater's homecoming football game would become one of the most volatile investments in my portfolio. But as the University of Miami's season opener against Maryland quickly approaches, news of what has been dubbed the worst college football scandal in NCAA history continues to dominate the headlines, and the future of one of the Nation's most renowned collegiate athletic programs remains uncertain.
In a recent article, Forbes contributor, Kelly Phillips Erb, put an interesting spin on the University of Miami football scandal by asking why the multi-million dollar college sports industry is exempt from federal taxation? In her opinion, the U.S. Tax Code should recognize college athletics for what it is: a business.
In support of her argument, Erb calls attention to the over $5 billion in revenue generated by college athletic programs in public universities last year and to football-related expenditures in excess of $70 million by schools like Auburn and Ohio State. But these figures are misleading when considered in the abstract.
In a 2010 report published by the NCAA, Professor Daniel L. Fulks, Ph.D., CPA, offers a pragmatic representation of the financial aspects of collegiate athletics. For Football Bowl Subdivision athletic programs (formerly known as Division 1-A), the median figure for revenue generated during 2009 was $32,264,000; the corresponding figure for expenses incurred was $45,887,000. For Football Championship Subdivision athletic programs (formerly known as Division I-AA), the median figure for revenue generated during 2009 was $2,886,000; the corresponding figure for expenses incurred was $12,019,000. For Division I athletic programs without football (formerly known as Division I-AAA), the median figure for revenue generated during 2009 was $2,099,000; the corresponding figure for expenses was $10,502,000.
With the median expenses of Division I athletics exceeding median revenues by $8.4 - $13.6 million, this is not the type of operation that comes to mind as a for-profit venture.
Still, Erb is right to call attention to the issue because although not every athletic program is being operated with an improper profit motive, a significant minority of programs probably are. In the end, the relevant question is one of profit motive. If an athletic program's primary purpose is profit, then tax-exempt status is not appropriate. However, the presence or absence of a profit motive must be evaluated on a program-by-program basis. Otherwise, undue hardship would be imposed upon many compliant colleges and universities.
But is a program-by-program evaluation practical? Probably not. The benefit of any additional tax revenue generated by revoking the tax-exempt status of a few non-compliant athletic programs would almost certainly be outweighed by the costs associated with establishing and operating a governmental program to evaluate the profit motives of collegiate athletic programs.
- NCAA Division I Intercollegiate Athletics Report: Revenue & Expenses
- Kelly Phillips Erb, Miami Football Scandal Raises Questions About Tax-Exempt Athletics
- PHOTO CREDIT: Jeffrey Boan - AP