Act II – Part 4

tep2.4blklgThere are many factors that come into play when comparing expansion candidates for the Big 12, should it decide to expand back to twelve or beyond.   This is just one piece of a much larger project analyzing each possible team in the entire FBS.  If this is your first article in the series, I invite you to read back through the rest of the project that has been released over the past year.

The Expansion Project: Preface

Defining Financial Health

Back when looking at the overall finances of the FBS and its conferences, three key points tended to stand out when evaluating the financial health of an athletic department:


Total Revenue – This is the complete amount of revenues an athletic department generates, from ticket sales, to merchandising to media deals.   It factors into financial health because much of the arms race in College Sports relies heavily on facilities.   In order to continually upgrade you need to have a large pool of money to draw from to pay for capital expenditures or debt obligations.

Profit After Subsidy (P.A.S.) – There are two ways to pay for all of these upgrades, from proceeds or to borrow it.  Most large capital projects involve bonds the athletic department pays back monthly, like a mortgage payment.  When the cost of operating an athletic department out paces the revenue raised, then the department needs to rely on credit; namely in a subsidy from the university to break even.  If you remove subsidies from revenues and subtract expenses, you’ll see a school’s Profit After Subsidy (P.A.S.) amount, which puts their revenues in perspective.   Some schools don’t need subsidies to generate huge revenues, while some need massive subsidies just to stay in the middle of the pack.  If you need to take on a lot of credit to have the same revenue as someone who doesn’t, you’re not as nimble nor financially strong.

Fan Support – All of this is meaningless without fan support.  The largest media deal won’t float an entire athletic department if fans are not coming to the games.  Additionally, for growing programs, you cannot increase ticket prices until you have multiple seasons of sell outs building your fan base.  Everyone does well when they are winning, but schools with large fan bases will weather the storm that all athletic departments face when losing rears its ugly head.


The financial health of an athletic department is one of the more complex areas I’ll cover when discussing expansion for the Big 12.  Due to this it will take more than one article to dig into the details.  Total Revenue and Profit After Subsidy will be detailed in this article.   Fan Support will be addressed in a second article and then a third will combine the totals and details for all the schools.


Note:  Most of the public universities’ financial filings have been updated for 2014-15 as of this week, after this article was written, but the private schools will not be included for some time.  Due to having a more complete data set and for continuity within the rest of the Expansion Project, I am sticking with 2013-14 financial figures at this time.   I will be releasing an update comparing major changes between the two years shortly.


FBS Revenue Analysis



When we start talking about revenues within FBS, things start to get pretty silly.  Overall, FBS schools had $7.985 billion in revenues with an average of $65.5 million.   The Top 20 athletic departments, who all make more than $100 million, each make half of what the entire Sun Belt had in revenues.  The divide between the top and the bottom of the NCAA division is just TEP2.4.1staggering.  Matter a fact, 81% of FBS schools make less than $100 million per year and 43% of FBS schools make less than half that.

The chart to the left shows the percent of FBS schools per each $25 million tier from $0 to $200 million.  The pattern almost follows and exponential curve, which it may if schools each negotiated on their own for everything.  However, since a third of all revenues is media contracts, and those are bundled, we see bumps in the data.

tep2.4.2To be at the top, however, you have to have a lot of revenue streams paying off, notably ticket sales and donations.  Oregon, the top revenue producing athletic department in 2013-14, jumped to the top due to a $90 million donation, nearly four times more than their media revenues that year.

Besides some jumping around due to changes to donations or ticket sales, the largest twenty athletic departments remained largely unchanged from previous years.   Most are giant state schools with sports brands that have been cultivated for so long they have generations of fans.  Outside Oregon’s jump to the top with the massive donation, the top five reads how you’d expect; Texas, Michigan, Ohio State, and Alabama.

The only three schools who may seem a shock to be on this list are probably Oklahoma State, who had a large donation that year, and Minnesota and Iowa from the Big Ten, who lead all conferences with teams at the top.  While it is much easier for a large conference to get more teams on a list, the Big Ten also excels when it comes to getting a percentage of its teams at the top.   They lead all conferences with 43% of their teams represented in the Top 20 athletic department revenues.

The SEC and Big 12 come in next with 36% and 30% respectively and the Pac 12 follows them with 25% of the conference at the top of the charts.   The ACC drags a bit back with only 13% of their schools represented and that is a bit of a bonus, because I slated Notre Dame in the ACC as opposed to Independent due to how many sports Notre Dame plays with the conference.  The bulk of their revenues, however, are from football.   If you remove Notre Dame from the ACC, they only have 7% represented at the top of the “total athletic department revenue” list and, to compound the issue further, that single representative is Florida State, squeaking in at #20.

It is important to note thTEP2.4.3at no team has moved conferences in realignment recently between the Power Five conferences and made more money due to what that conference brings.  In every case any increase of revenues has come from donations and tickets due to the “new relationship energy” that comes with the move.  Even Maryland’s increase from the Big Ten wasn’t due to a standard increase in revenues in making a move, instead it came from taking future revenues early.   In a sense, it is an revenue increase illusion because they are literally borrowing from their future budgets.

The only increases in revenue directly provided by a conference in a move have come from schools outside the Power Five moving into it, including those from the Big East who moved after the Big East had turned down their last media deal.   What we need to measure then, isn’t necessarily how much a top school in a conference makes, each conference has their big earners, but the ease of which a school could move into the Big 12 and compete.  To do that, we need to establish a baseline.


Financial Points and the Big 12


It does no good for me to give the ACC a gold star for making $1.1 billion last year, while the Big 12 made $965 million; when, if you divide that by team it shows the Big 12 teams, on average, making nearly $20 million more per year.  In that same way, it doesn’t make much sense and is a bit cumbersome to continue to TEP2.4.4compare millions in revenue when the standard deviations are all over the place.  Due to that I am assigning a point structure to each team based on their total revenues, which correlates to the rank a team has within the FBS, with Oregon taking the most at the moment.  This normalizes the data so that large swings between the top and bottom teams don’t have as large of an impact on an average, like Oregon earning $90 million more than the second place Pac 12 team.  Once plotted out, each of the conferences layout like the following graph.

TEP2.4.5Unlike with areas like geography, I think we can note with relative certainty that, while there may be a difference of 17 points between the SEC and the ACC in the Power Five conferences, any team within those conferences could likely move back and forth without gaining or losing competitiveness due to any revenues that conference may provide.  Even Washington State, Wake Forest, and Utah, the bottom three Power Five teams, are capable of competing within their conference.

Outside the Power Five though, which is where most speculation occurs in regards to Big 12 expansion candidates, the situation is much different.  Within the conference averages the AAC, in sixth place, is further below the ACC, at fifth place, than the ACC is from first place.  That is a large gap to make up, at least for many of the schools outside the Power Five.  Additionally, the ACC is 12.6 points below the Big 12’s average of 92, which is also 41.3 points higher than the AAC’s average.  This represents that the Big 12 has more than twice the revenue power of the AAC.   That isn’t just because of a media deal and it will be difficult for a school to make up quickly.

When we start looking at the Top 20 athletic departments outside the Power Five, not many have scores that would reach the lower ranks of a Power Five conference, let alone the average.  The lowest school for the Big 12 within this reporting period was Iowa State with a score of 66.  Only one non-Power Five school bested that, UConn, but, I’ll show shortly, that figure isn’t quite as healthy as it suggests.

The gap between the rankings are where lower level Power Five teams reside.  As you can see there are quite a few between UConn and BYU, but only three between Cinci and Memphis.   Those three are the ones mentioned prior; Washington State, Wake Forest and Utah.   After Memphis this list is made up entirely of non-Power Five FBS members and many who are discussed as expansion candidates are further down the list than expected.

While I’ve argued in the past that the Big 12 does not need another Texas team if they expand, the three Texas schools on the non-Power Five Top 20 chart aren’t likely in the order imagined.  SMU is eight spots higher than expansion darling Houston, who is just slightly above fellow Houston school, Rice.  While BYU would have the lowest revenues of any Big 12 team, out West with them shows New Mexico, San Diego State, and Air Force all have more revenues than expansion contender, Boise State.  What caught me off guard is that Old Dominion and Akron posted more solid revenue numbers than AAC members, Tulane and Temple.

That doesn’t bode well for the Owls or Green Wave being overly competitive within the Big 12 and it also isn’t telling us the entire financial picture.   The harsh truth is that most of these revenue figures are illusions.   This becomes especially clear once you look at how much money many of these organizations spend verses what they raise.   At that point some athletic departments become even less competitive.

FBS Profit After Subsidy Analysis



If spending was free then none of us would ever need to worry about paying back our debts and life would be perfect.   However, acquiring debt is only useful if it serves a purpose and increases value.  As the saying goes, “you need to spend money to make money” and nowhere does that resonate more than within college athletics.  In order to compete for titles, which brings in massive amounts of exposure for a university, an athletic department has to have the coaching staff and facilities in place to recruit the talent necessary to compete for them.  While it does happen, it is very rare that an athletic department catches lightning in a bottle without building the foundation within a particular sport.  Additionally, spending for facilities on non-revenue sports is even more difficult if the resources are hard to come by.  Many schools with smaller budgets focus where they compete to ensure the money is spent wisely.   However, if you’re not already competing in that level across the board, making the jump to a conference where they do can be a rude awakening.

To gage how much a school has to spend to compete we need to take two financial figures into account.  The first is a simple profit equation where we subtract expenses from revenues.  This shows us if a school is generating more than it spends or not.  Profit can be reinvested, but a lack of revenues creates a deficit, which has to be made up somewhere.  This difference is generally countered with funds from the university or student fees as an example.  Since they come from the university as a whole, they are not revenues, even if the university doesn’t require that they are spent back.

TEP2.4.6Therefore in order to measure the accurate difference between expenses and revenues we need to subtract subsidies from revenues prior to figuring out an athletic department’s true profit or loss.  Some schools make quite a bit of profit on their athletics and don’t.   Generally speaking, by looking at the Profit After Subsidies (P.A.S.) we see how much a school is needing to spend above and beyond revenue to keep up with the Jones.

From a conference stand point you get the picture real quick why there is such a great divide between the Power Five and the rest of FBS when you look at how much P.A.S. a school may have as a percent of their revenue..  In 2013-14 the SEC and Big 12 led the way with an average ratio P.A.S. ratio of 5%, with the Pac 12 following close behind at 3%.  The Big Ten and the ACC had a slight shortfall, but nothing major at negative 2%.   (Within the Big Ten was primarily caused by Rutgers and Maryland, which I’ll show in a moment.)  Once you leave the Power Five, however, this ratio increases drastically.  The AAC had a P.A.S ratio of -32%, meaning they spent 32% more than they brought in.  This ratio continued to dip for the rest of the conferences bottoming out at -72% for the MAC.  What this shows us is that it is not just revenues that are needed to stay competitive, especially within the Big 12 whose schools run in the black, but in how much credit is needed to maintain competitive with that revenue.

TEP2.4.7Within the top seven conferences with the largest schools, here are the Bottom 25 schools, in regards to how much they had to borrow to make up for a revenue deficiency.  Some of these numbers are just staggering.

Rutgers spent $36 million more than it brought in in 2013-14.   That means its total revenue wasn’t really $76 million, like reported, it was actually $40 million.   Likewise, the University of Connecticut didn’t have $71 million, it actually had $44.5 million.

As you look down the list you can see that most of the non-Power Five expansion targets are on this list.   Even the lowest earning schools in the Big 12 have low P.A.S. ratios.   West Virginia had the largest negative ratio in the Big 12 with -4.4% on $77 million in revenues as it continues to pay for its realignment move.  Iowa State, was the only other school with a negative ratio, having a negative 2.2% ratio on $68 million in revenues.

So which is financially healthier:  UConn’s $71 million in revenues with 38% of it coming from subsidies, or Iowa State’s $68 million with only 2.2% coming from the same source?

Most financial advisers will tell you that the less debt you have the better, unless it is building you a net worth through asset accumulation.   If debt is paying operating costs, you’ve got a burn rate problem.

To take this into consideration, along with the fact that P.A.S. can ebb and flow from year to year I’m going to, much like our discussion on location, provide a bonus to teams who run a profit and deduct points from athletic departments who run large deficits.  This will allow us to look at revenues while still taking into effect how difficult it is for an athletic department to raise those revenues to continue to compete.

FBS Financial Scorecard



By converting revenue to a series of points and by either adding or subtracting to that number due to how a school performs via their profit after subsidy, we begin to create a scorecard to judge the strength and financial health of a universities athletic department.

TEP2.4.8TEP2.4.9Let’s start by setting our baseline again and looking at how the Big 12 performed from top to bottom. Texas and Oklahoma, as you would imagine, dominate the financial numbers, but due to several athletic departments running a profit, eight out of the ten schools scored higher than 90, which was the Big Ten’s average.  That indicates that whatever teams join the Big 12 they are going to need to be financially solid to compete.  When TCU and West Virginia joined they both had athletic department revenues north of $70 million and even they had a great deal of adjustments to make with that advantage.

The AAC, where most of the expansion candidates are rumored to reside, are not the strongest athletic departments, financially.   And, to clear this one up right away, that’s not just because of media contracts.  After subsidies, Colorado State and Houston clear $20 million, Tulane clears $22 million, Memphis clears $30 million and Cincinnati brings in $36 million.   BYU does the best of the non-Power Five crowd, making a profit on their $60 million in revenues, but that would still place them at the bottom of the Big 12 in revenue.

Now, as stated earlier, this is just one piece of the financial puzzle.  Living on credit long term will cause issues somewhere and a Power Five media deal isn’t enough to make up the difference for a lot of these non-Power Five.  Additionally, a lot of schools have years when they surge and dip from donations and capital investments, that are not a sign of a long term issue.  (RE: Oregon and Auburn)

Due to the fact that we will have two more articles on financial health, incorporating fan support into the mix in the next article before bringing all of the scores together in the third, I’m not going to detail every score for every school currently.   However, each of the FBS schools does fall into one of several categories depending on everything covered in this article.   At a minimum, it should give you an idea of what schools within the top seven FBS conferences should be able to compete easily with the Big 12 and who will struggle.

This list will change drastically once fan support is factored into the equation and we begin to see who leverages their fan base and who still has a lot of room to grow.


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