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March Madness Accounting

In an article today on CNN.com, the typically quite sharp Chris Isidore, a senior writer for CNNMoney, perpetuates one of the most enduring myths in sports economics: that college sports teams generate significant profits for their host institutions.

The article shows the individual revenues, expenses, profits, and margins for essentially all NCAA Division I men's basketball teams and finds that across the 340+ D1 institutions in the country, basketball made a profit of nearly $280 million last year. As noted by Isidore, "it's clear that men's basketball is a major source of funding for many colleges, and that profits are still far more common than losses for the major teams in March Madness." It's a nice story. It's also 100% wrong.

Let's look at two schools, my own Holy Cross and big-time power North Carolina, to highlight the flaws.

According to the article, the Holy Cross basketball team racked up $1,549,329 in expenses while generating an identical amount in revenue and, therefore, broke even. Nearly a third of the schools on the list show precisely zero in profits. However, a quick look at the source data shows that about $1 million of the supposed revenue for the team came from direct institutional support. The team didn't break even. It lost about $1 million. Large numbers of D1 basketball programs include direct and indirect institutional support, direct government support, or student fees as part of basketball "revenues." These are simply transfers from students, taxpayers, and other parts of the college that disguise losses in the basketball program and athletics in general.

But what about a powerhouse like North Carolina? While Holy Cross-sells, perhaps, $100,000 in tickets per year, UNC boasts basketball revenues of nearly $20 million. This money comes from complex sources like ticket sales, NCAA and conference distributions, and media rights. While the most current year's data from the Department of Education is not broken down into great detail, older data from the IndyStar shows no shenanigans on the revenue side at UNC.

Costs, however, are another matter. Nearly half of the Tarheels' athletic expenses are not allocated to any individual team but instead expensed to the athletic department. The older IndyStar data shows that the University issued zero dollars in costs to the basketball team for medical trainers, facilities and maintenance, promotion, or indirect institutional support. It's easy to have a good basketball team when your revenues count towards the bottom line, but many of your expenses don't.

Sometimes it is worth presenting the best information you have even though it's not perfect, i.e., something is better than nothing. Other times the information is so flawed that it is less than worthless, verging on the harmful. This is one of those cases, and CNN should know better.