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Revenues and costs in the PAC-10

Today's Daily Bruin brings a very nice article by Andrew Finley on the problem of generating revenues and managing costs in the PAC-10. UCLA has managed to balance the books for all but one of the past 15 years. This year they reversed the lone deficit into a tiny surplus on revenues of about $44.5 million.

There are plenty of facts in Finley's article, and several puzzles. Read the piece for the facts (it is good). Here are the puzzles:

1. It is alleged that revenues in the PAC-10 are highly cyclical, because unlike Big-10 or SEC schools, the fans show up only when the teams are winning. But costs are not - coaches and scholarships cost about the same whether the record is 6-5 or 9-2. In a world where you spend what you earn, this implies that there be healthy surpluses in the PAC-10 in winning seasons to balance the losses in losing seasons. Is that implication confirmed in the data?

2. Cal is currently running an $8m deficit. That's huge, and is the "fourth multi-million dollar deficit in a row" at Berkeley. Cal runs 29 varsity programs, compared with 22 at UCLA, and 18 at Texas; Cal supports 923 student athletes, compared with 509 at Texas. Question: Where is this money coming from and who is on the hook for it? Prediction: in spite of the AD's protestations, Cal will soon reduce the number of sports programs.

3. Sports budgets are increasing in part due to a series of tuition increases in the double-digit range. While it is tempting to view scholarships as mere intra-firm transfers, the opportunity costs are real. If you eliminate the wrestling team and 10 scholarships, you remove the direct costs of the program, and are in position to collect tuition revenue from 10 paying students. High demand for University admission and high tuition will test athletic programs for the value they bring to the University. Does this not imply that swimming and the like are endangered sports? Are the days of the "scholarship-athlete" numbered in all but the revenue generating sports?

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