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Switching Divisions, Again

The NCAA and officials from the remaining D2 schools are worried about the loss of schools in D2. Back in January, I had this post on switching divisions. This past weekend, officials from D2 colleges met in Orlando, Fl. to discuss the exodus. The Chronicle of Higher Education ($$$ req’d) had this to say about the meeting:

Seeking to stop the exodus of colleges and universities from Division II athletics, chancellors and presidents from more than 150 Division II institutions gathered here over the weekend to discuss new revenue opportunities and ways to get more exposure for their neglected athletics programs.

About a dozen Division II colleges have switched to Division I play in the past five years -- the largest decline ever, according to the National Collegiate Athletic Association -- and at least nine of the remaining 281 Division II institutions are considering a transfer.

The NCAA has released this report by Jonathan and Peter Orszag on the finances of D2 with sections on schools that switch Divisions. Using data*** from the 92-93 academic year to the 02-03 academic year, the authors examine various financial indicators of the health of D2 athletic departments and those that switched from D2 to D1. According to this article in the Chronicle of Higher Education ($$$ req'd), the results, so far, haven’t been pretty:

Colleges and universities expecting to increase their athletics revenues by moving from Division II to Division I instead incur shortfalls of about $3-million a year, according to a report scheduled to be released on Saturday at a meeting of Division II chancellors and presidents.

The average shortfall is what remains after subtracting institutional support (which does not include student activity fees) from the “revenues”, support which averaged approximately $2 million per school. The authors also note that when institutional support is excluded from the calculations, no school recognized positive net revenue from the change.

The prestige of becoming a Division I program -- which holds the allure of higher ticket sales, bigger sponsorship deals, and increasing student enrollment -- sometimes blinds institutions to the financial repercussions of the move, said Jonathan M. Orszag, one of the study's authors. Instead, the study found that colleges suffer financially for at least the first five years after they switch to the higher classification.

The report also found that, for every dollar Division II institutions spend on athletics, they get only 20 to 60 cents back in increased revenue.

According to the report, increased student activity fees, a separate revenue classification from “institutional support,” accounted for a large portion of the increased “revenues” at many of the institutions that switched divisions. One can almost hear the line from Dean Wormer in Animal House: “I think we can arrange for a nice little honorarium from the student fund...” .

Most of the increases in expenses come from scholarships (grants in aid), coaches’ salaries, and team travel. Since a D1 program must sponsor more sports than a D2 team, this is not surprising. Grants in aid are an interesting animal because they mask the economic cost of an athlete to a school. Unlike travel expenditures and coaches’ salaries, grants in aid represent money that is largely shifted from one part of a school to another.

What are some of the characteristics of schools that moved? According to the report, schools that switched tended to 1. be larger schools, 2. be public schools, 3. have lower SAT/ACT scores, and 4. have slightly lower acceptance rates.

The authors note several things about why schools moved:

1. A psychological boost from switching divisions.

2. To improve visibility and the public perception of the school.

3. To improve fundraising (there is no evidence that this occurred).

4. To improve legislative appropriations (schools tended to be larger schools and public schools) – one of the people interviewed for the report suggested this was an important reason the person’s school went D1.

Because larger public schools are more likely to seek to switch divisions, I’d be willing to bet #4 is a pretty big item in the decision. The authors also argue that the officials at schools that moved did little financial homework on the financial repercussions of switching divisions. It’s easier to undertake a risky venture without doing your homework when you are being subsidized.

***Statistical note: The data consist of survey data from colleges that either are or were D2 schools during the time period under investigation. Many of the analyses, like those mentioned above, came from analysis of various regression models. The authors note that their data only allowed analysis of 20 schools that switched divisions in at least one sport and the regression results upon which their analyses are based differ across models and many of the statistics are insignificant. So, take care in interpreting the results.