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Column: What Stanford’s program cuts tell us about the economics of college sports

It’s not good. 

NCAA Gymnastics: Men’s Gymnastics Championships Matt Marton-USA TODAY Sports

Initially, I was planning to focus this week’s column on the top opponent Ohio State football could play, regardless of conference. And then, last week, Stanford announced an end to 11 varsity sports. Things change — sometimes, very quickly.

That announcement, despite coming from the Pac-12, set off alarm bells across collegiate athletics and its respective fan bases. The fact the Big Ten announced a conference-only schedule for football in the fall and Ohio State abruptly paused voluntary workouts added to the general malaise surrounding the conversation of if college football will happen in just a couple months’ time.

One of the reasons Stanford’s announcement came as such a shock is because Stanford — literally, of any college sports program — is the most successful from top to bottom in Division I. The 11 programs cut represent nearly a third of the 36 varsity programs the private university has sponsored previously. Those eliminated programs include men’s and women’s fencing, field hockey, lightweight rowing, men’s rowing, co-ed and women’s sailing, squash, synchronized swimming, men’s volleyball and wrestling.

The Cardinal won seven national titles in the 2018-19 academic year, including in women’s volleyball, women’s swimming and diving, men’s gymnastics, women’s water polo, women’s tennis, men’s golf and lightweight rowing. Stanford athletics are iconic for reasons that extend far beyond the football field and basketball court. Winners of 123 NCAA championships by the end of the 2019 academic year (we’re not getting into 2020 for obvious reasons), Stanford represents one of the winningest athletic departments ever in the nation ever.

In fact, Stanford has won 25-straight Director’s Cups — of 26 ever awarded. For background, the Director’s Cup is given to the colleges and universities in the US with the highest level of success across athletics.

While COVID-19 was the catalyst that set the cuts in motion, the open letter from Stanford’s athletic department made clear that the university’s athletic programs were running at a deficit already.

Which naturally leads to questions of money, and the harsh reality that the economics of college sports are precarious at best when considering the ecosystem as a whole. For many schools, including Stanford, they’ve proven unsustainable. In fact, the revenue drivers for college sports are anchored exclusively in football and basketball.

The disparity in collegiate athletic revenue by sport is massive. In fact, according to a 2017 article from Business Insider, college football teams, on average, make more than the remaining 35 sports studied...combined. Oh, and men’s basketball is included in that group of 35.

This statistic should set off some warning bells. I don’t work in finance, but one of the top rules of investment is diversifying your portfolio (note that LGHL does not offer financial advice and if you’re coming here for that, maybe you should look elsewhere). If we consider the set of sports programs supported by the average university’s athletic department to be the “portfolio,” then most schools aren’t doing a good job of diversifying. Alarmingly, Stanford, given its continued success in non-revenue sports, should be better positioned than most to diversify its own portfolio.

However there’s a reason non-revenue sports are labeled “non-revenue,” and that’s because they take more money to run than they bring in. Despite not bringing in dollars, there is still significant value in these programs. From an athletic perspective, they develop Olympians and world champions, which brings prestige to the university. From a societal perspective, they provide opportunities for college education for thousands of students who might not otherwise be able to afford college. And from an individual perspective, sports provide opportunities for personal growth and achievement. Frankly, the cuts are heartbreaking in every way, and while the financials can’t be disputed, it’s a bitter pill to swallow.

Prior to these cuts, Stanford, a private institution, had more varsity sports than all but one Division I school with 36. Ohio State happens to be that one other school, with 37 varsity sports. Ohio State is also in a unique position in that both its football team and men’s basketball team are highly-valuable. In all, the athletic department brought in more than $205.5 million in 2018 (third-most in the NCAA) and actually transferred more than $3 million back to the school.

Additionally, according to USA Today’s annual report on NCAA finances, the university does not allocate any student fees, state dollars or other institutional support to the athletic department. The fact that Ohio State’s brand is cited as one of the most valuable in college sports also means significant revenue from licensing fees, further diversifying its revenue streams.

This influx of revenue for football means that football tends to fund most other athletic programs at individual schools. Due to COVID-19, heading into 2020, we already know revenue will be down significantly — both from reduced ticket sales (or non-existent ticket sales) to accommodate social distancing, and from a truncated schedule. It wasn’t hard to see the resulting strain on non-revenue programs coming.

In addition to Stanford’s cuts, many other schools, including several MAC schools, have already announced cuts to their own programs. If more and more schools follow suit, the benefits for the remaining schools of having those programs begin to diminish. For example, nine schools have already cut men’s tennis, and eight have cut women’s tennis. Suddenly, there’s less opportunity for scheduling, reduced sales in licensed merchandise (although Ohio State joggers are probably flying off the shelf right now) and investment among remaining programs gets reduced with more limited exposure.

Ohio State manages its athletic department finances pretty well, and diversifies better than most — at least bringing in decent money from two sports programs. But again, the university is unique. The inverted pyramid that is the college sports economic framework is predicated on significant investment in the highest-grossing programs: football and basketball.

But really, as we’ve seen, it’s mostly football. And what, you might ask, is the most sizable investment for these programs? The head coach, obviously. Clemson’s Dabo Swinney is the highest-paid coach in college football, bringing in greater than $9.3 million every year.

It’s not just head coaches bringing in the big bucks, though. David Aranda, the newly-appointed head coach of Baylor, was the highest-paid assistant coach in the FBS, raking in $2.5 million in 2019 when he was defensive coordinator at LSU. Clemson’s Brent Venables and Texas A&M’s Mike Elko are the two other assistants in the FBS who made more than $2 million in 2019.

Sure, coaches, including assistants, get paid highly because that’s their market value, right? But if the metric is national and conference championships, there are a limited set of coaches who should be making that much. Dabo happens to be one of them. Nick Saban happens to be another. Jim Harbaugh (No. 3) doesn’t meet that criteria.

Which brings us back to the issues surrounding funding of non-revenue sports. So when there’s that much investment at the top of a football program that is not achieving success, how does that hinder growth in other programs where that investment might be used to achieve results (i.e., championships)?

The room at the top of college football is limited and, in recent years and realistically all-time, has been dominated by a limited number of teams. Parity itself varies in other sports programs (consider how Ohio State has controlled the synchronized swimming landscape for the better part of four decades while other sports have more variability in champions year in and year out).

Hopefully the strain we’re going to see across athletic departments this year is isolated to this year alone, but what we’ve already seen from the immediate effects of COVID-19 on college sports means that the whole system has the potential to come crashing down around us.

Welp, on that depressing note, bye for now.