Finance Chapter 14 Homework What Differences Structure Lead Financial Differences Among Ncaa Member institutions see Pages 389 Through

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Chapter 14

College Athletics

Go to the Chapter 14 folder in the Additional Instructor Resources & Solutions folder

to find the Excel spread sheet that accompanies this chapter’s material.

Chapter Overview

I. Introduction

II. Financial status of intercollegiate athletics

a. The race to build new athletic facilities

b. The race to change NCAA divisions

c. Other races to be won

III. Financial operations

a. National Collegiate Athletic Association

c. Schools

i. Financial profitability

IV. Athletic department fundraising

a. The capital campaign

i. Making a case

1. Campaign case statement

ii. Major gifts planning

iii. Identifying major donors and prospects

iv. Asking for donations

b. Annual giving programs

i. Athletic support groups

V. Endowment fundamentals

a. Endowed gifts

VI. Conclusion

Key Concepts

When reading this chapter, students should focus on the following key concepts:

1. It is difficult for college and university athletic departments to generate more

operating revenues than operating expenses, despite the appearance that

programs are awash in money.

2. Allocated revenues are the foundation of most athletic department revenues.

Quiz Questions

Multiple Choice

1. What are the primary sources of NCAA revenues?

a. Television and marketing rights fees

b. Championship tournaments

2. What is the NCAA’s main expense?

a. Salaries

b. Distribution to Division I members

3. The NCAA distributes revenue to member institutions based on a specific

formula. Of the following, which is a criteria for establishing the amount of

revenue a member receives?

a. Historical performance in NCAA Division I Men’s Basketball Championship

b. The number of sports sponsored

4. NCAA v. Board of Regents affected television revenue generated from which

sport?

d. All of the above

e. None of the above

5. For Division I–FBS Group of 5 conferences, increased revenue depends on which

of the following?

a. Performance in the NCAA men’s basketball tournament

b. A conference football championship

6. For schools in Division I–FBS conferences, where does the largest portion of the

athletic program’s revenues come from?

d. Baseball

e. None of the above

7. College athletic department–allocated revenues include which of the following?

a. Ticket sales

b. NCAA and conference distributions

8. According to which gift table rule does the top 10 gifts to a capital campaign

account for 33% of the campaign’s total goal and the next 100 gifts account for

an additional 33%?

a. Rule of thirds

b. 80/20 rule

9. Of the following, which is a trait of a major donor?

a. They often desire to provide opportunities that they did not have while

growing up, to help the less fortunate, to improve quality of life, and to

help solve problems in society.

b. They tend to be very religious, have a strong belief in free enterprise, and

are basically conservative.

10. Which factor is driving up the operating costs of a college or university athletic

department?

a. Arms race

b. Moving up a division

True/False

1. T or F NCAA revenue distributions to member schools go directly from the

NCAA to the school.

4. T or F An analysis of NCAA revenues and expenses shows that operating

expenses are growing on par with or increasing faster than operating revenues

depending on division affiliation.

5. T or F To reach a capital campaign goal, development departments need to

receive major gifts from program supporters.

9. T or F Another name for a university’s athletic support group is booster club.

10. T or F The revenues that member schools receive from conference distributions

are the largest percentage of overall departmental revenues.

Answers to Quiz Questions

Multiple Choice

1. a (Exhibit 14.1)

2. b (Exhibit 14.1)

True/False

1. F (p. 376)

2. T (p. 384)

Responses

1. How does money flow from the NCAA to its member institutions?

See pages 376 through 377. Money flows from the NCAA to its member

institutions through the conferences. Each conference sets policy determining

1. School’s historical performance in the Men’s basketball championships

2. Number of sports sponsored

For Division II, distribution is based on the school’s historic performance in the

Division II men’s and women’s basketball championships, the number of sports

sponsored, plus an equal amount given to all members.

2. What differences in structure lead to financial differences among NCAA member

institutions?

See pages 389 through 393. The first difference is whether the school is in

Division I, II, or III. Schools then differ depending on whether they have a football

3. What financial role does play at NCAA Division I–FBS institutions? How does this

compare to Division I–FCS institutions?

See pages 376 through 380. For schools in major conferences, the largest

portion of the athletic program’s revenue comes from media rights deals, which

4. Why are an athletic department’s development efforts so critical?

See page 393. With many public universities facing cuts in state appropriations,

athletic departments are being squeezed on two fronts. First, those receiving

money through some form of state support are seeing cuts in this level of

5. What problems may exist in the relationship between donations and ticketing at

college athletic events?

See pages 399 through 402. One problem is the equitable allocation of ticketing

based on giving. Point systems have been developed to assign tickets to donors

in an objective way. Donors are awarded points based on the amount of annual

Responses

1. As director of development for Southern Ohio State University (SOSU), you have

been charged with developing a plan to endow 12 men’s basketball scholarships.

The current cost of a scholarship athlete is $45,000. With tuition expenses

expected to increase at a 5.5% rate annually and the endowment’s return

expected to average 7% over time, calculate the total amount that will have to

be raised to fully endow the 12 scholarships.

As the cost of tuition is expected to grow at a rate less than the endowment’s

expected rate of return, the cost of endowing the scholarships is based on the

2. Based on your work in Problem 1, develop a major gifts table for the capital

campaign. Explain the method you used to construct the chart.

A traditional gifts chart should be created for the campaign to endow the

scholarships (p. 395–397). As this campaign appears to be separate from larger

Responses to Questions

1. How are development efforts used to fund athletics at your institution?

Most colleges and universities have detailed development information on their

websites that can be used by students to gather information to answer this

questions. [For example, at the University of South Carolina relevant information

2. How do these development activities at your institution compare to North

Carolina and Duke’s activities?

Duke and North Carolina are building endowments for their programs, especially

3. What risks are involved when relying on the interest earned from an endowment

to fund an athletic department’s program?

When the economy slows and/or stocks decline in value, the return from the

4. What are the benefits of using endowments?

Programs, if the endowment is managed properly, are funded in perpetuity. If