Athlete Revenue Sharing Could Force Major College Budget Shifts

·8 min read

March Madness will begin this afternoon and keep college basketball fans entertained for the next two weeks. Many in the industry, however, have their eye on another timeline.

With Florida’s Name, Image and Likeness (NIL) law set to go into effect on July 1 and with the NCAA punting on NIL rules as it awaits a summer ruling from the U.S. Supreme Court in NCAA v. Alston, members of Congress are under pressure and seeing opportunity. Different sectors of the college sports industry have lobbied them to pass a federal NIL statute. Such a statute would establish a national set of rules for college athletes to hire agents, sign endorsements and profit from their athletic celebrity and social media influence.

The impact of other structural changes could be greater than anticipated, even by the legislators, and could cost larger schools millions and incentivize smaller ones to review the viability of teams.

There is no shortage of NIL options, with Democratic and Republican lawmakers offering varying takes on the same basic concept. Sen. Roger Wicker (R-MS)’s bill (S.5003), for example, would create a uniform, nationwide framework. Several other bills, including S.5062 proposed by Sens. Cory Booker (D-N.J.), Richard Blumenthal (D-Conn.), Kirsten Gillibrand (D-N.Y.) and Brian Schatz (D-Hawaii) and S.238 proposed by Sen. Chris Murphy (D-CT) and U.S. Rep. Lori Trahan (D-MA) contemplate farther-reaching changes. Those changes include the use of group licensing, new legal claims for college athletes and civil rights inspired provisions.

A person familiar with Capitol Hill negotiations tells Sportico the different groups are being urged to reach a compromise or hybrid bill. It would incorporate the features of NIL-targeted proposals while adding aspects of the more transformative offerings. There is optimism a compromise could be hatched before July 1 so that it could secure passage in both houses and arrive at the desk of President Joe Biden.

Revenue sharing is one concept that has drawn particular scrutiny in NIL negotiations. Under S.5062, college athletes in revenue-generating sports would share in the proceeds. Specifically, every eligible college athlete in a covered sports team (expected to be football and men’s basketball) who participates in an eligible division (Division I) would receive a portion. The sharing would consist of the total amount of revenue collected, divided by the number of eligible college athletes who participate during the reporting year.

The underlying logic for revenue sharing is straightforward and regarded by many as persuasive. College athletes help generate billions of dollars that benefit universities and their business partners. While coaches sign multi-million dollar contracts, schools construct state-of-the-art stadiums and athletic departments land lucrative sponsorships while athletes are denied the fruits of their labor.

The plan offered by Booker’s S.5062 would legally compel sports that generate more revenue than expenses to share 50 percent of their profit, after deducting grant-in-aid costs. Those costs include scholarships and other forms of financial assistance, including tuition, room and board.

As defined by the bill, “commercial sports NIL revenue” refers broadly to “the amount of total annual revenue generated from the athletic program at an institution of higher education.” This provision would only apply to a “covered sports team,” which is defined as “an athletic program that participates in a division or subdivision for which 50 percent of the total commercial sports NIL revenue of every institution of higher education that participates in the division or subdivision is greater than the total amount of grant-in-aid provided by those institutions of higher education to eligible college athletes that participate in athletic programs in that division or subdivision.”

These provisions indicate that football and men’s basketball—both of which generate more revenue than the total amount of grant-in-aid spent by schools—and possibly women’s basketball would be subject to revenue sharing.

Sportico has reviewed NCAA Membership Financial Reporting System data and annual Equity in Athletics Disclosure Act (EADA) reports, which universities have filed with the U.S. Department of Education. We focus on five schools that feature varying levels of revenues and expenses: Alabama A&M, Central Michigan, Georgia, Louisville and Texas.

Caveats:

Before discussing our projections, we wish to acknowledge several notes of caution.

Most important, these are estimates—not firm calculations.

To that point, we make a series of debatable assumptions. For instance, we rely on the revenue sharing feature of one bill, S.5062. This bill has no effect unless and until it becomes law. Should revenue sharing appear in a compromise bill signed by the President, it would likely be structured differently, perhaps dramatically so. For instance, an alternative design might envision a more restricted definition of “NIL revenue” or take into account expenses beyond grants-in-aid. There are numerous possibilities.

We also rely on 2018-19 fiscal year data, rather than data from 2019-20, because of the pandemic. Further, we do not forecast future data that would be used to calculate actual figures. While 2018-19 data is likely representative of a school’s revenue and expenses going forward, it is different from data that would be subject to revenue sharing.

Lastly, we make a ballpark projection of estimated medical fund contributions. In Booker’s bill, schools would be responsible to contribute to a medical trust fund to cover out-of-pocket expenses for college athletes relating to any sports-related injury for five years after their collegiate playing career ends. The mechanics of this process are not clarified and are left to a commission that would be created as part of the bill. We calculate the contribution as 4% of revenue for schools. This estimate is based on insights gained from conversations with college sports administrators.

Results:

With those important caveats acknowledged, projected revenue shares for schools would be sizable.

This is especially apparent with the high-revenue schools. Texas would share $84.1 million in revenue and also contribute $9 million to the medical trust fund. The total expense for the Longhorns: $93.1 million. This amount would far exceed the difference between the athletic department’s total operating revenue and total operating expenses, $19.7 million (athletic departments are nonprofits). Georgia would face a similarly sizable tab. The Bulldogs would distribute $65 million in revenue and make an additional medical trust contribution of roughly $7 million, for a total cost of $72 million, or about $42 million more than what they take home after expenses.

Louisville’s price tag would seem minor only by comparison. The Cardinals would be on the hook to allot about $44 million in revenue and spend another $5.6 million for the medical trust fund. The athletic department reported $11.2 million more in total operating expenses than total operating revenue in the 2019 fiscal year.

Even the two smaller programs, Alabama A&M and Central Michigan, would apportion a sizable amount of revenue. The athletic department of Alabama A&M, a historically black college and university with an enrollment of around 5,000 students, netted $163,776 in 2018-19 after deducting expenses from revenue. Although our data on Alabama A&M is more limited, we project the Bulldogs would be required to share about $1.9 million in revenue and contribute another $551,288 to the medical fund.

Central Michigan, meanwhile, would share about $695,000 and also pay just under $1.4 million in its medical trust fund. While $2 million pales in comparison to the amounts that would face the larger programs, Central Michigan’s budget is also much smaller. Its operating revenue is $34.9 million (about 70% of which reflects direction institutional support) against $33.3 million in operating expenses, leading to a narrow margin of $1.6 million—less than would be paid in sharing and medical trust fund payments.

Impacts:

For advocates of reforms designed to more closely align the revenue-generating activities of football and men’s basketball players with money that athletes receive, revenue sharing would be welcomed. Players would receive payments that reflect their labor and assist them and their families in tackling financial challenges. The medical trust fund, meanwhile, would help athletes manage health care expenses after their collegiate careers end.

The impact on schools could be borne out in several ways. Substantial allocation of revenue away from schools would (obviously) reduce athletic department’s finances. Although it varies by school, money generated by the two revenue-generating sports is normally used to fund non-revenue generating sports. Title IX would make it difficult for schools to cut women’s teams, though such excising could still occur if schools first eliminated men’s teams. Given recent cuts by schools, including Stanford, revenue sharing would likely bring on additional worries.

Alternatively, schools might respond by curbing their athletic department spending. Maybe schools would no longer offer coaches exorbitant contracts or construct extravagant facilities. Accounting practices could also change. Schools might redesign how they compute and report revenue and expenses. Any reductions of revenue—whether “real” or “on paper” through revised accounting strategies—would lower amounts of revenue shared with athletes.

The manner in which schools navigate revenue sharing would also hinge on other features of legislation. S.5062, for example, would prohibit a school from eliminating funding for a team “unless all other options for reducing the expenses of the athletic program, including reducing coach salaries and administrative and facility expenses, are not feasible.” Whether a similar constraint would appear in a bill that became law remains to be seen.

One thing is for sure: How revenue sharing shakes out would be fascinating to watch.

More from Sportico.com