One of the first things you learn as a financial analyst is that financial statements don't tell the real story. You have to look closely at allocated expenses and in many cases restate them and reallocate them. I once worked for a business that applied a flat overhead rate to product lines which made a small product line look unprofitable so they sold the product line. Then they figured out there really was very little overhead actually used by the product line and it was actually very profitable. They changed their cost accounting after that and made a better effort to determine actual overhead costs per product line.
UConn's athletic accounting has many bad assumptions although I think they have been making adjustments. Think about this. If you recruit an athlete from CT, UConn says the scholarship cost is x. If the student is from out of state, the scholarship cost is 2x (+/-). Does that really make sense? Things like student intramurals, etc fall under the athletic budget. There are many other examples I could site, but we have gone through this many times before. The biggest revenue opportunity for UConn is from football and that requires turning around performance. And, ultimately, an invite to the P4 and higher revenues will come from having respectable football.
You have athletics budget accounting totally reversed.
The goal is to hide the amounts sunk into athletics from the parents of non-athlete students. Many people have thought the idea was to hide athletic costs.
As for your question about the recruited athlete from Connecticut versus elsewhere being accounted for differently, the answer to your question is YES it does make sense, since the expenditure for both students are closer to the tuition cost for the out of stater. The in-stater is supposedly subsidized, but as subsidies drop, the perverse incentive is created for schools to admit out of staters more easily into the school than vice versa.
It used to be that the goal of each department was to nurture as many students as possible into majors so that the department would be rewarded. Those days are long past at many schools since in-state students are considered losses to the bottom line. And they are.
Here are some of the major things hidden by the schools so others can't understand the costs associated:
1. Debt on stadium and facilities building. For instance, U. Michigan has bonded over $450m in the last decade on the stadium and arenas. The debt is held and accounted for by the university, not the AD. Penn State is considering $750m bond deal for stadium improvements right now.
2. Branding. All royalties are considered athletics income. I know athletics drive branding, but even at schools with no big time athletics, kids are going to buy hoodies with, for instance, NYU on the front.
3. Donations. It's been proven that many people that donate to universities do not realize that their donations are earmarked for athletics. For instance, they surveyed people who gave large $$ at a social event at the Longhorn Club at U. Texas. Most of the donors were unaware they were giving money to sports and not U. Texas.
If you really want to compare the cost of football, it would be interesting to see how much, say, Villanova spends on sports versus UConn. I know UConn has a lot more sports and spends a lot more for that reason, but I've seen athletic budgets at mid-majors skyrocket once football was added. Schools went from losing $10m to losing $35m overnight.
The colleges really are doing their best to hide these costs from parents, who seem largely unaware they are subsidizing sports each year with considerable amounts of money. Worse, if you're heavy on student loans, the student will end up paying for sports for the next 20 yrs.
The national media never discusses budgets when they make arguments for student athletes getting paid. If they did, there would be a national outcry. I have to think that someone is going to break this story now that athletes are getting paid a huge amount of money while students are subsidizing the AD at so many P4 schools. Especially with the price of tuition these days. This is a story that's just sitting on the T waiting for a little league reporter to knock it through the infield.
ctexaminer.com
