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BU '90 here as well.Great added points!
I think sports act as the typical flagship university's front porch which helps build enthusiasm within its home state, helps with building its state budget commitments, creates exposure to prospective out of state students, and sustains/builds connections to alumns and donors.
In terms of BU (my undergraduate alma mater), there are a few dynamics involved. We actually had a high performing football program at the Yankee Conference/1AA level when the plug was suddenly pulled in 1997; sent several guys to the NFL in the 80s and 90s including Bill Brooks who was 1986 AFC Rookie of the Year.
BU was one of the first American universities to strongly go after high performing international students. If you walk the campus or step into the student union now you might not even think you are in a US city. This increased the academic profile of BU and that helped with recruiting more high profile US students as well. Research was also focused on and now BU is in the AAU and is considered one of the leading research universities in the US and even globally in certain fields (medical, life sciences, high tech, socio/politics, etc.). Pretty remarkable trajectory over a couple of decades, actually.
Long way of saying, athletic success and academic success can work together but obviously can be mutually exclusive as well.
I'm always interested too in the question of branding. Typically, the AD gets all the money from the sale of sweatshirts and the like. But if anyone steps foot on Cal Santa Barbara's campus, NYU, Boston U, etc., there's some people wearing school colors. It's not strictly a sports thing.