CAROLINA CRISIS: THIS IS BIGGER THAN YOU By Michael...
You Want ‘Cost of Attendance’? So Who is Going to Pay for It?
It remains curious in 2015, that after years of outcry to end the exploitation of the college athlete, which we all know is really exclusive to the National Collegiate Athletic Association’s (NCAA’s) Division I basketball and football programs, that the continual manipulation and deception visited upon the academic student body remains a hidden topic.
In a 2014 article by this reporter in Sports Life Magazine titled, RIP OFF! COLLEGE STUDENTS SUBSIDIZE BIG-TIME COLLEGE ATHLETICS, it was stressed that not unlike big-government programs, courtesy of the U.S. taxpayer, and largely with little oversight or accountability, the amateur athletic ranks under the purview of the NCAA and its various individual conferences, have ample room to commit fraud without any daylight.
Over the past couple of decades, we have seen both corporate and government schemes and ruses in business, bringing new meaning to the term hoodwinking. From Enron to the Dot.com bubble to the real estate bubble and its subsequent mortgage fraud which led to the financial crisis of 2008, now many economists anticipate a student loan bubble ready to pop. Such shakedowns have sadly become normalized in the U.S. money-making landscape.
Yet, it is important to try to shed light on these issues, especially when it comes to finances impacting those who can least afford it in the case of the student loan crowd, which helps to subsidize a good portion of big-time athletics, by means of student fees and tuition.
But in the latest incarnation, of the ever-expanding college athletic programs – that includes newer and bigger facilities and seemingly limitless multi-million dollar coaches’ salaries – are in no danger of slowing down. The latest gimmick by the NCAA and on behalf of its Big 5 Division 1 Conferences, a/k/a the Power 5, namely, the Big-Ten, the Big-12, the SEC, the ACC and the Pac-12, representing 65 colleges and universities, is about to obligate its academic students even more. This extended obligation however, has a new fancy term called Cost of Attendance.
In a nutshell, the NCAA, a non-profit entity, in its infinite wisdom, granted the Power 5 the autonomy it pined for in order to essentially control the vast revenue derived from multi-billion dollar contracts that NCAA Division 1 football and basketball programs have with television and radio broadcasters along with merchandising, licensing and marketing partners.
In RIP OFF!, it was pointed out that rising expenses in primarily basketball and football programs in many cases, are 50%-60% financed by academic student fees, with the constant escalation in the costs of tuition and in cuts to academic programs and even the other “non-revenue earning” sports. Mid-sized Division 1 schools, outside of the Power 5 with even less resources, feel compelled to attempt to keep up with the Power 5, obligating its students even more, thus contributing more to the student loan bubble.
Now we come to the loosely defined Cost of Attendance, which was approved by the NCAA’s board of directors in August 2014 and enacted in January 2015. As the Power 5 were rumored to try to break away from the NCAA entirely as a threat, they were granted their separate status, due to the overwhelming financial loss that the NCAA feared it would endure.
So the Power 5 came up with a plan to unwisely promise to have schools to pay not only for athletic scholarships, which cover tuition, fees, books and room and board, but many costs over and above such costs which a traditional scholarship does not cover.
An exceptional academic student could only dream of such promises. In fact, out of the nation’s 1200 colleges and universities, only about 1% of all students receive full school scholarships with about 7% receiving partial-scholarships. Other means of support comes from various grants and loans.
To date, the structure of how Cost of Attendance will work has been left up to the various schools, by the NCAA. Therefore, the infrastructure already in place –the familiar set-up from student fees, tuition costs and various cuts– will continue to provide a good majority of the additional costs and arbitrarily to be decided by school administrators and financial aid departments.
The associated expenditures for Cost of Attendance include: personal travel expenses, medical insurance and care, 4-year guaranteed scholarships, tutors, unlimited meal plans, personal school expenses such as computers, separate academic tracks and living quarters from the general student body, travel expenses for players’ families to attend playoffs, Bowl games and basketball’s Final Four, unlimited fitness gym access, free equipment and apparel, among other benefits.
Depending upon the specific institution, the additional benefits in addition to the scholarship could be as much as $6,000.00 per year, per athlete, which is a tax-free allocation. And in total, it could add up to as much as $40,000.00 to $80,000.00 per year, per athlete. Multiplied by four, five or six years, which some athletes require to complete a degree these days, a Cost of Attendance benefit could approach $200,000.00.
It has not been publicly disclosed just how much of a benefit would be available for medical care, once the student athlete leaves school prior to completing a degree. The medical policy and in fact many other issues have yet to be worked out. But let the bidding wars between schools begin, as this will set the new bar for business-unusual in the world of college athletics; as potential student athletes will most likely choose a school based upon the most goodies offered.
With so many questions remaining to date, as the fall term of 2015 approaches for the activation of this complex and tectonic change, it not only appears unrealistic at this time, but reckless. And the elephant in the room is asking, “How does all of this get paid for?”
The average sports fan, also misguided, believes the television contracts just trickle down to the athlete. But who does the sports fan thinks pays the broadcasters? Look at your cable or satellite TV bill! Furthermore, much of the supposed billions of dollars in negotiated contracts wind up in an ill-liquid endowment. Not everyone gets a piece of the pie, and the current NCAA endowment, approaching $500 million, is staying put.
Moreover, the Power 5 conferences distribute some revenue to the football playoff and Bowl teams, for example, but averages approximately a mere $2-3 million per season. The distribution of those competing in basketball’s March Madness, is an even more complex formula. The conferences also reward head coaches directly for various Bowl games, playoffs and championships. But again, similar to government programs, the list of those persons who actually know how and where the stream of revenue winds up is a very short one.
For those schools that earn a profit in any given year, the funds are spent before they arrive. And out of 120 top-tier schools, only about 20 finish in the black with only about six of those earning any profit. That is six colleges in the entire country! Schools wind up with deficits due to overspending to the tune of $7 million head coaches, $2 million assistant coaches, stadiums with skyboxes, new practice fields, state-of-the-art equipment facilities, medical personnel, and travel, among other things.
But with this vastly new encumbrance of Cost of Attendance, the old formula may but cripple the institution. Rest assured that the new plan certainly allows for unlimited student fees and there are no caps on tuition hikes or a plan to curtail cuts to academic programs or infrastructure. After all, there is always the academic student fallback plan by way of the student loan and the U.S. taxpayer.
Currently, U.S. student loan debt is approaching $1 trillion and student fees can add as much as $8,000.00 to $10,000.00, plus interest, to the cost of one student’s four year degree loan. Therefore, a sizable chunk of football and basketball programs are subsidized by both principal and accrued interest in many of these student loans, which can take years and years to pay off. The bureaucratic hierarchy is alive and well within the NCAA and its associated colleges and universities.
And do not expect schools’ endowments to kick in, either, for university and college endowments are largely ill-liquid as well, and many of such donations are ear-marked for specific purposes. Fundraising efforts are meant to grow the endowment not to build cash cows for athletics.
Another sticking point will be on how Title IX, a federal law requiring equity for women’s sports programs relevant to the men’s, has yet to be publicly addressed. It has been speculated that some schools will have a special carve-out for Cost of Attendance, specific to only football and basketball players. Perhaps the thinking is that if other “non-revenue” men’s sports are also not included in Cost of Attendance then it would be fair to eliminate women as well from receiving such benefits.
But given the setup for the haves and the have-nots that the Power 5 conferences and the NCAA have now guaranteed, rest assured that they will provide unlimited specious arguments to diffuse any necessary legal wrangling.
However, with regard to the anti-trust lawsuit, O’Bannon v. NCAA, the federal District Court’s Judge Claudia Wilken in August 2014 found in favor of former UCLA basketball player, Ed O’Bannon, and his class-action on behalf of Division 1 football and basketball players, as a case of “unreasonable restraint of trade.” The suit challenged the use of former student athletes’ images and likenesses in licensing, merchandising and multi-media without commercial compensation for them. Multi-millions of dollars are supposedly up for grabs, from the billions in NCAA broadcast revenue, according to O’Bannon. And the argument by the NCAA is that any payment would violate its idea of sports and amateurism and as decided in the 1984 U.S. Supreme Court case, NCAA v. Board of Regents.
But O’Bannon v. NCAA has been appealed by the NCAA and arguments were heard before a three judge panel of the Ninth Circuit Court of Appeals on March 17, 2015. It is no slam-dunk for O’Bannon et al.
Comments made during the hearing by the judges questioned Judge Wilken’s possible over-reach, on whether or not former players were indeed harmed and in what way and in what amounts each player would be compensated. Judge Wilken prescribed for a trust to be set up for players and amounts no less than $5,000.00 would be allocated for each, as long a player remained college eligible. And that court order has been written to take effect on August 1, 2015. Therefore, the current appeal is on a tight deadline for a decision by the three Ninth Circuit judges.
So, as it stands now, many questions remain and it is getting late early, as the 2015 fall term approaches. Given the snail’s pace and resistance to change by which the NCAA is known for historically, this sudden rush to spend and figure it out later is most disquieting and it has surely taken a page out of the government’s handbook.
And that does not bode well for our college students, nor is it sound fiscal policy for academic institutions. It is hardly reminiscent of their original intent of actually educating for the greater good.
Copyright ©2015 Diane M. Grassi