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NCAA DIVISIONS I-AA, I-AAA, II AND NAIA
ECONOMIC REALITIES OF COLLEGE ATHLETICS
(Tuesday, June 11, 11:15 a.m. -12:30 p.m.)

JACK DOYLE:

We are fortunate to have with us two outstanding athletic administrators for a presentation on a topic which is of concern to all of us, Economic Realities of Intercollegiate Athletics. Items covered will be future planning, trends, long-range planning and committee studies. It will be my pleasure to introduce Joe Keamey, and Diane Wendt will introduce Dick Schultz.

Joe Kearney is one of the nation's most respected adminisb'ators. Presently, he is a commissioner of the Western Athletic Conference. He served on NACDA 's executive committee and as president of the Collegiate Commissioners Association, chairman of the NCAA Special Committee on Amateurism and the NCAA representative to the U.S. Olympic Committee Executive Board. He was recently appointed chairman of the NCAA 's new Olympic Sports Liaison Committee. Joe will be the recipient of the prestigious James J. Corbett Award at our luncheon this afternoon. It's my pleasure to introduce this morning, Joe Kearney.

JOE KEARNEY:

Thank you very much. Jack. Let me flfSt extend greetings from all nine members of the Western Athletic Conference. It is a pleasure to be here. One of the things I looked forward to during my days in the chair of athletic director was the chance to come to these meetings. Then. early in my career as a commissioner. they were kind enough to give me a four-year term on the executive committee. which meant that I continued the involvement

Dick and I talked a bit about how to approach some of these issues. What we decided to do was a before and after affect My portion is to comment about where we are now, how we got there and identify some of the future's challenges and dilemmas. My total background in intercollegiate athletics has been in Division I-A, so if you'll forgive me for that, that's going to be my base of operation. Dick's portion, not only will deal with the here and now, but he'll look to the future and pose some questions and challenges for all of us to look at We hope to present our information in a fairly concise and quick manner so that we can have as much time available for question and answer, because my sense is that you can gain a lot more from getting some individual questions going.

What you might be expecting is perhaps like the story where a young freshman came back to his small rural home town after his first year in college. He was happy to be back. He felt he had grown a lot He was a little more mature. He went right out to the local swimming pool which was the habitat for all of his friends. There, he told them about his fIrst year. Part way through doing this, he looked across the pool and there was a new lifeguard. Was she gorgeous! He went across with his new-found confidence and asked her for a date. Much to his surprise, she accepted and gave him her address. She told him to be at her house at 7:00 p.m. and said he might be invited to dinner by her parents. He thought this was going to be great He ran to the local drugstore and took the druggist aside and said to him, "I want 10 pounds of your very best premiere chocolates." The druggist told him he had a 10- pound box of Godiva Chocolates that he could not get rid of IJfid offered it to him at a very good price. He said, "No, you don't understand. I've got this date with this gorgeous young woman and I want a two-pound box, a three- pound box and a five-pound box." The druggist asked, "Why in the world would you want that?" He answered, "Well, if she's not a real good date, she's getting the two-pound box. If she's better than average, she's getting the three-pound box. But, if she's everything I hope she'll be, she's going to get the five-pound box."

At 7:00 p.m., he arrives at the door. Her Mother answered the door, took him right into the dining room and said we're just sitting down to dinner. Her Mother asked him to say the Blessing. He starts with the traditional blessing. Pretty soon, he's blessing the city council, the county commissioners, the governor, the House of Representatives, the President, and everyone else. Everyone is getting itchy. Finally he said, "Amen." The girl leans over and said, "I didn't know you were that religious." He leaned over and said, "Boy, I didn't know your Dad was a druggist." So, you don't know if you're going to get the two-pound, the three-pound or the five-pound. I hope you'll get the five-pound box today.

Let me talk about how we got here. I'm not going to dwell too much on the early history other than to say that we know that intercollegiate athletics was founded and administered early by students. We found the prototype of the fIrst director of athletics was called a graduate manager. We saw, at the turn of the Century, the organization of conferences and the NCAA for rules and regulations. We had a golden opportunity at the early part of this Century to do something positive about women's athletics, but the knowledgeable people felt that women's athletics should go a different direction and, unfortunately, they didn't grab the opportunity right there so that both programs could continue to grow and develop at the same time.

We then saw in the 2O's the fIrst breakthrough of a lot of money coming into athletics because of the popularity of college football. It began what we call our fIrst golden era in intercollegiate athletics. We then saw it throttled back by the advent of the Depression and we saw a totally different kind of athletic program during World War II. As soon as the War was over, we began the new eras. We began to see a second golden era starting in intercollegiate athletics where, once again, there were larger stadiums being built. We were seeing an increase in attendance and in revenue. The money picture looked a lot better. At the time all of this was happening, basically, we had college football, college basketball and a few other sports that could generate a little bit of money. We referred to them as major and minor. We saw a great increase in facility development that was the start-up point for the continuation of facility development that goes on today. But, there was a great growth period in the SO's and 6Q's and we've kept that particular cycle going, but not nearly the big spurt that we had at that time. We also found that intercollegiate athletics was governed at that time by outside associations. That was the norm. A lot of them were tied up with student bodies, student councils, some was outside business and associations and were incorporated, but the norm for the administration in development of intercollegiate athletic programs was outside associations.

As we began this boom era, we found that the university became more and more interested in what was going on and determined it would be nice to start making the transition from being governed by outside associations to actual departments of intercollegiate athletics. Once that started, a few people thought this would be great. That means we're going to get some additional economic help and relief. That did not happen. In fact, the common by-word was to come in and we will bless this association and you're going to be an integral part of the university and you're going to be a department of intercollegiate athletics. But, bring your own method of fmancing with you. Which meant, in Division I in most cases, basically self-sustaining or with some minimal help from the university or other agencies.

So, we saw this happening in the SO's and 6O's and most of it was completed by the mid-6O's to 7O's. We found at this time, that there was really a surplus of money. We saw departments of intercollegiate athletics building recreational facilities and doing some things for the good of the whole university because at this golden era, before they had taken the next step, they found themselves with a surplus of money. At that time, their sources of money weren't a lot different than they are today: they were football and basketball related. Most of the bigger, prouder universities did little or no fund raising. They looked down their noses at the first institutions that decided to go out and do some fund raising. There wasn't significant income from television. Radio, in many places, provided much more income than t.v. did at that particular era. The bowls weren't nearly as numerous and the bowl income was nol that significant They dido't have marketing and promotional staffs hired. The person who did most of the leg work on that was the old-time SID. For those of you who have been around for awhile, they used to send the SIDs out 01 Monday or Tuesday to get all the big news conferences of the. host team and go around to visit all of the media outlets, electronic and print All to try to promote from that perspective. We did not see national recruiting or national scheduling at that time. We saw more regional recruiting and more regional scheduling. All of these have cost implications as we go down the line.

Unfortunately, at this time, we started to see the demise of the educator coach. In the years shortly to follow, 1 saw the beginning of the entrepreneur coach, which is a totally different kind of approach. That doesn't mean that today we don't have educator coaches. We do. But, there was a new model being born during this era. We then decided to get rid of those words, major and minor sports, by going to revenue and non-revenue. During this time, with the excess of money, we decided to give a lot more financial aid to non-revenue sports, give them expanded schedules, go from part-time to full-time coaches. We were building a base that was going to give us some big economic problems as we went down this road in the mid to late 6()'s.

During my tenure at Washington, from 1964 through 1976 as athletic director, by the time we got to the late 60' and early 70's we were granting 305 full scholarships for 14 men's sports. One hundred and eighty were for football and basketball and the other 125 were for non-revenue. That happened progressively over a number of years. Some things were taking place that were going to then make a major impact as we got down the road in the 1960s. That fIrst major problem was what we called double digit inflation. As we widened the base, we widened the problem.

So when we hit double-digit inflation a number of things started to happen. The NCAA had a series of cost- cutting conventions in which we started to haul back and put some limits on. The basis for these meetings was, obviously, fmances. We had to do something and do something very dramatically. Also, at this time, we saw the fIrst university presidents showing up at NCAA conventions. The motivations for their participation were defmitely economic because, for the fIrSt time, some of them were seeing red ink, which meant either they were going to hav, to cut back or the university would have to step forward and add some additional funding. In some cases, that happened. In other cases, they had to make their own adjustments.

The next step was something that we needed to do many years before: that was the incorporation of young women into intercollegiate athletics. This began at the very end of the 60's and on into the 70's, at a time when ti athletic directors had been through these multiple cost cutting conventions and seemingly were coming out of the woods fmancially and getting back to black ink. We had to go out and make some more money, which we did.

Those proud universities were also out there on the block, and had fund-raisers on their staff and were looking at marketing, and the job got done over the years. We were able to make the necessary adjustments and still offer, in many cases, more sports and more participation with the combination of men and women. But, it was a tough era for the athletic administrator of that day to go out without any new visible income. They had to utilize the sources available at that time.

We saw some encouragement to some degree. We saw a little more money coming out of television. We also saw that we were able, through the NCAA, to once again get another cost-cutting type of convention and come up with some other restrictions that lowered the level of commitment The main thing at that time was that we just come out with an even playing field. That's one of the realities after the economic cutbacks. We also saw the growth of the NCAA tournament and the popularity of that tournament, and the ability to generate additional resources to the institution from the tournament. We saw conferences talking about expansions and some of the motivation for expansion is economic. Hopefully, if you go to divisions, maybe you save money on travel. If you go to divisions, maybe you can have that extra football game. There's a whole flock of reasons out there for conference expansions at this time.

Basically, we have to examine the kinds of questions for the here and now. Conference expansion is good. Will it continue? If so, what purpose? T. V. dollars wouldn't be nearly as prosperous as some of the contracts that both Dick and Chuck have been able to genemte these past years. I see a decline in the years ahead for anyone relying too heavily on television dollars. There was a time when you could use the term, you play your way on the television. You get so good that somebody wants to see you. To some degree, that was the case in bygone years. More times than not, not always, the people who administer television look at the number of T .V. sets in an area and that is a very big determinant. That puts an interesting dilemma for the people in a not-so-great population area.

You look at the bowls or playoffs. Which one? Can you have both? If you do, how? You have a lot of people talking about those issues around the country .The new model is being talked about. Intercollegiate athletics has to be more closely aligned with the university and become a more integral part of the university. There's a lot of people who will say, "Amen, that sounds good." We still have the same dilemma that we did when we became a department of intercollegiate athletics from an association, but bring your own dollars and solve your own problems. Hopefully, there may be some consideration down the line of developing a university philosophy about intercollegiate athletics and being able to then commit the kind of resources, along with those that are self -generated, so that you can have the kind of program that your philosophy dictates.

Will there be financial aid based on need in the future? Will there be unionization with our athletes? What about the government? We've got the IRS looking at sponsorship money. We've got the IRS determining whether they want to tax bowls. We've got the IRS thinking about looking at departments of intercollegiate athletics to determine if they fit tax exempt non-profit. That's not an unrealistic problem out there. We're right now going through all of the dilemmas of the FfC Anti-Trust dialogue with the CFA, ABC, CBS, ESPN and the two conferences, the Big-1O and the PAC-1O. What would be the future fallout for a negative ruling on that? What about anti-trust? Should we get an exemption like the pros. I think that's a good question to discuss. Lastly, does the future hold excessive state & federal government interference and influence on the way in which we do business and how we do business?

I would like to share with you a true story. As a young college student, like all of you if you've taken an education major, you get a couple/three education professors more than once. This man was a grand old professor that I had three times. After awhile, when he took his coat off, I knew what lecture was coming. And, it was the same lecture. I had it three times. I don't think he ever wanted us to forget it. He would get up there, grab a piece of chalk, and say, "Before you leave and go out and have any impact on the young men and women of this world, you've got to go out and develop a philosophy." He'd take the chalk and make the biggest P you ever saw. "Now philosophy is number one and most important. If you do it right, your philosophy will dictate your program." He went on to say the importance of developing a good, strong program that was based and structured off this philosophy. Then he said, "Then, that program, coupled with your philosophy, will dictate your funding." PPF philosophy is what we called it. I got my flfSt job as a young high school coach. The principal called me in and he said, "Kearney, here's the amount of money you've got to work with. From this, let's determine what kind of program you can have. You know, it would give it a touch of class if you could come up with a philosophy for all of this." I had those letters, PPF, in every job I ever had, but I have never had them in the order in which they were delivered. They were always in reverse order. Thank you for your kind attention.

DIANE WENDT:

Thank you, Joe. Tbat's a great framework for us to get a good overview. My name is Diane Wendt, and it's a special pleasure to introduce Dick Schultz, Executive Director, of the National Collegiate Athletic Association. Dick received his undergraduate degree in physical education at Central College in Iowa. He pursued graduate studies in Physical Education and Athletics Administration at the University of Iowa. He's received Honorary Degrees from four different colleges. Dick has been head baseball coach and also head basketball coach at the University of Iowa. He was Director of Athletics at Cornell University , and also served in that same position at the University of Virginia before taking the position of Executive Director of the NCAA in 1987. He serves on the Fellowship of Christian Athletes National Board of Directors and was elected Chairman of the Board of that Association in 1990. He serves on the Knight Foundation Commission on Intercollegiate Athletics and is the chairman of the NCAA Foundation. He is a man of vision with a can-do attitude. We are pleased to have him here today. Please join me in welcoming, Dick Schultz.

DICK SCHULTZ:

Thank you, Diane. I think Joe has outlined all of the issues. I would like to add a couple of things to that, and talk about some of the current events and some of the things that we're going to have to deal with in the months and years ahead. Reflecting back now on, I hate to admit it, 40-some-years in athletics, I think one of the fallacies we've had at the collegiate level in dealing with our fiscal problems is that whenever we've had a shortage of dollars or an economic downturn, our response to that, in most cases, has not been belt-tightening, or seeing how we can operate a little bit leaner, but taking the other approach: How can I develop more revenue to cover the costs that I have. We've got to change our thinking. We need to, obviously, develop more revenue. That's an on-going challenge that we have as athletic adminisb'ators. It's foolish to feel that we can always continue to generate more revenue if we don't have good, responsible cost controls on the other side of the picture. Unfortunately, in 1991, we're probably going to be suffering a little bit from that mode of operation.

Our programs have expanded, not only from gender equity programs in Title IX, but even the programs that were in place have expanded dramatically. We've had the impression that bigger is better. We have larger staffs, coaches, adminisb'ators, promotions and we feel that will make us better in what we do. That is not necessarily the case.

When we take a look at higher education today, we find that nationally, we're in a very tough financial situation right now. During our national convention, we had 15 or 16 presidents and chancellors called back from that convention for emergency budget meetings. A number were called back the day before the convention started. As you well know, I travel extensively because of the size and scope of our organization. I've been on a lot of college campuses and I've talked to a lot of presidents and athletic directors, and I don't know of anyone getting a budget increase next year, especially if they're in a state school. Virtually all of them, at the very best, are getting a zero budget situation and, in many cases, budget cuts. Unfortunately, a large number of schools have been forced to take five to six percent cuts for the full year just in the last quarter. I can guarantee you that the people in those institutions now have their attention because sometimes that's very difficult to do.

We read in the paper that some think that the recession is starting to bottom out I was in Chicago and had the opportunity of sitting in on a panel of five very dynamic and highly successful chief executives of Fortune 500 companies, and their prediction is that it's going to be at least three to five-years before we recover from this recession. So, the indication is that if you're in a state school, those same tax short falls that you're experiencing today might still be there for the next two or three years. If that's the case, we're going to be in a real belt- tightening mood for the years to come.

Joe has talked about how we got here. I would like to talk about how we deal with that problem. While many in this room will not agree with all of the cost reduction issue$ that were voted in at the 1991 convention, I think, everybody will have to admit that because that committee was in existence for two years, it did give athletics a 1ittle bit of a head start on some of the things that are now occurring in higher education. If we had to react from this convention, we might be in a tougher situation than we're in right now. Because of those, and because of the fact that the much celebrated fme-tuning committee will be meeting this next week to review legislation past, I would commission any recommendation that would involve increased spending. Those of you who may be involved in that, whatever proposal you will be making, I would encourage you to be prepared to point out that this is not going to be an increase in cost, and in some cases, might be a decrease in cost, but just might do the job better and do it a little differently.

One of the real mistakes that we've made, and I addressed this issue in a press conference earlier this morning, when we got into Title IX and expanding our women's programs, in most cases, we expanded those programs in the funding that was already present I don't think we've succeeded in doing it in that way. I don't think we're going succeed in the future in addressing gender equity issues unless the university is willing to make a dollar commitment It doesn't make sense to use dollars that are generated in basketball and football and to fund everything that we do. We're just not going to get there.

The institutions that have strong women's programs today are those institutions who said we're going to make a commitment to women's athletics. Maybe we'll have to take dollars out of the general fund or some other area, but we're going to commit X number of dollars to developing good strong programs. You know who those programs ar, They're the ones who are very successful today because they got a leg up. I addressed this at our national convention. We put you at an almost impossible situation because at universities, you're hired and told that d1ey Wal a good broad-based program and want gender equity in everything that we do. We want you to conduct those programs within the framework of the rules. We want them all to be successful and, by the way, you have to fund those from your own resources. That just can't happen. Not today. You can probably count on one hand to the institutions in the country today that can look you in the eye and say they don't have any financial problems. They are able to do everything that we can do out of our their resources, through the dollars that they raise. They might say they have reserves for a rainy day. All the indications that we have are that about 70 percent of the Division I schools are going to be operating in the red this year. It will really surprise you to see some of the schools that will be in that position.

We have the added impact of federal intervention, which is costly. The Student-Athlete Right To Know Bill, which was passed by the Congress after we passed our legislation, is proving to be very expensive. I don't know if Cliff Adelman got into this in his comments, but I've met with him earlier and there are other implications there that are really going to present some financial problems. I've talked to a lot of schools and they've had to hire a special person just to deal with the graduation rate data.

We're having some real challenges right now within the Department of Education, getting them to agree that our format is comparably the same as their format. The costs that we're experiencing in the national office to gather this data and publish the data is getting to the point where I may ask the council to put in legislation to abolish our rule and let the federal government bear the burden of doing all that.

If we take a look at some of the things that are pending in Congress today, the federal intervention implications would be dramatic if passed. It would be a real cost to our institutions. So, there are some outside forces that we can't control that are involved in this, but there are some inside forces that we can control. Everybody really needs to take a hard look at what you're doing. I don't think there's any exception with any athletic department around the country that doesn't have some fat that can be reduced and some dollars saved. We're doing that in the NCAA national office. We're taking a position of zero staff growth. If a vacancy occurs, that vacancy has to be justified. It may not be replaced. We have a group of people who are now researching everything that we do to see how we can reduce the dollar impact on our budget. That has to do with everything we do with committees, travel and everything. We're going to be trying as hard as we can to reduce our operating expenses so we can generate more dollars that can go back to you. In that respect, the NCAA, through its championships, has been a major supplier of dollars for institutions in Division I. We are returning slightly over $108 million directly to colleges and universities this year, either in the form of direct cash payments or direct payment of expenses that you have to be paying out of your budgets.

Unfortunately, many of these things we're doing after a year or two, are going to appear to be entitlement programs. Joe alerted that the big source of that revenue is television dollars. One of the best things that we did in our contract was go out seven years. I'm hopeful that by the time that renegotiation comes around, the even-flow of television revenue will be stabilized a little bit. I would hate to be renegotiating that contract in two years. But, it's going to be interesting to sit back and see what happens with the NFL and Major League Baseball and the NBA because their contracts all come up at least three years in advance of ours. If we see a downturn, it will give us an opportunity to perhaps escrow some dollars in the later years of that contract, so that we can preserve some of the programs that you think are important to you that we're providing the dollars for now.

The new revenue distribution program does spread the dollars more equitably across Division I and should be a help over the course of time. We're about as far away from playing for the money as we can possibly be. I think that's important. As you will recall, I emphasized that as we signed that contract. I hope you'll find that revenue for your broad based programs and your scholarships will be a real help to you.

We have to start out with good cost control and you need to implement that on your own college campus and your own program. You can't rely on the association to pass broad rules if you're going to cover all of those areas. That's going to be difficult to do. We do that basically to establish the level playing field concept which I don't really think exists, but I think people like to talk about a level playing field. But, that's only going to scratch the surface. There are still areas you can take a look at and you can concentrate on and become leaner, perhaps meaner, and even more successful.

The new sources of revenue that we can look at might come in the areas of licensing and foreign marketing. I talked to the I-A athletic directors yesterday about the concept of NCAA International. It looks like we're going to be able to develop this without any cost to the institution or to the NCAA. Once this agreement is put together, we'll be able to incorporate domestic licensing that will at least double your revenue. These groups are ready to guarantee a six percent return on any licensing, domestic and overseas and, right now, most of your contracts are three percent. I realize that a lot of those dollars do not go directly to athletics. In some cases it goes directly to the institution. Hopefully, on your campus you might be able to build a case for some of those dollars being used at least in women's programs if not in some of the men's programs. You'll be hearing more about that in a month or two as that program develops. We're really gearing for 1992 when the European community becomes a common market and will make it very easy to expand licensing and television into the European market.

The point that I'd like to leave you with is that bigger is not always better. Sometimes we have the feeling that the bigger we are the better we are. Some of the best organizations I've seen are very small groups. They're very dedicated, they work hard and they are very successful. Once again, let me encourage you to be involved in good long-range planning. We went through a period when it appeared that we were almost in an arms race from a facility building standpoint, but unfortunately, a lot of people found out that it was much easier to go out and raise five or six million dol1ars to build a new workout building than it was to generate the revenue on an annual basis that it was going to take to operate that building. Some of us found ourselves in a position where we were almost building poor. That's probably not going to happen in the next few years, but long-range planning will help address those issues. If there was ever a time when we all needed to be involved in advance long-range financial planning, I think it's 1991 and the years ahead.

JACK DOYLE:

Joe and Dick, on behalf of all present here this morning, I want to thank both of you for an excellent presentation. We really appreciate you coming here. Thank you.