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Has spending become out of control for NCAA Athletics Departments?

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As record revenues are brought in by college athletic departments, record losses are also being posted. How much money can be lost until the model collapses? Will out of control spending be the end of college athletics?

NCAA Football: Illinois Spring Game
Illinois Athletics installed this video board in 2013 for a total cost of $7.2 million. Can spending like that be sustainable?
Mike Granse-USA TODAY Sports

Auburn University installed a new football video board in 2015. The screen is 190’ by 57’, making it the largest such video board in the NCAA. The total cost of the project — which also included new ribbon boards and sound systems — equalled $13.9 million.

Giant video boards represent just one of the many new expenses for college athletics departments. Illinois themselves announced a $132 million project for Memorial Stadium last fall. Tennessee Football spent $37,000 on championships rings for the Music City Bowl. $37,000 on rings...for the Music City Bowl.

Salaries for coaches and administrators are also increasing. Jim Harbaugh now gets paid over $9 million at Michigan. Louisville’s Rick Pitino pulled in just under $8 million last season. Huge buyouts to fire coaches (or hire them away from other teams) are now the norm; never forget that Notre Dame paid Charlie Weis $19 million to not coach the Irish anymore after he was fired in 2009. Illinois even shelled out $2.5 million to fire former AD Mike Thomas.

Cost of travel, tuition, and costs of attendance have also increased dramatically in the last decade. The college athletics arms race led to spending increases from 2004 ($2.6 billion) to 2014 ($4.4 billion) for Power 5 schools. And spending continues to increase for programs across the country.

During that same period, revenues increased at almost the same rate for the top schools, but most athletic departments still spend more money than they bring in. The NCAA reported that, in 2014, only 24 out of 128 FBS schools made a profit.

Without context that statistic seems alarming, but in the long run universities gain more than they lose by fielding athletic programs. High level athletics is the number one way for a university to advertise itself to potential students, and it also brings money in from donors. Sports can even make academics better.

Athletics are a net-positive for Universities across the country. But if certain trends continue, will that always be the case?

It looks as though players will eventually be paid in some form. It may be stipends, more cost of attendance money, or just some form of a salary. It may just be for football and basketball players, or it may be for all sports. All players may be paid the same regardless of sports, or it can be based on revenue brought in by the sports. We don’t know what it will look like, but it’s only a matter of time before student athlete compensation becomes the norm.

This additional cost could be a huge burden for smaller athletic programs — even for smaller schools in Power 5 conferences. It could be hundreds of thousands each year or millions in additional expenses with no source of additional revenue.

And what may be worse is existing forms of revenue are going to decline.

Attendance at games, and thus tickets sold, fell again in 2016. This marks the 6th straight season college football has seen a decline in attendance. College basketball attendance is doing better than football, but it also has seen less fans come through the gates. To combat this prices can be raised as needed, but when going to sports events is already too expensive for many fans, there is a limit to this strategy.

The main way that college athletics has grown revenue in the last decade has been through Cable TV contracts. ESPN signed a deal to air the College Football Playoff for 12 seasons at $470 million per year. March Madness rights are locked in until 2032 after CBS signed an 8 year extension to their 14 year deal agreed to in 2010; the deal is now for $1 billion a year. The Big Ten Network deal just keeps getting better and better for conference members as well.

This is fantastic in the short term for college athletics, but in the long term, it may be a poison pill.

ESPN peaked at 100 million subscribers in 2011. That has now fallen by 12 million subscribers due to cord cutting. Cable subscribers now pay $8 a month to have ESPN and ESPN2 on their TVs. If they lose another 12 million subscribers, ESPN will lose $96 million a month. As cord cutting becomes the norm as most entertainment has gone to streaming services, ESPN and other networks that broadcast college athletics can be in for a world of hurt.

If current trends continue, it will be tough to imagine another $470 million dollar contract for the CFB Playoff, or see March Madness pay out $1 billion a year. But even if these contracts stay the same, expenses will keep rising. Schools will lose more money each year as the uncontrolled spending of the recruiting arms race keeps rising, but revenue doesn’t keep up.

When this bubble bursts, what will the fallout be?

Many of the smaller olympic sports — volleyball, softball, track and field, wrestling, and more — may be cut. The survival of these sports in America depends on the current model of college athletics.

Ticket prices can rise to higher rates, making college athletics unaffordable for most people. With many major college athletics powers in smaller towns and rural areas, this could be incredibly damaging not only to fans, but to programs.

Athletics can become so expensive that non-Power 5 schools simply can't afford it. They may have to move down to lower divisions, or cut them entirely.

Maybe that happens to all college athletics programs in the country.

Where is the line that the entire model becomes unsustainable? How much of a loss can universities take while many schools are having budget issues themselves? Can out of control spending slow down? Will the arms race end?

Could the demise of cable TV spell the end college athletics as we know them? Unless changes are made, it just might.

TL;DR: Schools are living large off of big TV contracts and spending crazy money. More people are cutting cable. Not good.