Foul Play

Foul Play Joan McGuire

Corporate sponsorship deals have turned college sports into a lucrative business, but they do little to benefit the students universities are supposed to serve.


In March U.S. District Judge Lewis Kaplan said he hoped to send “a great big warning light to the basketball world” when he sentenced former Adidas executive Jim Gatto to a nine-month prison sentence for his role in funneling payments to entice high school basketball stars to attend the University of Louisville and other flagship colleges sponsored by the footwear company.

Gatto’s sentencing illustrates the financial corruption that taints college sports. With millions of dollars at stake in corporate sponsorship deals between sportswear companies and universities, the Gatto case shows how students can easily become embroiled in the collegiate sports arms race.

In Oregon the tight-knit commercial relationship between sports-apparel makers and universities is a defining characteristic of public-sector higher education. Nike dominates collegiate sports sponsorship deals, so much so that the University of Oregon proudly dubs itself “the University of Nike.”



The National Collegiate Athletic Association (NCAA), a nonprofit that regulates college sports in the U.S., oversees a $13 billion college sports industry powered mostly by its premier league, Division I. The University of Oregon and Oregon State make millions off lucrative TV contracts, ticket sales and apparel deals. The 2018 budget for the University of Oregon athletic department, fueled almost entirely by men’s football and basketball, was $113.2 million.

The large amounts of revenue generated by college athletics stand in contrast to the frugality of academic departments at Oregon’s public universities, which decry the continual decline in state funding for tuition. In an era of record student loan debt and escalating tuition fees, academic departments are trimming costs wherever they can. But athletic departments continue to spend freely and even accept money from academia that could fund academic programs. Oregon Business examined their budgets and contracts, received through public-records requests.

Athletic directors and coaches profit from a system ostensibly created for students. The NCAA refuses to pay athletes, upholding a system where students are not financially rewarded for their efforts. The rampant spending in college athletics has prompted calls for paying athletes, banning corporate sponsorships or even dispensing with sports entirely.

baseball money 
Image: Joan McGuire

While students compete on the field, the nation’s three largest sports-apparel manufacturers vie for the chance to turn the athletes into nationally televised billboards. These agreements benefit not only companies, but coaches and administrators. A full $19.2 million of the University of Oregon’s athletic budget comes from royalties, licensing, advertisements and sponsorships.

This all makes perfect sense in professional leagues, where the athletes are paid for their efforts. But although their sports have become semi-professionalized, student athletes generate these profits while working for free.

Nike holds exclusive agreements with seven of the conference teams in the Pac-12. The league includes Oregon State and the University of Oregon. The contracts state repeatedly that their goal is “broad and prominent” brand exposure for Nike.

The 11-year, $88 million “multi-sport apparel agreement” Nike holds with the University of Oregon entitles the Beaverton manufacturer to free full-page ads in game-day publications, “prominent” signage, use of athletic facilities for company events, and three full days of the head football and basketball coaches’ time for Nike publicity events.

The college has to ask Nike if it wants to jump in on any advertising opportunities in any media, and make its best effort to get Nike products in campus stores. But the most important provision stipulates that the university must ensure coaches, players and staff use Nike products with clearly displayed logos in all practices, games, photo sessions and interviews. A player can only wear another brand if they get hurt in Nike shoes, and they must cover the competitor’s logo.



Nike pays well for these perks. This year alone, the university gets up to $5.2 million worth of free football and basketball gear, plus $2 million in cash. These amounts increase each year of the contract. Nike holds a nearly identical agreement with Oregon State, offering the school $2.3 million of product last year. The teams get the chance to test innovative gear that hasn’t hit the market. If they get banned from television appearances or cover up Nike logos, however, the company can dock their pay.

A Nike spokesman declined to comment on the value of its relationships with colleges and universities.

“College endorsement deals bring in some income for brands, but these deals are primarily a marketing play,” says Matt Powell, a retail analyst who covers Nike and other large footwear manufacturers. “Endorsement deals are primarily revenue drivers for the schools.”

Yet despite these multimillion dollar sponsorship deals, the athletic departments’ expenses are so large that they often rely on nonathlete students to prop up sports. In 2017 the $82.7 million budget for Oregon State University was subsidized by a $4 million check from the academic budget and $2.67 million in fees charged to students, athletes or not. Most went to the football program.

The University of Oregon athletics department reports to the NCAA that it doesn’t get any funding from student fees. But in fact, the department’s critics say students pay athletics a combined $5 million a year at the very least.

The university does not publicly acknowledge these subsidies, leading to what Kenny Jacoby, an alum who covered athletics spending for the online student news site, Daily Emerald, calls “the greater myth of self-sufficiency.” The department shows a balanced budget, he says, but “a lot of this stuff at UO is spelled out in building contracts, memoranda of understanding, ASUO [student and faculty government] financial arrangements.”

One of these financial arrangements governs revenue from ticket sales. All students chip in to watch sports, whether they’re fans or not. In 2017 the student government paid $1.7 million for tickets to games. The amount is specified each year in a contract between athletics and the school senate, a governing body representing the interests of students and faculty. The money comes out of the student government budget, funded by part of a mandatory $250 student fee.

The academic budget also pays around $2.2 million (as of 2014-15) for student-athlete tutoring. This service comes at a much higher cost than tutoring for nonathletes. Athletes get their tutoring inside a $41.7 million modernist cube called the John E. Jaqua Center. The university drops $4,000 a year on academic support for each athlete, according to a 2014 University of Oregon senate estimate. Nonathletes get $225 each.



The academic side also remains on the hook for athletics subsidies it agreed to in a 2009 memorandum of understanding that then-president Dave Frohnmayer signed with the athletic department. Nike founder Phil Knight donated a portion of the funds for the Matthew Knight Arena, a new basketball stadium, but the university paid $22.2 million using tax-exempt general obligation bonds for the land.

The athletic department couldn’t pay all of the debt service on the land and facility, so they turned to academics. Consequently, roughly half a million dollars comes out of the academic budget each year for a quarter of the debt service on the bonds. Another $375,000 a year pays for luxury box seats for the university president, and more goes to debt on an underground parking garage.

“That was a sneaky deal,” says Bill Harbaugh, a University of Oregon economics professor and longtime critic of its athletic department. “They were trying to scrape up enough money to match Phil Knight’s donation.”

Other costs prove difficult or impossible to quantify. For example, the academic budget helps subsidize legal costs. Sometimes those result from breaking NCAA rules, such as when the association this year accused the University of Oregon of violations, including a professor changing a grade for a track and field athlete.

Other legal issues have a darker side. The Gatto case shows how the competitive nature of college sports sponsorship deals can lead to criminal activity. There are other examples of how money can get in the way of ethics. In 2017 a University of Oregon men’s basketball player, Kavell Bigby-Williams, played the entire season while under investigation for sexual assault (the case was later closed with no charges filed). Three years before that, a woman accused three basketball players of raping her. The university’s general counsel settled for $800,000, plus four years of full tuition, fees and housing costs for the alleged victim.

The lawsuit alleged that basketball coach Dana Altman knew that Brandon Austin, one of the students accused of rape, had been suspended for sexual misconduct at another school. He allegedly recruited Austin to play for the university anyway. Two of the students accused of rape played in the Pac-12 Conference Tournament and March Madness, the NCAA basketball championship tournament, while the university was investigating them, the lawsuit states. Altman, who makes $2.5 million a year, earned large bonuses for winning the games.

“When they get accused of that, they hire an outside law firm that specializes in that area,” Harbaugh says. “You would think the athletic department would have to pay for that, but they don’t.”

Fed up with the situation, every year from 2012 to 2015, the University of Oregon student and faculty senate adopted resolutions sponsored by Harbaugh and other professors. They proposed that athletics make payments to academics.

When the school senate presented the last resolution to administrators, they ignored it.


Oregon State by the Numbers

Oregon State sports budget (2017): $82.7 million
Income from student fees: $2.67 million
Subsidy from academic budget (funded with tuition): $4 million
$ spent on coaching salaries, bonuses, benefits: $15.2 million
Head football coach salary: $1.9 million
Debt service on facilities: $7.5 million


Nike holds more college deals than its rivals, Under Armour and Adidas, but they are nipping at its heels. Last April the University of Washington’s football team ditched Nike after the company refused to pay them more than the University of Oregon. Adidas quickly welcomed the Huskies with a 10-year, $119 million contract, one of the most lucrative in all of college sports.

None of these business deals would be possible without student athletes. Once they step onto the field or court, however, they’re making $0. The department is prohibited from paying them by a longstanding NCAA rule that defines student athletes as “amateurs.”

That’s an increasingly indefensible position not only because everyone around those athletes is swimming in cash, but because football is a hazardous line of work. Concussions account for 7.4% of all NCAA football injuries. Chronic traumatic encephalopathy, a debilitating brain condition that can have lifelong repercussions, is on the rise. Future job prospects are also grim — out of 16,236 draft-eligible NCAA football players last year, only 253 went pro.

As some sports pundits have noted, the financial structure of college sports also gives rise to a racial imbalance of power. In the PAC-12, black student athletes make up 37.5% of college football players and 49.2% of basketball players (as of 2014-15). Nationally, black players are the largest racial demographic in both sports. For money-losing sports like lacrosse and rowing, however, nearly everyone is white (86% and 75%, respectively). Most people in lucrative positions of power — 86% of athletic directors and 87% of football coaches — are white.

“It’s all subsidized by black inner-city kids getting concussions and not getting paid anything,” says Harbaugh. “The revenue-losing sports are a lot of rich white kids. They get three years of fantastic coaching and experiences. It’s really outrageous in terms of its racial impact.”


University of Oregon by the Numbers

University of Oregon sports budget (2018): $113 million
Income from broadcast rights, sponsorships, royalties: $18 million
Value of Nike contract with University of Oregon: $88 million over 11 years
Payments from academics for sports: At least $5 million
Salary for head football coach: $2.5 million
Cost of Football Performance Center: $68 million
Cost of John E. Jaqua Center: $41.7 million
% of budget spent on salaries: 35
% of budget spent on debt: 17
Economic activity generated (2012): $140.5 million
Household earnings (2012): $48.9 million
Jobs (2012): 1,169


Some of the money from NCAA Division I sponsorship deals does go back to supporting the universities’ missions to educate young people by providing scholarships. Sports also bond students and create affinity for universities in ways that other activities cannot. They allow students to exercise another form of mental discipline, “kinesthetic” intelligence. Sports build the teamwork skills, leadership, time management and strategic thinking valued highly at companies today.

But a large amount of money from the corporate sponsorship deals goes to luxury items. The extravagant spending is on display at the University of Oregon’s $68 million football performance center, described by a local architect as a “Darth Vader-ish Death Star,” featuring hand-woven Nepalese rugs, a high-tech “war room” and stone imported from China.

Coaches are also paid handsomely. Oregon State spent $15.2 million in 2017 on coaching salaries, bonuses and benefits. Head football coach Jonathan Smith made $1.9 million in total compensation. Baseball coach Pat Casey, who retired in 2018, saw exponential salary increases each year until he reached $1.1 million in total compensation with bonuses.

University of Oregon athletics spent 35% of its 2018 budget on salaries and benefits. Altman makes $2.5 million a year. So does head football coach Mario Cristobal, whose perks include two courtesy cars and memberships at the Eugene Country Club and the Downtown Athletic Club, an upscale gym.

The coaches rank among the highest-paid public employees in the state of Oregon, earning three and a half times that of university president Michael Schill. Governor Kate Brown would have to work for 25 years to earn what Cristobal makes in one year.

autzen stadiumThe University of Oregon's Autzen Stadium. Photo: Wikimedia Commons 

Other sports fall in the red, but their coaches still earn a high salary. An analysis from the Daily Emerald showed that in 2017 the university’s baseball team lost $40,000 for every game it played. The program incurs an expense of $2.6 million and brings in only $275,000 in ticket revenue. Nevertheless, head coach George Horton earns half a million dollars per year, along with a company car and bonuses for championship appearances.

The athletic departments’ multimillion-dollar sports facilities eat into not only the athletics budget but the universities’ overall liability. The University of Oregon athletics department spends 17% of its budget on debt service. The interest on payments scheduled for the next 24 years exceeds $144 million. And that’s for just three projects.

Likewise, the Oregon State University athletic department is gnawing away at $7.5 million of annual debt service on its facilities, about a fifth of the university’s entire debt service obligation.

Those numbers spook lenders, hurting the college’s ability to secure loans at favorable interest rates, says Harbaugh.

Neither of the athletic departments at the two state universities responded to emailed requests for comment by the deadline for this article.

The University of Oregon attempted to quantify the economic impact of college sports when it commissioned a study in 2012 from one of the university’s economists, Tim Duy. The study kicked off with eye-popping stats, showing that visitors flocking to football games generated $140.5 million of economic activity in Oregon, $48.9 million of household earnings and 1,169 jobs, a significant boost to the state economy. Yet buried at the end is a lukewarm verdict: “Identifying quantifiable outcomes of college athletics has remained elusive.”

tim duyTim Duy, an economist at the University of Oregon

The athletics department staff told The New York Times in an article published in August 2013 that they wear the “University of Nike” label as a badge of honor. All this spending, they say, pays dividends to the state economy, tourism dollars, student quality of life and university prestige.

In other interviews with the Daily Emerald and The Register-Guard, University of Oregon administrators say athletics contributes to the university’s academic mission by paying out-of-state tuition for student athletes and enhancing the visibility of the university. The national Ducks sports brand entices students from across the country and lands coveted out-of-state tuition dollars.

It is hard to tell if sports victories actually boost enrollment. Applications do spike after championship games, but that doesn’t mean those prospects show up for class. Between 2001 and 2017, the University of Oregon appeared in two title games. Oregon State came up empty-handed. Yet application growth between the two schools over this period has been comparable, and undergraduate enrollment grew much faster at Oregon State.

Duy concludes in his report that “college athletics clearly serve as a marketing tool for universities,” but it’s unclear just how effective of a tool they are. The most optimistic studies on the academic value of college sports, he writes, show “short-lived” gains of between 2% and 8% in applications from students with a range of SAT scores. The pessimistic studies find no impact. Spending those sports-marketing dollars on other sources, Duy notes, could produce the same effect for less money.

 

Instead of academics subsidizing sports spending, what if the relationship was reversed? In an era of declining public funding, Oregon’s universities could benefit from sports sponsorship revenue. With the extra money, colleges could devote more to promoting their research and enhancing the image of their professors. Universities could boost professor salaries, which, at the University of Oregon, are lower than those of peers at other public institutions. Some of the athletic bounty could stave off tuition hikes, attracting more students who would see their education as a better investment.

Of course, this is hard to achieve when athletic departments funnel all of their money to high salaries and costly facilities, instead of to the academic mission to which they ostensibly contribute.

College sports were originally intended as a complement to education, a way to discipline the mind through physical exercise. In fact, the 1950s version of the NCAA rule book explicitly said student athletes shouldn’t be exploited by corporations.

A European-style model of separating sports from education would drain less from school, Harbaugh says, but it is hard for Oregon’s public universities to escape. “I don’t see a world where universities can get out of the football business,” he says. “It’s too profitable.”

Profitable, certainly. Just not for students.


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Caleb Diehl

Caleb Diehl is a reporter at Oregon Business

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