Bob Barchi's Fantasy of "Revenue Neutrality"



Recent Star-Ledger op-ed by a distinguished Rutgers Professor of Economics

The Rutgers University athletic program isn’t just a public relations catastrophe; it’s also an economic disaster. Expenses ran ahead of revenues by $28 million in 2011-12. The cumulative shortfall since 2005 is $190 million.

The university covers the deficit with subsidies from discretionary funds and student fees. President Robert Barchi conceded to The Star-Ledger that athletics is currently “siphoning dollars off from the academic mission.”

But will Rutgers’s entry into the Big Ten make the school rich?


Professor Mark R. Killingsworth, Rutgers University


Barchi and Executive Vice President for Academic Affairs Richard Edwards think so. Edwards told the university’s senate that Rutgers athletics will be “self-sustaining” in five to eight years. Barchi told The Star-Ledger that “I can see us moving to budget neutrality in six years.”

Don’t believe it. It’s fiscal fantasy, with some creative accounting thrown in.

Six months after announcing it will enter the Big Ten, the athletic program still has not completed its five-year financial plan. Future revenues and expenditures are too uncertain.

Lacking a financial plan, Barchi and Edwards can offer just one reason to expect athletic solvency: massive infusions of Big Ten money.

In March, Edwards told the New Brunswick Faculty Council that the Big Ten currently pays out an average of $42 million to each member school for television, tournament and bowl game revenues. He was wrong: The actual payout averaged $24 million, according to the Big Ten’s IRS filings.

That’s not the end of the story. Rutgers won’t be a full Big Ten member for several years. (Nebraska, which joined in 2011, won’t be a full member until 2017.) As a junior member, Rutgers would get a smaller payout. It’s also leaving the Big East, which paid Rutgers $9.5 million in 2011-12.

Even if Rutgers became a full Big Ten member immediately, the net increase in payout would be about $14.5 million. That’s a lot, but it’s only half the $28 million athletic deficit. Athletics would still be a long way from “budget neutral.”

That’s not the end of the story, either, because athletics spending will almost certainly increase. When Rutgers joins the big leagues, the program and its backers will want to ramp up spending to be competitive. Average expenditure for the public Big Ten schools in 2011-12 was more than $92 million (five spent more than $100 million).

In contrast, Rutgers spent $64 million.

Rutgers, however, does manage to beat the Big Ten schools hands down in one area: Its $28 million deficit is more than 10 times bigger than the Big Ten average (less than $2.4 million).

The Big Ten will negotiate a new media contract in 2016, which will increase the size of the revenue pie. However, after Rutgers and Maryland join, the pie will be cut into 14 slices, rather than 12. To keep each school’s share from shrinking, Big Ten revenue will have to jump by more than 16 percent.

In addition to fiscal fantasy, Rutgers has added a little creative accounting. Its report to the NCAA shows that the subsidy to athletics is $28 million: $18.5 million from discretionary university funds and another $9.5 million from student fees. None of these funds are earmarked for athletics — the university is free to spend those dollars on anything it wants, or even hand them back to students and their families as tuition reductions. All told, the subsidy amounts to almost $1,000 for each undergraduate. The student fees alone work out to almost $330 per undergraduate.

Nevertheless, Rutgers officials from Barchi on down repeatedly refer only to the $18.5 million in discretionary funds as a subsidy. They never mention student fees. Sayonara! $9.5 million in subsidies conveniently disappear.

Taking office last fall, Barchi told the Rutgers alumni magazine: “People don’t fully appreciate the collateral value of a Division 1 football or basketball team. The school’s name is out there in front of hundreds of thousands, if not millions, of people in a way that we just can’t do otherwise.”

He was right about that (although for reasons he probably didn’t expect). But this raises questions for him and for the Board of Governors that hired him: Do they fully appreciate the cost of all those deficits and subsidies, and is it justified by the benefits? Do they have any factual basis for thinking that the Big Ten will make Rutgers rich?

Mark R. Killingsworth is an economics professor at Rutgers University.

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