SMQ: The Power Five Divide, Part II – Revenue and Expenditures

We continue our look at the growing divide in the Power Five by breaking down revenue and expenditure data over the past 15 years in this week’s SMQ.

Last week, we looked at the presence of a divide between Power Five conferences in terms of results in conference championship games. Now we take the story a bit further, toward the dirty little word that pervades all parts of college football:

$$$$$$$

Specifically, where are we seeing the biggest split between those that have money and those that do not?

The gulf is obviously at its widest when comparing the Power Five conferences against the Group of Five and independents not named Notre Dame. But, between each major conference and within individual conferences, there are wide chasms between those haves and have-nots.

Setting aside the disparities within conferences for another discussion at another time, let’s look specifically at the revenue and expenditures of college football teams in the Power Five to see who is profiting and who is barely scraping by in the sport.

To do this, we will examine the most recent 15 years of available spending data as reported to the Department of Education for the Equity in Athletics Data Analysis project. The data extends from 2003 through 2017, the most recent year for which data is publicly available.

If there is indeed a two-tiered distribution of revenue, spending, and football program profit in the Power Five, it will be reasonable to assert that the hypothesis extended last weekend is more likely to be accurate. So let’s dive into the data, looking at revenue and then expenditures before finishing up with a discussion on profits within a specific sports program of an athletic department.

Revenues in the Power Five

The data available straddles the BCS era and the College Football Playoff era, meaning that we also have the opportunity to look at the Big East relative to the current major conferences. What we find is that there is a definite hierarchy of conferences even among the power leagues.

Notre Dame has clearly benefitted from independence in a way that is probably uniquely available to that program and that program alone. While Texas consistently ranks as the program with the highest revenue generation in the country, Notre Dame has nobody with whom they are required to distribute any of the revenue they bring into South Bend.

When looking at the conferences themselves, the SEC and Big Ten have consistently been the wealthiest among the Power Five conferences. While that gap between those two conferences has widened and dissipated over time and over the life of differentially negotiated television contracts by the individual leagues, what remains constant is the primacy of the SEC and the fact that the Big Ten regularly generates a near-equivalent amount per member school.

Interestingly, the Big 12 has also been right there since the early-21st century. From 2014 to 2016, in fact, the Big 12 was effectively equivalent to the Big Ten in terms of average revenue per member school. Even as the Big Ten made a leap back up toward SEC levels in the past few years, though, the Big 12 at least remains consistently ahead of the other two major conferences in terms of revenue generation for its members.

The Pac-12 boosted its revenue significantly when it added Utah and Colorado and split into two divisions. While that revenue growth has allowed the western league to keep pace with the other power conferences, though, it has not substantively changed perceptions or the fortunes of the Pac-12’s top members.

Bringing up the rear is the ACC, which serves in the role previously reserved for the Big East. In less than a decade the Atlantic powers doubled revenue per member school — but at a time when everyone’s revenue was growing, the ACC merely held serve rather than gaining any advantage vis-à-vis the rest of the Power Five.

Speaking of the advantages, there are definite advantages baked right into these numbers. Finding a middle ground to split out the numbers effectively falls on the gap between the Big 12 and the Pac-12. On average, the Big 12 has generated 21 percent more revenue on an annual basis for its members than the Pac-10/Pac-12 managed to produce over the 15-year period between 2003 and 2017. There lies the dividing line most clearly between haves and have-nots, with the Pac-12 and ACC falling into that latter group.

Expenditures in the Power Five

Making more money means spending more money, and if there is one thing that has been consistent over time it is that expenditures increase at a regular rate. This speaks not just to how much a conference can spend, though, but also how much each member has to spend to stay operational at the Power Five level.

What is interesting here is that the biggest earners are naturally the biggest spenders. As non-profit organizations, athletic departments must break even, necessitating the distribution of revenues around the department and through the university. Once you get past Notre Dame, the SEC, and the Big Ten, though, what turns up is the cost of geographic diffusion versus concentration.

In 2017, the last year of data available, we find the Pac-12 sitting third among the Power Five conferences in average expenditures. With the expansion of the league to Utah and Colorado, the league pushed its geographic boundaries deep into the Mountain time zone. This geographic diffusion presents the same issue that has especially befallen Group of Five conferences and their antecedents such as the supersized WAC of the mid-1990s.

Meanwhile, the Big 12 — which, as we saw above, generates approximately one-fifth more revenue per member than the Pac-12 — has traditionally fluctuated around the same level of expenditures as the league to its west. These two conferences usually trade back and forth which has the costlier list of expenses. But, in general, the money spent by each program is far closer to equivalence than the revenue being pulled in by the schools in the two leagues.

What that amounts to in the end is a drain on profitability. Here we see the real gulf between Power Five programs, far more than the partial picture we get from revenues and expenditures separated out on their own.

Profitability in the Power Five

Let’s first come out and acknowledge that, while athletic departments might overstretch themselves and claim poverty, football is indeed a revenue generator for programs throughout the Power Five. Programs end up in the red in less than five percent of individual seasons, making it highly likely that a Power Five program is profitable in any given year and more significantly across time.

An individual season might dip into the negative when a program is spending on renovations or infrastructure upgrades, but in general the money is going to keep flowing. But how much money actually ends up as profit once all the expenses are accounted for is what really defines the gulf between Power Five conferences.

Notre Dame is obviously profitable, generating more than $60 million in float each season. A program like Texas or Oklahoma bolsters the average profitability of Big 12 teams, but in general we still see those teams below the Longhorns and Sooners getting a bigger benefit of the doubt from the College Football Playoff selection committee in part because they can reinvest more of their revenues into long-term expenses and planning rather than day-to-day operations.

That regeneration serves to make conferences stronger and stronger over time. This is why we see the SEC in such great shape as the preeminent profit generator of the 21st century to date, and why the country’s oldest conference is starting to find new ways to capitalize on its brand and is now starting to pass the SEC as the most profitable league.

Interestingly, this raises questions about the ACC. While Clemson (and before them Florida State) made noise at the onset of the College Football Playoff era, the rest of the league has been a sinkhole of profitability.

The Pac-12’s fortunes waxed and waned in comparison to the ACC, but the conference in the shadow of the SEC has struggled to come close to its southeastern counterpart. Over 15 years, the ACC has on average generated only 31 percent of the profits raked in by each SEC team.

At the previously identified chasm point between the Big 12 and Pac-12, we see the disparities at a profitability level just as we did in terms of revenues and expenditures. On average, Pac-12 programs generate two-thirds the profits as a Big 12 team in a given season. That gulf narrowed at the latest point of realignment, but since that fissure we have seen a regression back toward the historical disparity between the two leagues.

What does this say about the Power Five gulf?

When we first examined this question, it was relative to the dominance of the SEC and ACC in the College Football Playoff era. What we find, though, is that the answers are nowhere near as clear as one might hope.

All the data points clearly to reasons why the SEC would be dominant, both in terms of where their division winners sit in the polls each year for their championship game and in terms of the revenue, expenditures, and profits generated by their members more broadly.

Yet all of those same numbers, if taken as logical reasons why a conference dominates, are instantly rendered useless by the continued dominance of Clemson and the ACC. By all rights, it should be the Big Ten and Big 12 that is more consistently pushing Alabama and the rest of the SEC on an annual basis.

But instead we have witnessed the Tide and the Tigers play one another year after year in the College Football Playoff. We will examine recruiting in the next Sunday Morning Quarterback to see if that helps explain the growing gulf in the Power Five.