May 19, 2009
Long viewed as an integral component of higher education, athletic programs in many universities have become highly commercialized and, in some cases, are very rewarding financially: The National Collegiate Athletic Association (NCAA) mens basketball tournament alone garnered about $143 million in revenue for athletic departments in 2008, and college football bowl games generated a similar amount.
A new CBO study released today assesses the degree of commercialization of athletic departments by comparing their share of revenue from commercial sources with that of the rest of their schools activities. In the case of NCAA Division IA schools, 60 percent to 80 percent of athletic departments revenue comes from activities that can be described as commercialseven to eight times that for the rest of the schools activities and programs. For schools in the rest of Division I, revenue from commercial activities accounts for a much smaller share of athletic departments revenue, about 20 percent to 30 percent.
The high share of commercial revenue for some sports programsraises the questions of whether those programs have become side businesses for schools and, if they have, whether the same preferential tax preferences should apply to them as to schools in general.The Congress could change the tax treatment ofsports programs in several ways,such aslimiting the deduction for contributions, limiting the use of tax-exempt bonds, or limiting the exemption from income taxation. As long as athletic departments remain a part of larger nonprofit or public universities, however, schools would have considerable opportunity to shift revenue, costs, or both between their taxed and untaxed sectors, rendering efforts to limit the tax preferences for athletic departments alone largely ineffective. In contrast, changing the tax treatment of income from certain sources, such as corporate sponsorship income or royalties from sales of branded merchandise, would create less opportunity for shifting revenue or costs, and it would have larger effects on the most commercial sports programs.
The report was written by Kristy Piccinini. Kristy has been at CBO for three years and holds a PhD from UC Berkeley. She has also traveled halfway across the country just to get a taste of March Madness in person (for research purposes, of course).