Inside Aggie Inc.

Why Texas A&M football tickets cost so much, and other secrets of the business of college sports.

March 1999By Comments

When Wally Groff came to Texas A&M in 1966 to work as the business manager of the athletic department, the university’s entire sports budget was $863,000. Today that sum would not even cover the travel expenses of Aggie teams in an annual budget that has ballooned to $22 million and will soon increase by an additional $3 million. Following the course set by pro sports, intercollegiate athletics—at A&M and elsewhere—is big business. Its managers have to know more about profits and losses than they do about football and basketball. Today Groff’s official title at A&M is athletic director, but it would be more accurate to think of him as the CEO of Aggie Inc.

Once upon a time, athletic departments did little more than pay salaries, operate facilities, schedule games, and count gate receipts, but those days are long gone. Aggie Inc. has 177 full-time employees and about 500 part-time and student workers—not counting 500 or so student athletes. It retires the debt on bonds for stadium expansion. It has an entire division devoted solely to tutoring athletes and monitoring academic performance. As part of its never-ending search for more revenue, it licenses radio broadcast rights and hunts for businesses willing to sponsor special events, from the tu football game ($100,000 to call it the AT&T Lone Star Showdown) to a spring baseball tournament (forty plane tickets from Continental Airlines to help defray the travel expenses of nationally ranked teams).

As everyone in Texas knows, A&M is a unique institution. But in its pursuit of athletic success, Aggie Inc. faces the same economic problems as other schools do, and it tries to solve them in the same ways. In recent years A&M has joined a more prestigious conference, added luxury suites to its football stadium, scheduled big-name football opponents (Notre Dame in 2000 and 2001), and tried to upgrade its basketball program—all with the hope of bringing in more revenue from ticket sales and TV appearances. It has also made countless small decisions (say, trying to rein in the high cost of utilities) with the same goal in mind.

Clearly there are two scoreboards today: one on the field and one on the balance sheet. What follows is an explanation of the business of college sports, using A&M as a case study and the 1996-97 fiscal year (the most recent one for which complete figures were available) as the benchmark.

College sports is a very odd business. It is one of the most regulated activities this side of nuclear power. Its umbrella organization, the National Collegiate Athletic Association (NCAA), requires all Division I schools—those with serious athletic aspirations—to compete in a minimum of fourteen sports, of which at least seven must be for women. The economic reality, however, is that at most schools only football and men’s basketball pay their own way. For that success they are punished: They must not only earn enough to cover their own costs but also cover the deficits posted in tennis, golf, swimming, track, baseball, softball, volleyball, and soccer. If Ford Motor Company were in the same position, it would have to offer not only Tauruses, pickups, and Expeditions but also Edsels, Model T’s, and Model A’s.

The federal government gets into the act too, through Title IX of the Education Amendments of 1972. This law mandates equal opportunity in athletics for women, which usually means that a university’s athletic scholarships and participation in sports must reflect the proportion of women to men in the student body. At A&M 47 percent of the undergraduate stu-dents are women, so at least 47 percent of the Aggie athletes ought to be women. Consequently Aggie Inc. operates ten women’s teams, versus only nine for the men.

Another problem faced by all athletic departments is that they are, in effect, wholly owned subsidiaries of holding companies—in Aggie Inc.’s case, Texas A&M. The main university enjoys a hefty government subsidy ($229,098,537 in state funds for fiscal 1997), but state law prohibits athletic programs from receiving any support from taxpayers. Intercollegiate athletic programs, that is. Professional franchises are, of course, getting hundreds of millions of dollars for new taxpayer-supported stadiums, but not one penny of public funding trickles down to Aggie Inc.

In fact, the money flows the other way: Aggie Inc. must reimburse its parent for such items as utilities and custodial help. In 1997 the athletic department was assessed utility charges of $327,000 for Cain Hall, the dormitory where many athletes live, and $36,000 for its offices in a campus building. When the Aggie basketball team moved its games from ancient G. Rollie White Coliseum to brand-new Reed Arena this year, it will pay an estimated $400,000 charge for rent, plus $250 a day for the use of practice facilities. Basketball has historically been a break-even sport at A&M (it showed a small profit of $314,000 in 1997), so the new costs could plunge it into the red. The hope, of course, is that the new arena will bring in better athletes, bigger crowds, more money, and more success to a program that has had little success in recent years. But this is only a hope, and in the meantime, the costs are real.

Aggie Inc. also has to pay back the main university for the cost of athletic scholarships—almost $2.2 million in 1997. The logic is that scholarship athletes pay no tuition but receive the benefit of professors and classrooms, so the athletic department must pay its share of faculty salaries and building maintenance. What this argument fails to take into account is that intercollegiate sports are already helping to pay for salaries and maintenance. More than any other activity, sports inspire former students to donate money to the university’s general fund. “We have made a conscious effort to relate athletics to the broader university and keep our missions in harmony,” says A&M president Ray Bowen. “At many universities there is no correlation between athletics and academics, but many of our major academic donors began by giving to athletics.” And yet the athletic department gets no financial relief for its contribution to the university’s bottom line.

What about Aggie Inc.’s bottom line? In 1997 athletic revenues totaled $20.4 million, roughly $1 million above projections. Almost 50 percent came from ticket sales, 15 percent from contributions, 12 percent from NCAA and Big Twelve revenue sharing from such sources as postseason games, 10 percent from television, and a smattering from concessions and sponsorships. But this windfall was quickly eaten up. The extra revenue gave the athletic department the opportunity to tackle some projects that had been deferred in leaner years: the renovation of Kyle Field rest-rooms and repairs to the athletic dormitory and the soccer field. When all the expenses were factored in, the result was a net loss of approximately $200,000. Like athletic departments everywhere, Aggie Inc. is always looking for new ways to raise money. And when athletic departments want more revenue, they almost always look to football.

Texas a&m competes in nineteen sports, but without football, most of the rest could not exist. Football generated $14 million in revenue in 1997, which accounted for roughly 70 percent of Aggie Inc.’s income. How great is the disparity with regard to other sports? Men’s tennis brought in less than $3,000, women’s swimming less than $2,000; that won’t pay the water bill for the pool. Half of the football revenue—$7 million—was profit. Every other sport except for men’s basketball hemorrhaged red ink. Women’s basketball lost $787,000. Baseball lost $450,000, softball $525,000. Men’s track lost $534,000, women’s track $513,000. Altogether, seventeen sports lost $6.2 million. “Football pays for everything,” says Groff.

That explains why football tickets have gotten so expensive. A&M’s ticket sales from six home games are the biggest revenue source in the A&M athletic budget, bringing in just over $8 million in 1997, including $2.2 million from students, who pay only half price. Gate receipts in all other sports totaled less than $1 million. The face value of a ticket is between $25 and $40, depending upon the box-office appeal of the opponent, but that is just the start of what it costs to see a game. Most of the good seats on the west side of Kyle Field are sold as season tickets through the Twelfth Man Foundation, which is independent of the athletic department. To buy a ticket, you have to make a contribution to the foundation—and the bigger the contribution, the better the seats. These contributions are donated by the foundation to the athletic department, which uses them to pay for scholarships, to construct luxury suites, and to retire the debt on bonds that funded previous Kyle Field expansions and the construction of suites.

Suites are the latest device that college athletic programs, emulating their professional brethren, are using to expand their budgets. Aimed at the corporate and well-heeled former-student markets, suites are private, enclosed areas with facilities for serving food and libations. Aggie Inc.’s current capital project involves constructing a new north end zone section at Kyle Field with 23,000 seats that, thanks to the removal of the track, will be higher and closer to the field than the 12,800 seats being replaced. The new end zone will include twenty suites that will require a contribution of $27,000 (twelve seats at $2,250 a seat) a year, for a minimum of three years. And that does not include the price of game tickets. Below the suites will be a club level with 1,800 seats. It won’t be enclosed, and it won’t be as private, but it will provide food and drink, all for a $2,000 annual contribution per seat plus game tickets. The contributions will pay off the construction costs, and if all 23,000 seats are sold for all six home games, Aggie Inc. will enhance its ticket revenue by $4 million a year.

The hunger for revenue led A&M, along with the University of Texas, Texas Tech, and Baylor, to abandon the Southwest Conference for the Big Twelve in 1996. Since the migration, Aggie Inc.’s television revenue has tripled to more than $2 mil–lion a year. Trade Rice, TCU, SMU, and the University of Houston for Nebraska, Colorado, Kansas State, and Missouri, and your conference is going to have a lot more games on national TV and a lot more teams going to bowl games. When the Aggies play on TV, they receive an exposure fee ($142,000 on ABC, $120,000 on FOX Sports) in addition to their share of the money that goes to the conference (it is divided equally among the twelve schools). In 1997 A&M’s cut of Big Twelve TV revenue from football exceeded $1.5 million; its share of Big Twelve bowl revenue was $1.1 million; and the football championship game alone was worth $428,000. “Now you know why the athletic directors voted for the championship game when all the coaches were against it,” Groff says jokingly. The upcoming pair of games with Notre Dame is another made-for-TV event: To give good teams an incentive to schedule strong nonconference opponents rather than patsies, the Big Twelve Conference will pay a double share if their game is aired.

Basketball is a product with growth potential. Groff is optimistic that it will eventually be as reliable a revenue raiser as football so that income will be twice its expenses (which were $1.3 million in 1997, but that was before the costly move to Reed Arena). As budgets continue to grow, he foresees that basketball could add as much as $2 million to Aggie Inc.’s bottom line. Attendance should pick up at Reed; indeed, it can hardly be worse. In 1997 the revenue from ticket sales was just $264,000. Aggie Inc. received more than twice as much revenue ($553,000) for its share of the NCAA basketball tournament. But football will always be the cash cow.

The pressure to win has always been present in college athletics, but the recent burgeoning of athletic budgets makes it greater today than ever. If you don’t win, you can’t sell tickets, and if you don’t sell tickets, you can lose a lot of money in a hurry. If a school’s season attendance in football drops by 5,000 a game for six games, that’s 30,000 unsold tickets at an average price of $30. If you throw in lost revenue for concessions and program sales, you’re down a million bucks. String together a few losing seasons and contributions will fall off too, and pretty soon you can find yourself $10 million in the hole after five years, which is what has happened to the University of Oklahoma, a onetime football powerhouse. John Mackovic coached the Texas Longhorns to one of their greatest football victories, a stunning upset of Nebraska for the Big Twelve championship in 1996, but when the 1997 team stumbled to a 4—7 record, stadium suites were going begging and Mackovic was fired. “When we draw up our budget,” says Groff, “we have to estimate how good our team is going to be. If we’re too optimistic—well, we’ve had years when we couldn’t make our payroll in August.”

Revenue is important not only to keep from losing money but also to keep up with the Joneses. Recruiting good players is essential to winning, and players are impressed by materialistic attributes: the appearance of the dressing area, the equipment in the weight room, the amenities in the athletic dorm, the quality of practice and playing facilities—and it had all better look bright, shiny, and new. Every athletic department is upgrading its physical plant. The escalation is endless.

What about cutting expenses? The most costly item in Aggie Inc.’s budget is salaries, which totaled more than
$5 million in 1997. Almost half of that amount went to coaches ($2.4 million); cut back here and you’ll never be able to attract top talent. Another major expense is academic support for athletes: $327,000 for academic counselors’ salaries, $140,000 for tutors, $20,000 for class checkers (to see who is going to class and who isn’t), and $16,000 for study hall monitors. Again, cutting back here would be self-defeating; an ineligible player can’t help you win. A few schools have gone so far as to drop an entire sport to save money; Colorado, for example, no longer plays baseball. But Aggie Inc. can’t eliminate a women’s sport without running afoul of Title IX.

Notwithstanding its salutary benefits for women athletes, Title IX remains the most serious economic problem for athletic departments because it must be complied with regardless of the cost. Or at least it’s supposed to be. “It is my understanding that very few schools are in full compliance,” says Groff. The Big Twelve school with the most acute problem is Baylor, which has 55 percent female students; therefore, 55 percent of its athletes must be female. Baylor is going to have to spend a lot of money on new women’s sports to satisfy the law, but where is it going to come from? Baylor doesn’t earn as much money on football as A&M does. Aggie Inc. has problems of its own, though. Because football rosters are so large, A&M has an imbalance in favor of male athletes. “We need forty-eight more positions for women,” Groff says. “We’ve already eliminated walk-ons [nonscholarship athletes] in men’s swimming and track because they were counting against our gender-equity numbers. Now we’re going to have to add another women’s sport. We’re looking at archery, bowling, and equestrian. The good thing about equestrian is that it has large teams.”

Few Aggies will ever see the equestrian team or even know that there is one. But the next time you see the Aggie football team on TV, remember that the two are inextricably linked. Without the equestrian team, the Aggies might not be able to maintain their Twelfth Man tradition of using walk-on players to cover kickoffs. Without football, the equestrian team might not exist. Just as the Houston Astros sign players and pass the cost on to their customers through higher ticket prices, Aggie Inc. will sign up an equestrian team and pass the cost on to its customers through higher ticket prices.

And the difference between professional and intercollegiate sports will get that much smaller.

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