Repost from 5/10/18 Slate
By Nick Greene
This piece is part of the Slate 90, a series that examines the multibillion-dollar nonprofit sector. Read all stories from the Slate 90 here, and view the Slate 90 nonprofit rankings here.
There are a few ways in which the Big Ten Conference is a misnomer. For one thing, the athletic conference founded in 1897 and comprised of corn-fed flagship Midwestern universities, now has 14 members. (In recent years, it has added decidedly non-Midwestern members like Rutgers and the University of Maryland.) Second, in the GuideStar rankings of nonprofits, the Big Ten appears as a “human services” organization alongside the American Red Cross and Feeding America. (The Big Ten is No. 7 in the Slate 90human services section.)
Like the NCAA under which it is organized, the conference qualifies as a charitable organization because, in the words of the IRS, it “fosters national or international amateur sports competition.” Indeed, in this “human services” sector, five of the top 10 are organizations that deal with college sports, including the NCAA itself. Like the ten in Big Ten, amateur is an almighty stretch here. The Big Ten doesn’t compete with after-work intramural leagues. As in other sectors like health care and financial services, tax-advantaged nonprofits like the Big Ten compete directly against avowedly for-profit professional sports leagues for attention, revenue, and above all, splashy television deals.
In 2017, the Big Ten Conference completed the most lucrative media deal in the history of college athletics: ESPN, Fox, and CBS agreed to pay the Big Ten $2.46 billion over six years for the rights to broadcast its football and basketball games. By comparison, NBC’s 10-year agreement with the NHL—one of America’s big four professional sports leagues—was worth less than $2 billion.
What gives? The NCAA is the only viable pipeline to both the NFL and NBA, and so the talent and quality of play in college football and college basketball is almost at the level of the pros. In effect, these are the minor leagues. That, combined with the built-in tribal allegiance college fans have with their teams, makes for stratospheric TV ratings. More than 28 million people watched this year’s national football championship between Alabama and Georgia. That’s better than the average viewership numbers the NFL pulled during its first two weeks of playoff games. (When it comes to baseball and hockey, two sports that have extensive professional minor leagues, the money and attention associated with the college version is de minimis.)
In terms of success, revenue, and popularity, the Big Ten is, along with the SEC, the star upon which the world of collegiate sports revolves. And it has a remarkable business model. It doesn’t build or maintain stadiums. And it certainly doesn’t recruit and pay the star athletes.
It’s a pretty sweet deal for the NCAA and its associated conferences, who generate Fortune 500–type revenues from something produced, gratis, by unpaid amateurs. Not paying taxes is a nice cherry on top of that lucrative sundae, even if it leaves a bad taste in the mouths of concerned critics.
In 2006, Rep. Bill Thomas, a Republican from California, sent a letter to the NCAA asking the organization to justify itself as a nonprofit: “From the standpoint of a federal taxpayer, why should the federal government subsidize the athletic activities of educational institutions when that subsidy is being used to help pay for escalating coaches’ salaries, costly chartered travel and state-of-the-art athletic facilities?” The letter did nothing to hurt the NCAA’s nonprofit status.
The NCAA has worked hard to maintain itself as a qualifying charity in the eyes of the government. As New York Times reporter Mike McIntire noted in a 2017 op-ed, “It is only through decades of aggressive lobbying and legal battles that universities have managed to avoid income taxes on billions of dollars from broadcast rights, sponsorships and donations from boosters.”
In the 990 form the Big Ten Conference filed in 2012 to renew its tax-exempt status with the IRS, it listed its mission statement as “sustain[ing] a comprehensive set of shared practices and policies that enforce the priority of academics in student-athletes’ lives and emphasize the values of integrity, fairness and competitiveness.” That’s pretty vague! Only when it is prompted to describe its “service accomplishments” does it give a clear accounting of its work: “The Conference collects revenue … from football and basketball television contracts, bowl games, and basketball tournaments.”
The Big Ten’s raison d’être is to negotiate broadcast and cable television contracts on behalf of its institutions, and then pass the revenues on to the schools. (The Big Ten also generates a little revenue through sponsorship deals and the hosting of athletic tournaments. But in 2012, over 99 percent of the Big Ten’s revenue came from broadcast rights and NCAA grants.) Think of the Big Ten as a combination of talent agency CAA and Gosplan, the Soviet Planning Committee. Rather than take its 33 percent cut of the media deals it negotiates, it distributes nearly all the revenue amongst its clients. Thanks to its most recent multibillion-dollar deal, those 14 colleges will each receive around $51 million annually.
What the schools do with that money is up to them. But the overwhelming majority of the cash goes directly to their athletics programs. In Ann Arbor, much of those funds will be spent on, say, Michigan football head coach Jim Harbaugh’s $7 million annual salary. At Northwestern, the only private university in the Big Ten, one can assume some of that scratch will go toward the cutting-edge $260 million athletic facility it is building on the shores of Lake Michigan. (Or at least toward the maintenance of that glittering facility.)
The University of Nebraska will spend $10 million—roughly one-fifth of its Big Ten check—on academic endeavors like nonathletic scholarships. That may not seem like a huge slice of the pie, but it’s the most that any Big Ten team has planned to spend of its haul on non-sports ventures, according to the Omaha World-Herald.
Of the revenue the Big Ten Conference doesn’t give to its schools, most of that goes toward salaries for its Council of Presidents and Chancellors. Commissioner James E. Delany received around $2.4 million in compensation for his work in 2015 and, according to tax returns obtained by USA Today, he is set to earn over $20 million in future bonus payments.
Nice work if you can get it.
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