The NCAA Responds

In letter to Congress, association argues that big-time college sports should keep tax-exempt status.
November 16, 2006

Last month, Rep. Bill Thomas (R-Calif.), the departing chairman of the U.S. House of Representatives Committee on Ways and Means, sent an eight-page letter addressed to Myles Brand that asked the National Collegiate Athletic Association president to justify the organization's tax-exempt status. 

Intercollegiate sports, as sponsored by the NCAA and its member colleges, are considered to fall within the scope of the tax-exempt mission of higher education. But in recent years, as many aspects of college sports have become big business, some have begun to question whether the association and big-time sports programs still deserve their current classification. In other words, as the Thomas letter bluntly asks: “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 facilities?”

In a carefully worded  response to the Congressional committee's letter, the NCAA takes a familiar tack -- asserting that it operates in the same sphere as the rest of higher education. Line after line in the 25-page document, which was delivered Monday to Capitol Hill and released to the public Wednesday, draws parallels between college athletes and their peers, and between Coach X and high-profile Professor Y.

On why the NCAA believes that college sports programs further the mission of their institutions:  "Athletics contests are the laboratory for lessons taught in practice in the same way theatrical or musical performances provide practical application of the lessons taught in rehearsals,” the response letter says.

In explaining why it's OK to funnel a disproportionate amount of resources into a certain sport, the NCAA letter notes that “[p]sychology 101 classes (because of their number and size) ... typically [generate] more revenue and, in effect, [subsidize] philosophy classes, which cannot draw enough students to pay for themselves. Revenue from football and men’s basketball is redistributed to pay for sports that generate little or no revenue.”

The NCAA's letter begins by saying that Congress, the courts and the Internal Revenue Service -- which has looked into whether colleges that participate in big-time sports conferences should pay "unrelated business income tax" on at least some of the revenue their sports programs earn -- all have agreed that there is an educational value to having athletics as part of the comprehensive campus experience.

On balance, the response refrains from being overly defensive. For instance, the committee's letter calls invalid the argument that college sports deserve their tax-exempt status because high-profile programs attract both donors and potential students to a university, because "federal taxpayers have no reason to care about increasing applicant pools at one university over another."

The NCAA's response matter-of-factly states that taxpayers do care about individual universities, which is why they donate to their alma maters. Promoting large athletic programs, the response adds, is just a method of increasing a university's visibility -- no different from drawing attention to new libraries or hot faculty hires.

Richard Southall, associate director of the Drake Group -- a coalition of faculty members who outspokenly criticize big-time college sports -- said that while the NCAA has done well staying on message, it hasn't put forth any new arguments. His group issued a statement Wednesday saying that "Myles Brand's assertion that college athletes are not professional and that the enterprise is not professional flies in the face of mountains of empirical research and facts."

The group says that it looks forward to working with Rep. Charles Rangel (D-N.Y.), the presumptive Ways and Means chair when the 110th Congress begins in January. Already before last week's midterm elections, it was unclear how the House committee planned to deal with the NCAA response -- aides had not indicated that any hearings would be held or that any follow-up letters would be sent.

Here is a look at how the NCAA answered questions on several topics related to its role in higher education.

Amateur Status of Football and Men's Basketball

When most critics speak about the increasing professionalization of the NCAA, they are referring to the two largest revenue-generating sports: football and men's basketball.

The committee's letter states that “corporate sponsorships, multimillion dollar television deals, highly paid coaches with no academic duties, and the dedication of inordinate amounts of time by athletes to training lead many to believe that major college football and men’s basketball more closely resemble professional sports than amateur sports.... The exempt purpose of intercollegiate athletics ... is less apparent [than that of higher education], particularly in the context of major college football and men’s basketball programs.”

Brand responds by writing that “the lessons learned on the football field or men’s basketball court are no less in value or importance to those student-athletes than the ones learned on the hockey rink or softball diamond -- nor, for that matter, than those learned in theater, dance, music, journalism or other non-classroom environments. The fundamental purpose of intercollegiate athletics is the education of student-athletes in both the classroom and on the field or court. The scale of the sport does not alter the fundamental purpose.”

Still, the letter questions whether the NCAA is beholden to CBS, which televises the highly popular men's basketball tournament. Brand says that simply isn't true: "It just shows the popularity of the NCAA tournament," he writes. "Furthermore, if the American public also had the same popular interest in French lectures or accounting classes as they do in athletics, television would be just as eager to telecast those events and to sell commercial time to pay the rights fees. Transforming those academic offerings into commercialized events would not undermine the educational purpose for which the offerings are made.”

Brand writes that although some are concerned that the NCAA added one game to the college football season and also expanded the men's basketball season, there is no sign that the extra games have had an adverse effect on athletes' grades. (The NCAA admits that bringing in extra ticket and television revenue is an added benefit.) 

The committee's letter cites as a concern the statistic that at Division I-A schools, only 55 percent of football players and 38 percent of basketball players graduate -- compared to 64 percent of the general student body. Brand says that although these low graduation rates are a concern, he believes that the NCAA has made strides to hold college programs more accountable for their players' academic performance.

Academic Reform

“We disagree with the fundamental assertion of the letter that intercollegiate athletics is not a part of higher education,” Bob Williams, an NCAA spokesman, said last month. “Look at the emphasis on academic reform and it shows clearly how we feel.”

In the response letter, Brand explains the progress-toward-degree requirements that Division I athletes must meet before being eligible to compete. He also notes that according to data from freshmen entering college in 2004, Division I scholarship athletes on average earned higher SAT scores and grade-point averages than did their college-bound peers. (In a conference call last week, in response to a reporter's question, NCAA officials said that they were not sure they could provide those scores and GPA's by sport, to see how basketball and football players fared.)

"It is frustrating that there continue to be instances of low graduation rates for any teams, but progress on average is clearly being made and more will be," the NCAA letter says.

Brand continues to say that the most accurate data on athletes' classroom performance are the Academic Performance Rate – the real-time assessment of teams’ academic performance -- and the Graduation Success Rate, the more long-term measure that takes into account athletes who transfer into NCAA Division I colleges and those who leave in good academic standing. The federal graduation rate has, for years, been the main measure -- and generally didn't provide the NCAA with favorable results.

On the topic of special admission for athletes, Brand's letter says that "it must be emphasized that 'special admissions' are not limited to student-athletes. Most colleges and universities offer special admissions opportunities to a variety of students who have not met the academic standards generally applied to the student body. These special admissions are used to admit a small number of students, often low income non-athlete students with promise from disadvantaged educational environments."

The committee's letter expressed concern that athletes are being advised to choose less-than-challenging majors to improve their institutions' results on academic indices. Brand responds that the NCAA is in the process of collecting data from athletes who have graduated over the past 10 years to see what degrees they selected, why those degrees were selected and whether they were steered toward specific degree programs. The results, he says, will be available in the spring. The response letter says the Family Educational Rights and Privacy Act prevents the NCAA from releasing information about which professors students have or what classes they take (although some legal experts say that would only be so if the information were presented in a way that individual identities could be linked to particular outcomes.)

Escalating Costs

“There is no crisis in athletics finances,” the Brand letter states.

Responding directly to committee questions, the NCAA says that total annual operating revenues for all of its divisions are roughly $7.8 billion. Of this amount, $4.2 billion is generated from athletics sources such as ticket revenues, contributions, etc., the response states. "The remaining $3.6 billion are funds allocated by the institution, state or other governmental entities for the benefit of student-athletes," it says.

Brand says in the letter that although total athletics spending has outpaced the rate of increases in university spending over the last four years, athletics spending has not exceeded athletics revenues. Revenues are rising because of increases in scholarship costs, rising travel and insurance costs. “Many, but not all, of these factors are outside the control of the athletics department," the letter states. "The ability of the NCAA to influence spending is limited."

Thomas’s letter calls into question “excessive spending” on coaches’ salaries. Brand’s response: They are market-driven and on the same scale as salaries for top-tier faculty in medicine, engineering, law and other disciplines. The letter adds that just like a president's compensation package, much of a coach's money comes from outside sources.  

Regulating coaches' salaries would potentially violate antitrust law, the letter states.

On college sports venues, which have become increasingly more expensive over the past decades: “These facilities, often paid for through bonds or charitable contributions, also generate revenue that offsets the operational cost of athletics that might otherwise be provided through institutional funds," the NCAA letter says.

“Through speeches, articles and most recently through the work of the Task Force [on the Future of Division I Intercollegiate Athletics], we have urged moderation in the growth rate of athletics budgets,” Brand writes.


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