NCAA Limits on For-Profits

In a bid to protect its nonprofit status but not lose its for-profit members, the NCAA is trying to create a new classification for for-profit colleges.

August 14, 2014

Hoping to strike a balance between preserving its nonprofit status and allowing for-profit colleges to remain members, the National Collegiate Athletic Association last week urged its three divisions to create a new classification for for-profit institutions.

The NCAA maintains its educational tax exemption by ostensibly directing revenue toward scholarships and other academic opportunities at nonprofit colleges. When a for-profit institution moved from Division II to the higher revenue ranks of Division I in 2012, it concerned some within the NCAA and led to a yearlong study of the issue by a subcommittee. According to the subcommittee, the association can continue to comply with its nonprofit status if the financial benefits of for-profit colleges are delivered through conferences and not the NCAA itself, and as long as those colleges do not directly contribute to the development of rules that govern the association.

Under the new classification, the five current for-profit members of the association will still be able to participate in championships and receive financial distributions through their conferences, but they will not have a formal say in the creation of any NCAA rules and regulations.

"For-profit members will not be permitted to directly participate in the NCAA’s governance process, neither as voting members at the NCAA Convention nor as institutional representatives on committees," the NCAA said in a statement. "Their staff members will, however, be allowed to participate on committees as representatives of their conferences."

The recommendations come a little more than a year after college leaders in the Pacific-12 Conference announced that they would not allow their teams to play against Grand Canyon University, the only for-profit college in Division I. The Christian university joined the division in 2012, becoming a member of the Western Athletic Conference. Grand Canyon has a large online enrollment as well as a traditional campus in Phoenix. It has 22 athletics squads, including men’s and women’s basketball teams, but no football team.

It is also publicly traded.

“The incentives for for-profit colleges are not aligned with their students, and even less so with their student-athletes,” the Pac-12 stated in a letter addressed to the executive committee chair. “For-profit colleges are owned and operated by businesses and are not accountable to their students or faculty. Their primary responsibility is to their shareholders.”

Grand Canyon wasn't always a publicly traded for-profit university, but financial difficulties led its trustees to sell the college to Significant Education, LLC, in 2004. Four years later, the college went public; it is now owned by shareholders of Grand Canyon Education. Brian Mueller, the university's president and CEO, said Tuesday that he was disappointed with the new classification and the lingering lack of acceptance from other conferences.

"When the university was going bankrupt and going to be shut down, the only option for us to keep it alive was to go to the public market," Mueller said. "The committees' recommendation is a little bit disappointing from our standpoint, but I understand that change takes time, and I understand that it takes time for people to get comfortable with new ways of doing things."

While a blow to the for-profit colleges, the committee's recommendation does not go as far as some of the nonprofit institutions would like. Edward Ray, the president of Oregon State University, said Wednesday that the recommendation seemed like an attempt to just "split the difference" between nonprofit and for-profit concerns.

"The issue was never about whether they could vote or not," Ray said. "It was about if we want to have any of them in the divisions, competing against nonprofits and advertising that in their athletic schedules, further legitimizing what they see as their role in the education continuum. This doesn't really address that issue."

In a statement Friday, the NCAA promised to "revisit discussions about how for-profit schools that are publicly traded should be considered." John Infante, a former NCAA compliance officer, wrote on his blog that, if adopted, the changes could lead to a lawsuit, particularly if the NCAA later decides to place further restrictions on publicly traded institutions.

"The NCAA is almost certain to be sued over this action," Infante wrote. "For-profit institutions are unlikely to sit by idly while the NCAA says they cannot vote on legislation or be represented on committees. And if the NCAA further singles out publicly traded institutions like Grand Canyon, legal action from them will be even more likely."

The four other for-profit colleges -- Post University, Academy of Art, and Salem International University of Division II; and Daniel Webster College of Division III -- do not currently have any plans to sue the NCAA. But Don Mroz, president of Post University, said he was still unhappy with the recommendation.

"Post University is certainly saddened by the potential of losing voting rights during the business portion of the NCAA convention," Mroz said. "The changes should not affect the experience of our student-athletes, who are always our main focus, but it certainly is unfortunate that this recommendation was made to the NCAA executive committee, and that Post University coaches and staff members would lose the experience of serving on NCAA committees."

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