A Moody’s report published on Thursday looks at the risk that expensive athletics programs pose to American universities. The majority of these programs lose money, but it has been arguable that athletic success typically enhances a university’s image. It’s a spending gamble, then, for schools to employ to attract students. Moody’s writes:
Universities pursue high-profile sports programs for the opportunity to increase brand recognition, student demand, and donor support. However, that upside comes with financial and reputational risks that require careful oversight. As the commercial success of big-time college sports has grown, so too have the potential benefits and risks to universities.
Here are the risks:
» Budgetary Strain: 90 percent of athletic programs are not self-sustaining, requiring growing subsidies, which divert funding away from other university operations.
» Public Scrutiny: Scandals cause reputational impact that is magnified by media attention and unwanted national focus. [Think Penn State]
» Debt Capacity: Increasing capital investment for athletic facilities can deplete debt capacity in the absence of exceptional fundraising.