By Katie V. Davis, CPA, James Moore and Kelleigh Fagan, Partner, Church Church Hittle + Antrim
Revenue sharing, employees, broadcast rights, NIL – these are all frequently referenced in conversations, debates, and policies around collegiate athletics right now. References to student-athletes sharing in athletics revenue is a hot topic and ripe for debate – could revenue sharing negatively impact Olympic sports, will colleges and universities begin cutting all sports without significant revenues wholesale? There is real fear around the concept of revenue-sharing. That fear, though, has not stopped state legislators, institutions and conferences, and think-tank groups from considering it as a core part of the future of college athletics. Setting aside the policy debate of “should we or shouldn’t we”, we wanted to unpack what “revenue” really means when it comes to potential revenue sharing models. CCHA teamed up with its financial guru friends at James Moore to analyze this question—What consists of revenue?
The natural, usually first, and perhaps most common answer is that revenue is all income generated. But it may not be that simple, and there would need to be some mechanism to verify the revenue reported.
California’s proposed College Athlete Protection (CAP) Act (currently not in effect) proposed using annual reports institutions must make under the Equity in Athletics Disclosure Act (EADA) for both identifying a revenue number and ensuring transparency. The EADA requires institutions to submit an annual report to the federal government about varsity intercollegiate athletics programs and the financial resources and personnel dedicated to those teams. This reporting requirement arose out of concerns that there was insufficient transparency and inequitable spending in college sports well after Title IX was passed.
The January 2023 version of the CAP Act defined revenue as the “annual intercollegiate athletics revenue as calculated and reported pursuant to the federal Equity in Athletics Disclosure Act (EADA).” An updated March 2023 version of the bill clarified, and expanded, that “Revenue” includes
“intercollegiate athletics revenue paid directly by an intercollegiate athletic conference, an athletic association, or a source designated by an institution of higher education, an intercollegiate athletic conference, or an athletic association to cover any athletic program expense or to compensate a college athlete for participating in intercollegiate athletics at the institution.”
CAP intended to require certain California schools to place at least a portion of the athletics department revenue into a fund to pay athletes upon degree completion.
These EADA reports are publicly available, and there is a view that taking revenue from these figures is not representative of true revenue for purposes of revenue-sharing. The nuances woven into athletics department financial balance sheets may not be fully captured or delineated from EADA reports. These subtleties may include revenue generated from mandatory fees paid by all undergraduate students, prospective expenses that are negated through vendor-trade agreements, and financial assistance provided to student-athletes or their family members that might not be considered athletically related financial aid per EADA’s definition such as a booster-provided team meal or emergency transportation provided to a student-athlete’s parent that are still an expense to the university.
Another potential definition of “revenue” could be derived from reports and information that NCAA schools are required to submit to the NCAA. The NCAA’s Membership Financial Reporting (MFRS) requirements include submission of financial data annually to the NCAA. Under NCAA rules, Division I institutions must have an independent public accountant review revenue and expenses annually based on NCAA Agreed-Upon Procedures Guidelines. Division II institutions must conduct this review every three years. An FAQ from the NCAA describes the difference between EADA numbers and NCAA reporting numbers as “The EADA report is a governmental report that is geared towards Title IX analysis, whereas the NCAA Membership Financial Report is geared toward institutional performance.”
With this financial reporting data, the NCAA publishes an annual report called “Trends in Division I Athletics,” which categorizes revenue sources as either generated or allocated. These two types of revenues have an important distinction. Typically, if an institution’s athletic expenses exceed its revenues, it suggests that the institution is subsidizing its athletics programs. These subsidies, recognized as allocated revenues, often come from student fees or institutional support. Generated revenue arises from revenue-producing activities such as ticket sales, fundraising and media rights—those more directly produced by athletic activities involving student-athletes. Allocated revenue does not include the student-athlete involvement.
Apart from whether revenue should be shared or not, if that becomes reality, policymakers should ensure there is deliberate consideration and understanding of what revenue really means to avoid unintended consequences of a too broad, too narrow, or unworkable definition. A “patchwork” of state laws has become a ubiquitous phrase to describe NIL state laws. Should a similar framework emerge with distinctive state laws on revenue sharing, with different definitions of revenue, what new expenses may be on the horizon should student-athletes be deemed “employees”, and which student-athletes qualify for revenue sharing, geography could significantly determine the financial health, and viability, of the athletics department.
The reliance on prior-year(s) athletics department revenue and expense data from an EADA report or limiting revenue sharing to only pre-determined revenue sources such as contractually defined media rights distributions from a conference media rights agreement does not factor in a student-athlete or team’s financial impact, in real-time, on ticket sales, parking and concessions revenue, university fundraising and capital campaigns. It also does not capture other revenue pipelines positively influenced by student-athlete performance not otherwise captured in a licensing or other NIL-related agreement that financially rewards the student-athlete. Reliance on prior year revenues to determine present-year revenue sharing also presents a timing issue that may overpay or underpay a student-athlete based on prior year numbers.
Without consistency and reasonable predictability, revenue sharing could take on what we see in federal tax reporting today – an attempt to decrease revenues as low as possible to pay fewer taxes. Revenue share, at its core, is intended to share at least some of the monies generated by athletics with those that play a primary role in generating it – the student-athletes. Creating a situation open to manipulation complicates an already highly complex and new potential aspect of college athletics.
