Forbes: Duke Basketball Value Falls--Expenses Rise to Highest in College Basketball

[blueprofessor]

http://www.forbes.com/2009/03/16/most-valuable-college-basketball-teams-business-sports-final-four.html

Duke basketball expenses rose 88% to 15 million dollars, which is 5.7 million dollars higher than any team in college basketball.

Interesting article includes the top valued schools and their gross and operating incomes.

Do we need an MBA handling expenses?:D

Best--Blueprofessor:)

[94duke]

Would this be due to the new practice facility that was recently completed?

[killerleft]

Forbes - covering college basketball while Rome burns. Have they nothing better to cover on the financial front?

[dgoore97]

the numbers raise the question.. With the amount of money they generate for leagues, schools and coaches, shouldn't college players, especially those that don't end up playing professionally be entitled to some form of pension?

i know the argument is that they get a free education, but i would make two points: the schedule for a div 1 athlete (20 hrs per week is the official time commitment, but i am guessing actual time spent is much higher) means that the education they get is not akin to that of a normal student. even if it were equivalent, the value they create for these programs and via the sneaker contracts that pay the coaches seems to far outweigh what they receive in most cases.

i am thinking about a player like McClure who has provided a great benefit to Duke and the league but who is never going to see the huge sums that others will.. shouldn't he get something for the value he has helped create?

if we are generating 15mm a year, we could tak 2% and set aside for a fund to aid former players who are looking for graduate educations etc. could help distinguish us in recruiting as well (esp in a world where Memphis is flying its team on private Fedex jets.. is that true?), though i haven't analyzed the ethics of it at all

thoughts?

[blueprofessor]

Would this be due to the new practice facility that was recently completed?

Usually, a new structure ,which the business occupies(like a practice facility or office), is capitalized (placed as an asset on the balance sheet) and then depreciated annually over its life expectancy.
So, only a small percentage of the facility's cost would be subtracted annually as depreciation from revenue as an operating expense.Normally.

Best --Blueprof:)

[jjasper0729]

it's more likely the number jumped because of football expenditures with the new coaching staff/regime

[gwwilburn]

Isn't the basketball program becoming self-sufficient and financially independent? I think a lot of former players have donated to an endowment meant on making the program run on its own.

[94duke]

Usually, a new structure ,which the business occupies(like a practice facility or office), is capitalized (placed as an asset on the balance sheet) and then depreciated annually over its life expectancy.
So, only a small percentage of the facility's cost would be subtracted annually as depreciation from revenue as an operating expense.Normally.

Best --Blueprof:)

Thanks!

[studdlee10]

Not bad for a small private school with a small stadium where students get in for "free" and relatively small alumni base. Not to mention Duke is located in a region full of UNC grads and fans.

[allenmurray]

the numbers raise the question.. With the amount of money they generate for leagues, schools and coaches, shouldn't college players, especially those that don't end up playing professionally be entitled to some form of pension?

i know the argument is that they get a free education, but i would make two points: the schedule for a div 1 athlete (20 hrs per week is the official time commitment, but i am guessing actual time spent is much higher) means that the education they get is not akin to that of a normal student. even if it were equivalent, the value they create for these programs and via the sneaker contracts that pay the coaches seems to far outweigh what they receive in most cases.

i am thinking about a player like McClure who has provided a great benefit to Duke and the league but who is never going to see the huge sums that others will.. shouldn't he get something for the value he has helped create?

if we are generating 15mm a year, we could tak 2% and set aside for a fund to aid former players who are looking for graduate educations etc. could help distinguish us in recruiting as well (esp in a world where Memphis is flying its team on private Fedex jets.. is that true?), though i haven't analyzed the ethics of it at all

thoughts?


Your idea is intriguing. I've never liked the idea of "paying" players (though I do understand the arguments). However, the idea of a fund to pay for graduate education keeps more in line with the idea of scholar-athlete.

[blueprofessor]

it's more likely the number jumped because of football expenditures with the new coaching staff/regime

See: http://www.forbes.com/2009/03/16/mos...inal-four.html

The profit is extremely small compared to other top programs discussed.

Best--Blueprof:)

[hurleyfor3]

Well, apparently we also make the most money (http://www.dukebasketballreport.com/forums/showthread.php?t=15162), so we can afford it. :)

[Ian]

You guys are in fantasy land.

You do know that most athletic programs are actually in the red, right? So where is this money going to come from to fund these things.

The profits from men's basketball and football are already being used up to fund the non-revenue sports programs.

The only way to do this "fairly", i.e., the people who generate the revenue gets the compensation. Is to cancel most if not all the women's athletic programs, and most if not all of the men's programs besides basketball and football.

[4decadedukie]

i am thinking about a player like McClure who has provided a great benefit to Duke and the league but who is never going to see the huge sums that others will.. shouldn't he get something for the value he has helped create?

I am a huge Dave McClure fan and deeply appreciate his significance to recent Duke teams (including 2008 - 2009); I sincerely respect his work ethic, talents and selflessness. I would suggest, however, that five years of free Duke education is something of real value, a highly credible foundation for the remainder of his life (both personally and professionally). As we are all aware, MANY truly outstanding high school seniors – with gifts every bit as valuable and rare as Dave’s – would give a lot just to be admitted to Duke, not to mention a “free ride'" throughout undergraduate school.


if we are generating 15mm a year, we could take 2% and set aside for a fund to aid former players who are looking for graduate educations etc.

I am not sure this would comply with NCAA regulations; after all, these are “student athletes” (in all sports and in every university/college), not “semi-professionals." Even if your plan were to meets NCAA strictures, how would you deal with the equally hard-working and beneficial athletes from the non-revenue sports or from Divisions II and III? Would you created a two-tier varsity athletic program at Duke (and presumably at other institutions), one with enhanced benefits for football and basketball, with a separate and less advantageous paradigm for the vast majority of student athletes? Further, would your proposal comply with Title Nine statutes for female student athletes?

In sum, I understand the motives behind your suggestion, but I am not sure it is legal, practical or wise.

[blueprofessor]

Well, apparently we also make the most money (http://www.dukebasketballreport.com/forums/showthread.php?t=15162), so we can afford it. :)

Duke grads,yes :D ,but not the basketball team.

Duke basketball had an operating income of $6.6 million.
Louisville led with 16.6 million ,followed by UNC at 16.4 million.
Some others: Indiana--16.1 million; Arizona, 12 million;Kansas,12.9 million; Illinois,12.8 million; and, Maryland,10.8 million.

"Operating expenses are comprised primarily of coaches' compensation,travel expenses,and gameday costs."

Duke's operating expenses were up 88% from the prior year and are $5.7 million higher than any team in college basketball, thereby leading to a precipitous drop in operating income.

Best--Blueprof:)

[Mal]

Duke's operating expenses were up 88% from the prior year and are $5.7 million higher than any team in college basketball, thereby leading to a precipitous drop in operating income.

I don't see why an increase in expenses would lead to a drop in income. I assume "operating income" here is simply revenue. Net out the increased expenses from that and, of course, your bottom line profit would drop, not the gross inflow of money.

Anyway, I think the more salient point here is the 88% operating expense increase year-over-year. This almost has to be a one time expense of some sort. As others have suggested, it's possible the university doesn't amortize the new practice facility using traditional accounting, perhaps due to unique tax treatment. It could be some other large expenditure - what's K's contract status? Maybe there was some deferred bonus payment or something. Regardless, unless there's reason to believe the cost of basically every day to day operating part of the program, from cooling Cameron (wink, wink) to staffing security to travel almost doubled in '08 over '07, I think this is much ado about nothing and we'll be back towards the most profitable overall next year.

If we were towards the very top of the list of most profitable last year (which I think the article mentioned as having been the case), and our revenues are dwarfed by UNC and Louisville, then it stands to reason we were nowhere near the "most expensive to run" program in the past.

As someone else mentioned, for any program that sells (I would think) less than 120,000 game tickets in an entire season to even be in the conversation speaks well of its brand. I have to imagine our national merchandise sales are at or close to the top. No one else has a brand that extends all that far beyond the borders of the state in which the school is located.

[blueprofessor]

I don't see why an increase in expenses would lead to a drop in income. I assume "operating income" here is simply revenue. Net out the increased expenses from that and, of course, your bottom line profit would drop, not the gross inflow of money.


...so, an increase in operating expense ( of which Duke experienced an 88% increase to a figure $5.7 million higher than any other team in college basketball),most definitely decreases operating income or operating profit.
Revenue refers to gross income,not operating income.

Best--Blueprof:)

[miramar]

I have been out of the accounting field for decades, but how can you have an 88% increase in "Operating expenses [that] are composed primarily of coaches' compensation, travel expenses and game day costs"? Travel expenses and game day costs should not have increased much, so it must be C-Well's salary.

[77devil]

I would take this Forbes information with a grain of salt. There is a lot of estimation involved and the piecing together of incomplete information from different sources. There is no rational reason for an 88% increase in the ongoing cost of operating the basketball program. There must be non recurring item(s) affecting the current numbers. For example, while Blue Professor is largely correct about depreciating the investment of the new practice facility, every large capital project has a percentage of the cost that should be expensed as incurred.

And what's the value of the exercise to begin with? What does it mean? As others have alluded to, not much. The university can't monitize the implicit value of the basketball program. It's not manged for growth per se. And comparing the economics of basketball between medium sized private universities to very large public universities is meaningless

[GopherBlue]

I have been out of the accounting field for decades, but how can you have an 88% increase in "Operating expenses [that] are composed primarily of coaches' compensation, travel expenses and game day costs"? Travel expenses and game day costs should not have increased much, so it must be C-Well's salary.

Johnny D must have cashed out a lot of unused vacation time.

[Zeke]

I've thought for the last several years that athletics were the tail wagging the university dog. This includes Duke but in a lesser way than many (mainly state universities) other schools. I'd propose an idea that will be knocked down hard here, but think on it. The idea is that schools lease their names and facilities. Athletes could play under the Duke banner (or whatever school),not be required to meet an SAT score for entrance, use the facilities, be paid, not have the whole team getting advanced registration in the easy professor in Sociology classes, not be required to live on campus or whatever whatever. Athletes could gain entrance to the university, if they were academically qualified - but not be a necessity to play for Coach K. Coach K. and Coach C. could get better players by not having to academically qualify them. The teams could generate their own revenue, and pay for the contract. Duke and other schools could generate revenue from athletic teams and pay their own way, but not have to prostitute their academic ideals to the $.
Right now ALL universities are bending their academic standards to accommodate to the athletes. Do you really think that Duke athletes (in whatever sports) represent the rest of the student body. They didn't when I was in school there and I doubt they do now. The non-revenue sports are much better but all sport statistics are brought up by those sports. I know you all will disagree but think about it We would have Duke to cheer for , the athletes could or could not be students - without stigma. The status of college athletics in revenue sport as a minor league for the pros would be on the table - not under it as it is now.

[dukeman28428]

Priceless

[blueprofessor]

Priceless

and there is no reason a private university cannot compete for dollar valuation with larger public universities.

It is the brand quality ,not the size of the physical plant, that drives value in a mass market.
Of course, a FF would sell more Duke items!
Best--Blueprof:)

[ArnieMc]

I have been out of the accounting field for decades, but how can you have an 88% increase in "Operating expenses [that] are composed primarily of coaches' compensation, travel expenses and game day costs"? Travel expenses and game day costs should not have increased much, so it must be C-Well's salary.Travel expenses could have increased a bundle. IIRC, Duke uses NBA planes to fly to away games, and jet fuel prices went through the roof.

[jdj4duke]

The increase in expenses can be easily explained: How do you think we manage to get all the calls?

[Zeke]

Who paid for the new practice facility; which, if I understand it correctly, is off limits to Duke students. If it was Coach K himself then that's debatable, but if it was DU then that's very bad for DU. The athletic Juggernaut is taking over the campus.

[4decadedukie]

Who paid for the new practice facility; which, if I understand it correctly, is off limits to Duke students. If it was Coach K himself then that's debatable, but if it was DU then that's very bad for DU. The athletic Juggernaut is taking over the campus.

The facility was paid for (in total, or certainly in VERY large part) by donations from alumni and friends of the University and its Basketball Program. This is normal for ALL Duke buildings. My wife and I contributed $5K; I mention this only because we attended the 8 February 2007 official opening, and we noticed a plaque of donors that is located on the stairs to the banquet facility. Based on that list, I am extremely confident that the facility's cost was completely underwritten by gifts for that specific project, not by general University revenues, or tuition, or contributions to the Annual Fund, or scholarship endowments, or the like.