Athletics Might Boost Enrollment, but How About Financial Performance?

2 minute
soccer players

As small colleges face increasing competition for a dwindling number of prospective students, some are turning to athletics to boost enrollment. A December article in Inside Higher Ed profiled several institutions in the Midwest that have introduced new athletic programs to increase enrollment—and hopefully tuition revenue as well. And in September, an article in The Chronicle of Higher Education asked, “Can Sports Save Small Colleges?”

As these articles describe, there are clearly examples of schools that have increased enrollment by adding athletic programs. But the key question is not whether athletic programs will increase enrollment. It is whether they will increase the institution’s financial performance as well. The question of financial performance should energize leaders to advance an athletics-based enrollment strategy with eyes wide open.

Expansion of any program—academic or athletic—comes at a cost. For example, new athletics staff—coaches, tutors, nutritionists, etc.—must often be brought on board. Depending on the sport and the school’s current infrastructure, new facilities may also be required. College sports also entail travel, which adds to the costs of the programs. New administrative overhead costs will almost certainly be involved. Athletic scholarships, if they are allowed (they are not in NCAA Division III programs, for example, but are in NAIA and NCAA Division II programs), can eat into the incremental tuition revenue generated by the programs, as can other forms of financial aid or discounting likely required to recruit students.

Other issues might directly or indirectly affect the institution and its academic programs. 

These could include:

  • Academic issues. Significant expansion of athletic programs, if not managed carefully, can lower academic standards. This can diminish the appeal of the school to non-athlete prospects and/or require additional expenses to provide tutoring and other services to retain student athletes.
  • Impact on faculty. As the percentage of student athletes grows, the popularity of different academic majors can shift. Some majors may struggle to generate a positive margin, while others may require additional faculty and other expenses to meet heightened demand.
  • Academic schedules. Team practice schedules might constrict the times when academic courses can be offered.

Identification and quantification of all potential operational and financial impacts—positive and negative—of an athletic program expansion strategy is critical. This quantification will enable the development of a focused business plan that includes disciplined milestones and key performance indicators to monitor the strategy’s success and allow for adjustment if needed.

A cornerstone of this type of comprehensive business planning analysis for athletics should be a program-by-program breakdown of anticipated incremental revenues and expenses associated with each proposed sport. Some sports are significantly more expensive than others. And it is widely known that very few athletic programs make money, based on the cost of the program and the direct revenues it generates. This makes it all the more important to fully understand how much a program’s incremental expenses will exceed the direct revenue it is projected to produce, how many additional students are expected to be recruited to the program, and the extent to which the tuition revenue generated by these additional students will offset the program’s costs. This analysis should include an estimate of how much scholarship money, tuition discounting, or other forms of financial aid will be needed to recruit the additional students needed for each sport’s roster. A comprehensive business plan will define parameters that will provide quantified guidelines for coaches as to how much money they can offer while recruiting.

If the program analysis indicates that additional tuition revenue will more than offset a program’s anticipated incremental costs, and the addition of this program is approved, close coordination will be required between coaches as they recruit students, the admissions office as it oversees the qualifications of prospective recruits and their chances for academic success, and the financial aid department as it approves scholarships. 

This coordination will help ensure that:

  • Enrollment targets will be met
  • Admitted students will be retained
  • Institutional financial performance will be enhanced

Many smaller institutions see athletics as essential to their long-term viability, boosting both student enrollment and alumni engagement. But institution leaders should also be aware that the underlying financial structure of the athletics strategy is fundamental to its potential success. They also should anticipate the broader impacts this strategy may have on the culture and academic curriculum of the institution while continually considering the long-term effects that the resulting changes could produce.

Please join us on Tuesday, February 6, from 11:00 a.m. – noon CST for “Beyond the Outlooks: Our Second Annual Conversation with the Rating Agencies.” Our webinar will feature a discussion among the higher education sector leaders from Moody’s Investors Service, Fitch Ratings, and S&P Global Ratings. Find out more and register here.

Larenda Mielke
Larenda Mielke is a Senior Vice President in the Higher Education division of Kaufman Hall’s Strategic and Financial Planning practice. She has extensive leadership experience in higher education in the areas of strategy, curriculum and program development, and more.
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