Cash Money: The business of Texas, Inc.

Cash money? Yeah, Texas has stacks on stacks on stacks - "Cash Money (part two)" by Jeremy Yerse

What The University of Texas athletics' financial advantages look like.

Depending on how you count, something like 30 teams have won national championships in the poll era (1936-present day). In the BCS era, Alabama, LSU, and Florida account for half of all BCS championships, and the SEC as a whole has won nine of them.

The only other conference with multiple championships is the Big 12 with only two. The SEC has dominated football in the last fifteen years in a way few conferences in all of sports have dominated anything.

And this streak of dominance is put to absolute shame by the absurd way that Texas has dominated financially over basically every other program in the country.

Revenue_plot_medium

Above are the top ten college athletic departments ranked by revenue in 2011 (the latest year for which I could obtain reliable data). Texas is far and away the revenue leader, but thanks to it's spending, is slightly behind the University of Alabama in profits (most schools outside the top ten are not profitable, it's worth noting).

The economies of most of these schools rival that of the smaller countries' in GDP, but Texas is, and seemingly always has been, playing a different game. I thought it would be interesting to examine why.

Spending (2011)

Expenses_chart_medium

For 2011 (and pretty much every other year for which I could obtain data), Texas' $150 million in revenue outdistanced second-place Ohio State by nearly $20 million. Incredibly, Texas' total expenses ($133 million) were greater than that of any school in country's revenue.

If other athletics departments spent money like Texas, every single one of them would be in the red. Contributing to Texas' spending is a whopping $50 million spent on coaches, and $50 million in "other spending" which includes:

guarantees paid to other schools, severance payments to past coaches and staff, recruiting, team travel, equipment and uniforms, game day and camp expenses, fundraising and marketing costs, spirit group support, medical expense/insurance and conference dues. It also includes expenses charged to athletics by the university, such as building maintenance.

Both of these numbers are tops in the country. Interestingly, although Texas is the countries' biggest spender, it's expenditure on scholarships ($9 million) is $2 million less than the average of other schools in the top ten in revenue, and is the least amongst them.

One-third of Texas profits came from fielding fewer varsity teams.

Possibly this is because Texas only fields 19 varsity teams, whereas Ohio State for example fields 39. This is not an insignificant point, and accounts for one-third of the $16 million in net profits the program makes.

Protip: "Do not field many unprofitable sports and you'll make more money."

Revenue (2011)

Revenue_plot2_medium

Where does Texas' fiscal advantage come from? It isn't from the Tower: Texas athletics does not rely on student fees or school funds to function.

By contrast, the schools in the top ten in revenue on average accepted $2 million in fees/school funds, including notably Florida and Auburn who both accepted money from the academic side. The advantage is also not explained by licensing -- Florida, Michigan, Wisconsin, and Ohio State all made more more than the $42 million Texas did on licensing (which, by the way, includes television revenue). Nor is it explained by donations -- Texas' $37 million in contributions is high, but not the highest amongst these schools (Florida made $42 million).

No, Texas' biggest lead over other teams in terms of revenue is in ticket sales. This isn't the slightly Orwellian mandatory donation required for the right to purchase tickets, but the honest-to-God face value of a Longhorn ticket -- between $325 and $405. These prices, though, are not unusual.

Ohio State charges right around $500 per ticket, and other schools are in the ballpark. And yet Texas enjoys a healthy lead over Ohio State (and every other school) in ticket sale revenue, a lead that goes back at least the last several years.

Are we as fans paying more for a weaker product? It's hard to say if this is true. In doing research for this article, I found that Texas' policies towards season ticket holders were not particularly different than other schools'. Some charge even more perhaps.

For example, Ohio State requires a minimum donation to the Buckeye club of $1500 for the right to pay $500 for a season ticket. They even charge admission for the spring game. At the tail end of the top ten, Florida made $20 million in 2011 in ticket sales, one-third that of Texas, and may not have even sold out last year.

In writing this post, some hypotheses to explain the difference in ticket sale revenue I considered and rejected were:

  • Texas has a smaller-than-average student section and so makes more money off of full-price tickets. False.
  • Texas charges its students more for student tickets. False.
  • Texas charges its season ticket holders more. False.
  • Texas baseball and basketball attendance adds significantly to ticket revenue. Mostly false (Texas is #5 in baseball attendance behind football powerhouse LSU at #1, over whom we hold a considerable ticket revenue advantage).
  • Texas charges more for single-game ticket to non-season ticket holders. Mostly false (Texas single game tickets are never cheaper than $50, and although some SEC schools do average under $50 per ticket, many schools charge more than Texas does. And well, basketball attendance... yeah).
  • DKR sells out and other schools do not sell out their stadium. False.

For now, I'll leave the question of how we make more money off of tickets than anyone else in the country unanswered, but I don't mean to be particularly mysterious. The demand for Texas athletics far exceeds the supply; the answer is probably just that.

One possible explanation is that Texas simply makes more money off of the revenue from other places -- including those from the numerous luxury boxes, suites, and other amenities that could provide the margin above other schools.

(Possibly Ranty) Conclusion

To conclude, Texas dominates college athletics financially due to (as is my guess) a confluence of a well-managed athletic program that fields few varsity sports; a large and generally wealthy fan/alumni base that can afford an annual $37 million donation; and the fundamental advantages of being a "The University of" in a state that is relatively prosperous fiscally.

Functionally, Texas Athletics is near the top in most of the "revenue" categories (ticket sales, donations, and licensing), and is far and away the leader in "ticket revenue". I leave unanswered for the intelligent reader the question of why our ticket sales are so lucrative, and whether they should be. Anyone who has taken freshman microeconomics more recently than 2004 is better qualified to answer this question than I am.

If there is anything to be learned, it's that squandering piles of money into sub-par on-field performance is not something unique to Texas football (or football, or Texas, or anything). That Texas was able to secure $37 million in contributions after a 5-7 2010 season tells you exactly how inelastic the demand for Texas football is; and this should come as no surprise.

In sports culture, the inelasticity of demand is praised as a virtue -- loyalty. And so long as that is true, the time it takes for fan discontent to percolate into actual pressure on job performance will remain longer than it should be.

Texas, Inc. simply wins at a different game

It's not that Texas Athletics thinks that losing in football or basketball or baseball is okay; they're just better at winning a different game.

In that regard, DeLoss Dodds is still the master.

But, as learned hand pointed out the other day, how inelastic will that demand end up being if Texas doesn't start turning out a winning product on the football field again?

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