ORLANDO --- An NCAA-commissioned study reveals that it is unlikely Division II institutions will gain financially by funneling more money into athletics or reclassifying to Division I.

The study, unveiled June 25 at the Division II Chancellors and Presidents Summit in Orlando, reveals a decrease in average net revenues in Division II athletics departments that increase spending or reclassify divisions.

The summit is an unprecedented gathering of more than 150 Division II leaders to celebrate the successes of the division and discuss how to build upon them in the future.  The study is intended as a tool that campus leaders can use to guide them in making decisions about athletics.

During his keynote address, NCAA President Myles Brand acknowledged that while reclassifying to Division I may be the right decision for some schools, the decision should be based on the facts and what’s best for the mission of the institution.

"Often, perhaps even generally, the decisions are made because of significant external influence, because of the perceived importance of divisional status to the reputation of the school, or because of the unsupported belief that ‘moving up’ will benefit the school financially,” Brand said. 

The study, “Empirical Effects of Division II Intercollegiate Athletics,” confirms that there is no evidence to support the notion that reclassifying to Division I will generate higher net revenues.

"Division II schools considering increases in athletic spending or switching to Division I should carefully consider the financial impact.  The evidence shows that schools that switched divisions did not realize financial gains.  In fact, they suffered financially as a result of the switch,” the study’s authors, economists Jonathan and Peter Orszag, stated.  

The Orszags, who are directors of the economic consulting firm Competition Policy Associates, Inc., also co-authored previous NCAA-commissioned studies, including “The Empirical Effects of Collegiate Athletics: An Interim Report,” in 2003 and 2005’s “The Physical Capital Stock Used in Collegiate Athletics.”  These earlier analyses examined operational and capital budgets, respectively, at NCAA member institutuions.

The first step in the Orszags’ look at Division II was to compare it to other divisions.  They found that operating revenues at Division II institutions with football averaged $2.6 million while spending averaged $2.7 million.  Revenue and spending at Division II schools without football were $1.7 million and $1.9 million, respectively.

Budgets at all three subdivisions in Division I were larger.  Operating revenue and spending were $29.4 million and $27.2 million in Division I-A, $7.2 million and $7.5 million in Division I-AA, and $6.2 million and $6.5 million in Division I-AAA.  In addition, athletics spending as a percentage of total institutional spending is lower in Division II (2.7 percent) than in Divisions I-AAA (3.0 percent), I-AA (3.6 percent) and I-A (3.8 percent).

Next, the study sought to determine whether increased athletic spending in Division II would produce economic returns.

The study notes that increased spending does render higher revenues, but not enough to offset the higher costs.  Each additional dollar spent in Division II results in between 20 and 60 cents of additional revenue, meaning net revenues fall with every additional dollar spent.

In addition, the study looked at other measurable impacts of increased athletics spending, specifically whether it led to increased alumni giving, student applications and student quality. However, it found no relationship between increased athletic spending and contributions, the number of applicants or their standardized testing scores.

Finally, the study looked at whether a move to Division I increases net revenues for former Division II institutions.  Roughly 50 schools have either moved or are in the process of moving from Division II to Division I since 1985.  The available data allowed the study’s authors to look at 20 schools that reclassified between 1994 and 2002.

Revenues increased at those schools by an average of $2.5 million, including an almost $2 million increase in institutional support, which is money added to athletics department budgets from other parts of the university.  However, spending increased $3.7 million.  The result is an average decrease of $1.2 million in net revenue with institutional support and an average decrease of more than $3 million when institutional support is not included.

All schools moving to Division I saw a decrease in net revenue when increases in institutional support, state support and student activity fees were removed.

The largest sources of increased revenues after institutional support were student fees, state support, alumni support, ticket sales, and money from conferences and the NCAA.

The largest targets of increased spending were scholarships, salaries and travel. 

The study’s authors also interviewed a number of campus decision makers about their decisions to reclassify to Division I or to remain in Division II.  The interviews confirmed the study’s evidence that moving to Division I did not render significant financial returns.  In addition, many schools made the move to Division I without engaging in rigorous cost-benefit analysis.  For the most part, those schools that reviewed financial data decided to stay in Division II.

However, school officials cited a number of intangible reasons for moving to Division I, including: public visibility, increased school spirit, or feeling out of place in Division II because of enrollment size or nearby rivals. 

Brand noted that Division II emphasizes excellence in both academics and athletics, which permits a quality athletics experience while allowing student-athletes to integrate into the student body.  He also pointed out that Division II offers opportunities to as many student-athletes as possible, most of whom share in the cost of their education.

"All of this suggests a sense of balance within the division – a comfort with who you are and what you stand for,” Brand told the group.  “Division II – to its credit – has valued intercollegiate athletics as an integral part of the college or university.  This is a principle I recommend for the whole of college sports.”

The conference also planned to review the successes of changes to Division II championships, including recent and upcoming championships festivals, and increased television coverage of those championships.

NOTE: Link to the Empirical Effects of Division II Intercollegiate Athletics Study available in the Helpful Links box above.