$16B College Sports Revenue and Regulations: Knight Commission Insights:

Changing Higher Ed Podcast 171 with Host Dr. Drumm McNaughton and Guest Amy Privette Perko

Transcript: Changing Higher Ed Podcast 171 with Host Dr. Drumm McNaughton and Guest Amy Privette Perko 

$16 Billion College Sports Revenue and Regulations: Knight Commission Insights

Welcome to Changing Higher Ed, a podcast dedicated to helping higher education leaders improve their institutions, with your host, Dr. Drumm McNaughton, CEO of the Change Leader, a consultancy that helps higher ed leaders holistically transform their institutions. Learn more at changinghighered.com. And now, here’s your host, Drumm McNaughton.

Drumm McNaughton  00:30

Thank you, David. Our guest today is Amy Privette Perko, CEO of the Knight Commission on Intercollegiate Athletics, an independent group with a legacy of impacting college sports policies to prioritize college athletic education, health, safety, and success. During her tenure at the Knight Commission, the NCAA has adopted a number of their recommendations. The most prominent of these actions include requiring teams to be on track to graduate 50% of their players to be eligible for postseason championships and revising its revenue distribution to include incentives for academic outcomes. Amy joins us today to talk about the NIL, the realignment of college conferences, and the big dollars that are now flowing into higher education athletics. Amy, welcome back to the show.

Amy Perko  01:24

Good to be with you.

Drumm McNaughton  01:26

Good to have you back. It’s been what, about eight months since we spoke last?

Amy Perko  01:32

Wow. It doesn’t seem like it’s been that long, but you what they say. Time flies, right?

Drumm McNaughton  01:38

Especially as you get as old as I am.

Amy Perko  01:41

This is especially true when you work in college sports. Things are always changing week by week.

Drumm McNaughton  01:49

Really? I never would have guessed that! So you’re the CEO of the Knight Foundation. For those of you who may not know you and your background, would you please give us a snapshot of who you are and how you got here?

Amy Perko  02:07

Sure. As you said, I’m CEO of the Knight Commission on Intercollegiate Athletics. We’re an independent think tank for policies in college sports. Our sole purpose is to focus on leading change that emphasizes college athletic education, health, safety, and success. We are funded by the John S. and James L. Knight Foundation. I was also fortunate to be a college athlete. I played basketball at Wake Forest University and had a great academic and athletic experience there. Fast forward, and I’ve worked in college sports for over 30 years at the University of Kansas, the NCAA, and now with the Knight Commission.

Drumm McNaughton  02:52

If I remember correctly, you’re also part of the Wake Forest Hall of Fame for athletes, are you not?

Amy Perko  02:58

Thank you very much. I was fortunate to have a great career at Wake Forest and am honored to be in their Sports Hall of Fame.

Drumm McNaughton  03:11

I’m curious. What position did you play?

Amy Perko  03:13

I was primarily a shooting guard. I played some point guard as well. I played in the ACC when there were eight teams. It was just a quaint bus ride to our opponents. The great thing about playing in the ACC and at Wake Forest was it was my first personal lesson in terms of how you can set a goal as a young child and work towards achieving that goal. As a young kid growing up, it was my dream to play in the ACC and to play at Wake Forest. And that came true for me.

Drumm McNaughton  03:50

And you did a pretty good job while you were there, too.

Amy Perko  03:54

Thanks a lot. I made a lot of great memories. I don’t consider myself old, but looking back, I came in on the ground floor, if you will. Title IX money was just starting to be put into women’s sports at the college level. It has been wonderful to see just how much it’s grown exponentially, from the success that women’s teams are experiencing at the Olympics and how much the viewership numbers for college sports have gone off the charts to the many opportunities that young girls and women have to play college sports. We’ve come a long way, haven’t we? We have and we still have a long way to go. But we have seen tremendous growth.

Drumm McNaughton  04:56

You have, and it’s good to see. One of my undergraduate experiences was at the Naval Academy, which we’ve talked about. I remember they brought women in for the last two years I was there in 1980. It was the first women’s class and women’s sports. It’s really nice to see how much it’s grown since then.

Amy Perko  05:19

Absolutely. With the higher education audience, we have to look at what the mission of universities is, and it is to help young women and men achieve their human potential. Sports is one way in which they can do that. Again, it’s just so important to provide equitable opportunities for women and men in sports.

Drumm McNaughton  05:41

Absolutely. One of the things that saddens me about sports right now is it’s turning into being so much about money. You’ve been seeing this at the forefront as we discussed last time we chatted. We talked a lot about the money in sports. Today, we’re going to talk about that as well. But to get started, there’s been some new things that have happened on the NIL front.

Amy Perko  06:05

The name image likeness rules, which is what the NIL stands for, have seen some of the biggest changes that have ever happened in college sports in our lifetime. These will not only benefit the big-power programs, schools, and athletes who are in the national headlines but Divisions II and III athletes as well.  

It is the two-year anniversary of these rule changes, which have allowed athletes to earn compensation for the use of their name, image, or likeness, on social media by influencers and endorsements. Frankly, these opportunities have also led to some real-life lessons about the business of sports and the finances that come along with it. So there have been some real positives.

But there are also some challenges, and we can talk about those. Briefly, recruiting inducements haven’t been enforced, particularly among the powerhouse programs, even though that’s a basic principle of the NCAA. The new NCAA president, Charlie Baker, has also been pushing really hard for more athlete protections, such as the use of common contracts, so athletes know what they’re getting into, and agent registration. But, frankly, it’s probably going to take federal legislation at this point. There’s also the need for uniformity. It’s amazing how active a number of states have been in passing state legislation with regard to NIL rules. We’ll see when Congress comes back and in session. A couple of bipartisan drafts are circulating right now. We’ll see how that moves forward.

Drumm McNaughton  08:08

That’ll be interesting to see. The other piece with that is something recently came out of California about having athletes as employees of the college. I’m sure you’re following all that.

Amy Perko  08:22

Right. It’s very interesting. In 2019, California became the first state to pass an NIL rule change using state legislation. The California legislation on NIL triggered the movement and led to the change that ultimately occurred. So everyone’s watching California. But it’s really directed to a small subgroup of schools that are earning lots of money. What’s happening in those schools has also painted an unfair picture. I think about what’s going on at hundreds of other schools where athletics are more part of that educational mission and not of the entertainment industry, which is the case at the larger, higher-profile schools.

Drumm McNaughton  09:22

Just pulling out your crystal ball, where do you think it’s all going to go?

Amy Perko  09:26

It’s hard to say right now. But we had CLA (CliftonLarsonAllen) do some projections for us, and we have a report that we’ll be releasing next week that looks at where this is headed for the top programs at the top 54 public institutions, particularly in regard to the incoming revenue from the college football playoffs and the new lucrative conference media contracts that have been renewed and expanded. The projections are staggering. We’re potentially looking at all sources of athletic revenues for these 54 schools that would reach $16 billion annually in 2032. So, 10 years out, it will double where things are now.

Again, it’s just looking at the college football playoffs. It currently brings in around $600 million a year. They’re looking at expanding that. TV executives believe that it will draw north of $2 billion dollars per year. So the big questions we’re raising with our new report are, where is all this money going and how’s it going to be spent? That’s really the debate moving forward, particularly for these powerhouse schools. For some sports, are we going to be moving to more of an employee model or some type of revenue-sharing model? What’s going to happen with all the other sports? I think the next five years are going to see even more significant changes moving forward.

Drumm McNaughton  11:07

It’s difficult to think how they’ll be even more significant than they are now with all the conference realignments going on.

Amy Perko  11:14

The conference realignment shows where the focus of the university presidents has been. It has been to position themselves in a conference affiliation that provides a large media contract. So how much revenue is this conference going to distribute on an annual basis?

Most recently, the Pac-12 schools have been in the media. Six public institutions in the Pac-12 announced they would leave the Pac-12 to join two other conferences, the Big Ten and the Big 12, because they had more significant conference media packages. They are pursuing them because 85% of them are tied to big-revenue football. So this was really about what one sport is going to produce and making a decision based on that versus what’s in the best overall interest of all sports.

The recent decisions of the Pac-12 schools are reminiscent of a moment in 2011 when Texas A&M and Missouri left their longtime rivals in the Big 12 to go to the SEC. We had a night commission meeting where this issue came up. At the time, Michael Martin was chancellor at LSU. He made an amazing remark. He said, “I think this is far from over. I think we will end up with two enormous conferences, one called Fox and the other called ESPN.” Make no mistake, those TV partners have played a key role in all the realignments that have occurred since then, the most recent one involving the dismantling of the Pac-12, which is a 108-year-old conference.

Drumm McNaughton  13:18

I would have to say that that remark was very prescient.

Amy Perko  13:22

Absolutely, it was. If you look at how this played out with the Pac-12, Washington and Oregon only left the Pac-12 to go to the Big Ten because the Big Ten TV contract majority is with Fox. Fox is a 60% owner of the Big Ten network. Fox said to the Big Ten, “Here’s more money if you get Oregon and Washington.” That left the other schools to go to the Big 12.

From the Knight Commission’s view, that particular realignment and others like it have been happening because of football. That’s one sport. Those realignments may work well for football. But, frankly, they don’t work well for all the other sports and the hundreds of athletes who will spend more time traveling and missing more classes with cross-country competitions instead of regional contests, for example. And for all the money that’s gained through those conference media deals, there’s a significant portion that are now going to be spent on travel costs.

In the long run, we think there are better solutions out there. One of our basic solutions is there should be a governing association for football that’s separate from the governing association. The NCAA can continue to govern all the other sports for which it controls the championship. We’re not saying to dismantle all the conferences and start over. However, the current rules are restrictive. We are saying that there should be two FBS conferences like the Pac-12, SEC, or ACC, and there should be at least eight schools that play big-time football. They also have to play a specific number of Olympic sports cones to receive an automatic qualifier for those tournaments. It’s very restrictive in the affiliations and multi-sport requirements. By doing it the way we’ve suggested, the football affiliations can still be in the same conferences, but you wouldn’t be tied to the same affiliations.

What we’ve dubbed the National College Football Association should be the new entity in charge of football, and it should be funded by the College Football Playoff, which a lot of people don’t understand. However, the College Football Playoff is already independent of the NCAA. It generates its revenue separately from the NCAA. It does distribute the revenue back to the FBS conferences, however, and then they send it to the schools. That said, the NCAA receives zero dollars in revenue from FBS football and the College Football Playoff. That’s significant because the NCAA does absorb legal costs for the sport of FBS football. It absorbs about $60 million a year in national costs for that sport.

No one would build a structure that way. It’s just grown over time. It’s still a relatively new championship that started in 2015. They should have made the break when they created the College Football Playoff and started from scratch on the governance and everything else. But now we have to do it moving forward. The CFP will soon be generating $2 billion a year, which will be double what the NCAA budget is.

Drumm McNaughton  17:08

So what’s stopping this from happening?

Amy Perko  17:11

What’s stopping this is what usually stops things from happening, and that is the self-interest of those who are in charge of the decision-making process. Right now, the most powerful conferences in football are the SEC and the Big Ten, and the system works quite well for them.

Again, we think it’s better for the sport of football, which does generate the most revenue, but its leadership is fragmented among power conferences. There’s no unified structure. We feel like a unified structure would be better for the future of football, for football players, and for all other sports. To get it done, university presidents will need to tell conference commissioners to work together for the collective good or Congress will get involved, since the NCAA and these conferences have asked them for help. So perhaps lawmakers will say, “Seems like you need a better structure here.”

Drumm McNaughton  18:18

I would guess that because of these large TV contracts, you have schools that are being distributed $100 million for participating in football. If football goes to a separate conference, will all conferences lose this kind of money? Is that part of the reason why this is being proposed? Or am I not understanding something?

Amy Perko  18:46

Yeah. I think part of the reason is that anytime you have millions of dollars tied up in TV contracts, it’s hard to unwind the current system. But, again, we’re not saying to dismantle the current conferences at all. You could have different affiliations and more flexible competition rules. The other drawback is the power of the brand. Is it more important to be a Big 12 Conference school in all sports or just in one or two sports?

However, it goes back to the question of what university presidents want to achieve from college sports. If it’s just about the revenue from conference contracts and the power of the brand, then you have to change the structure of how you treat athletes. If the answer is, “Well, we want to provide opportunities for our athletes to have these excellent experiences,” then you have to be willing to leave a little bit of money on the table to provide a regional competitive structure for other athletes that’s reasonable instead of athletes having to fly cross country and miss lots of classes that aren’t consistent with what college sports should be about.

Drumm McNaughton  20:35

Well, it makes good sense, especially when I think about the years when I was an undergraduate. I followed Maryland basketball significantly. They were part of the ACC. The team would play two or three games per week. So if they were to go to a different conference and had to travel cross country for two or three games a week, how were they going to receive an education? Does that really negate what they’ve gone to college for? Or are they just going to college for basketball?

Amy Perko  21:10

That goes to the crux of this. Division I is more than 350 schools, and with mostly FBS conferences becoming very geographically broad, there are about 130 of those schools. Again, their conferences are based on what works for football. That’s the principle of this. Should this be the college sports structure? If we look at them, what was the mission of college sports? Should the rules center completely on the sport of football or for all the other sports? Shouldn’t there be some flexibility?

The conference commissioners are very intelligent people. They would listen if university presidents said to them as a group, “We are competitors, but ultimately, we’re all trying to achieve the same mission for our universities and athletes. Work together to figure out a better structure moving forward that’s better than what we have now and that doesn’t restrict other sports and their regular season schedules.”

Drumm McNaughton  22:28

I guess I’m getting confused. I would think that it would make sense to have football in its own conference and then have the other sports in whatever conference that makes sense for them from a regional perspective, i.e. traveling. But then have football, which is the big moneymaker. So how do you distribute that money? Does that stay with the FBS conference? Does that go to the regular conferences that are split up across the nation? To me, it would be a major challenge to figure this out.

Amy Perko  23:02

Well, sure, there are always challenges with revenue distribution, but, ultimately, the money flows to the schools, so the money wouldn’t have to flow differently in terms of what the institution makes for all sports. However, in terms of national shared revenue distribution and using the College Football Playoff as an example, the College Football Playoff determines its own revenue distribution. Right now, 80% of the money flows to the Power Five conferences. That will have to change moving forward as well because the Pac-12 may not exist. I think the Big Ten will have 18 schools and the ACC will have 14. So they will have to change their revenue distribution.

Revenue distribution, formulas, and factors are certainly issues. But the question is, on what principle are we basing our revenue distribution? All these schools have signed on to an NCAA Constitution that says these are the principles that drive why they sponsor college sports. So in our solutions, we’ve said, “If that’s the case, the incentives have to be tied to these constitutional principles and that’s how the incentives and the national revenue distribution should be formulated.” There are currently some good aspects of NCAA distribution, but there needs to be some improvement. Moving forward with the College Football Playoff, first and foremost, the revenues need to take care of their own cost, but there needs to be some changes within that distribution.

Let me give you another point if I can shift the conversation to spending. As I mentioned, we had the CLA national financial services firm do an analysis of all this new money coming in. If spending practices stay the same, what is this going to look like? Football coaches continue to be one of the chief beneficiaries of the current system, and the data shows that there are nine schools in the power conferences that pay their 11 football coaches—the head coach and 10 other countable assistants—more than what the school is spending on hundreds of athletes, their scholarships, lodging, food, medical expenses, and insurance coverage. The projections show that’s going to be the case at nearly half of the Power Schools. So about 26 of 54 Power Schools are going to be in that situation. That’s a financial model that’s incongruent with college sports and is really problematic.

We call it a “crossover point” when the lines of what you’re spending on athletes and what you spend on those 11 coaches cross. That’s the kind of principle that college presidents could say, “We’re going to do something different with revenue distribution and we’re going to withhold distributions from schools that have that crossover point.” It would be perfectly legal to do that. These are the kinds of things that pro sports have put in place with luxury taxes and the like, and college sports leaders are just going to have to think creatively about those issues moving forward.

Drumm McNaughton  27:10

Would there be antitrust implications with something like that?

Amy Perko  27:13

The antitrust implications would come if the NCAA tried to put in place some type of caps and restrictions. A school can spend however they want. However, if they exceed that crossover point, they are just foregoing a portion of the conference distribution. If that’s done on a conference-by-conference basis, that’s not going to violate antitrust.

Drumm McNaughton  27:43

It’s still shocking to me that college football coaches make as much money as they do. They’re usually the highest-paid public official in a given state. They’re even making far more than the university president who has far more responsibility. I don’t know. It’s shocking to me.

Amy Perko  28:03

It’s even more than that. Now we’re looking at what assistant coaches and coordinators are making. The agents have a lot more power in college sports than they should. A lot of the contracts are consolidated among a handful of agents. Everyone says, “Well, it’s the market.” That may be true, but it’s a very distorted market because tampering is allowed. There have to be some other solutions out there they haven’t tried Again, I think that’s where university presidents should prioritize these issues and ask their smart conference commissioners, “Here are the issues we want to attack. We want you to work together and come up with some solutions for us in these areas.”

Drumm McNaughton  28:56

As usual, this has been a fascinating conversation, and we’ve come to the end of our time way too soon. We’re going to change it up just a little bit. Normally, we do three takeaways for university presidents and boards, but I’m going to start with what are three takeaways that we, as a society, and specifically legislative bodies, including Congress, need to be thinking about when they start to address these things on hopefully a bipartisan basis?

Amy Perko  29:27

That’s a great question. The overarching question is, what do we want college sports to look like for our young people? Within that, we should ask ourselves three sub-questions. First, is it time to separate a segment of those universities that are competing on a different level of finances than the others? Second, what are the types of financial accountability tools that can be considered for college sports that haven’t been considered? That’s where we’ve put forward those solutions. Third, what are the right structures? Everyone agrees that the business side of big-time college sports has accelerated so quickly and that the structure through which all this is designed is really outdated. We need to therefore think more boldly about what the right structure is that’s going to help universities and college athletics.

Drumm McNaughton  30:31

Those are great, thank you. So now we’ll go into our regular three takeaways for university presidents and boards.

Amy Perko  30:38

Number one is to be clear about the mission of your particular college sports program. Presidents and boards are going to have to choose between staying in their current lane or striving to be something else. Number two is to educate and inform themselves of the data and rulings that are impacting college sports because so much is happening. It’s even hard for those of us who work exclusively in college sports to keep up. I’m going to stop with that because being clear about what your mission is where the problem lies. There’s a lot of confusion at the top about what they’re really trying to achieve in college sports. Is this more about being part of the entertainment industry or about providing opportunities for college athletes?

Drumm McNaughton  31:44

Very good. What’s next for you? What’s next for the Knight Commission?

Amy Perko  31:48

As I said, we’ve been working really hard on this financial report with CliftonLarsonAllen on projections. We’re putting that out next week. It should have a big impact on some powerful historical data that’s based on where college sports is headed if there are no changes. We think the big impact that this report will make is to shift leaders’ focus from chasing revenue to making decisions about how to change how the money has been spent. There’s enough money coming in. It’s really a question of how that money is being allocated.

Drumm McNaughton  32:32

We’ve also had the conversation before that the money isn’t going back to the schools to improve curriculum or hire more faculty. It’s more self-sustaining for the athletic program.

Amy Perko  32:46

That’s right. There are very few schools that use this money for academic and other university purposes. One of our members, Eric Baer, and the president emeritus of Penn State wrote a great op-ed back in March that challenged the CFP leaders to earmark money that will be coming in now that the CFP is expanding. The cardinal rule of budgeting is that it’s much easier to reallocate new money coming in than changing the spending patterns based on the actual money from that time. Now that we know new money is coming in, this is the opportunity that leaders have to change and redirect where that’s going.

Drumm McNaughton  33:33

Let’s hope it happens. Amy, this has been wonderful. Thank you again for coming back to the program. It’s always a pleasure.

Amy Perko  33:39

Great to be with you. Thanks for the opportunity.

Drumm McNaughton  33:43

Thanks for listening today. I’d also like to give a special thank you to Amy Privette Perko, CEO of the Knight Commission on Collegiate Athletics for sharing what’s going on with athletics and the key decisions that boards and presidents will need to make going forward. Tune in next week when Camille Dumont, director of the Center for Career and Professional Development at Post University, joins us to talk about the great things they’re doing to ensure that graduates are career-ready. Thanks again for listening. See you next week.

34:20

Changing Higher Ed is a production of the Change Leader, a consultancy committed to transforming higher ed institutions. Find more information about this topic and show notes on this episode at changinghighered.com. If you’ve enjoyed this podcast, please subscribe to the show. We would also value your honest rating and review. Email any questions, comments, or recommendations for topics or guests to podcast@changinghighered.com. Changing Higher Ed is produced and hosted by Dr. Drumm McNaughton. Post-production is by David L. White.