Case: GRAND RIVER UNIVERSITY WATER BUFFALOS: ACTIVITY-BASED COSTING OF UNIVERSITY SPORTS

What quantitative analysis needs to be done (what numbers need to be calculated)? ?Role-playing as the decision-maker in the case, what do you decide to do and why?

Page 7 9B18B022 EXHIBIT 1 (CONTINUED) Panel B: Sources of Income NCAA 335,400 Conference 77,000 Game Guarantees 308,000 Sales (Tickets, Sponsorships, Licensing) 210,600 Gift Account Contribution 235,600 Student Fees 471,700 Total Income 1,638,300 Note: TV = television; M = men's; W = women's; NCAA = National Collegiate Athletic Association Source: Company documents EXHIBIT 2: EXPLANATIONS OF NON-TEAM-SPECIFIC COSTS Administration: Administrative costs included expendable equipment, postage, seminars, courier services, travel, office supplies, telephone, dues and memberships, books and subscriptions, and salaries and benefits. Liam Mckenzie and his administrative staff spent little time with the athletes; most of their time was spent with the National Collegiate Athletic Association, the conferences in which the university's teams played, university administration staff, and alumni. Marketing and Sponsorships: These costs included postage, expendable equipment, seminars, travel, office supplies, printing, telephone, advertising, salaries and benefits, and sponsorship fulfillment. Sports Information: These costs included postage, equipment, seminars, travel, office supplies, telephones, subscriptions, software, photography, press box fees, publications, programs, salaries and benefits. Facilities: Inquiries with university administration revealed that the cost of operating and maintaining the facilities were split as follows: Mason Arena (60%), Boschetto Center (30%), and Nicholson Center (10%). Athletic Training: These costs included weight room supplies, expendable equipment, postage, seminars, travel, office supplies, telephone, ice, clothing, tape, protective equipment, medical supplies, equipment maintenance, medical consultants, medical expenses, nutritionist fees, and salaries and benefits. Besides supplies, a significant amount of costs was incurred by hiring consultants and strength and conditioning coaches on an hourly basis.Page 9 93183022 EXHIBIT 3 (CONTINUED) Panel B: Grand Island University {for Comparison) Men's Teams Women's Teams Operating Operating Total Participants Expenses per By Team Participants Expenses per By Team Operating Participant Participant Expenses Basketball 14 $18,641 $260,980 14 $13,656 $191,180 $452,160 Baseball 37 $5,013 $185,471 - - - $185,471 All Track Combined 72 $731 $52,650 66 $736 $48,599 $101,249 Golf 7 $5,411 $37,879 $37,879 Ice Hockey 29 $8,706 $252,469 $252,469 Lacrosse 35 $4,170 $145,940 26 $5,296 $137,685 $283,625 Rowing 29 $2,196 $63,688 $63,688 Soccer 24 $3,505 $84,127 25 $2,604 $65,096 $149,223 Softball - - - 19 $5,509 $104,666 $104,666 Swimming and Diving 28 $1,228 $34,395 23 $1,175 $27,025 $61,420 Volleyball 14 $5,1 14 $71,590 $71,590 Total Operating Expenses Men's and 246 - $1,053,911 216 - $709,529 $1,763,440 Women's Teams Souroe: \"The Tools You Need for Equity in Athletics Analysis," US, Department of Education, Equity in Athletics Data Analysis, aocessed November 28, 2013, httpsjfopeed,govfathletjcs, Page 8 93183022 EXHIBIT 3: OPERATING EXPENSES AS REPORTED BY EQUITY IN ATI-ILE'HCS DATA ANALYSIS, 2017 [IN U55) Varsity Team Basketball Baseball Golf Hockey Lacrosse Soccer Soflball Swimming and Diving Tennis Track and Field Cross Country Volleyball Total Operating Ex enses Men's an Women's Teams Panel A: Grand River University Men's Teams Operating Participants Expenses per Participant 14 $27,151 31 $4,348 10 $1,484 30 $7,395 25 $3,169 24- $1,664 B $3,490 B $1,420 um By Team $330,114 $134,733 $14,340 $236,350 $79,225 $39,936 $27,920 $11,360 $925,033 Participants 15 25 31 21 20 23 11 14 179 Women '5 Teams Operating Expenses per Participant $15,057 $2,054 $3715 $2220 $3399 $756 $3511 $367 $L630 $3307 By Team $225,355 $16,432 $92,375 $53,320 $31,379 $15,120 $21,066 $24,276 $17,930 $33,293 $652,551 Total Operating Expenses $605,969 $134,733 $31,272 $236,350 $92,375 $143,045 $31,379 $55,056 $43,936 $24,276 $29,290 $33,293 $1 ,577,534 Page 10 9B18B022 EXHIBIT 4: REPORT BY THE KNIGHT COMMISSION ON INTERCOLLEGIATE ATHLETICS Panel A: Private Institutions Spending Where the Money Goes... Distribution of Athletic Expenditures for Division | Private Institutions, 2015 100% 0% 0% 0% 0% 0% 0% 0% 10% 0% 8% 7% 9% 7% 9% 0% 8% 10% 0% 9% 8% 11% 2% 0% 0% 90% 1% 2% 20% 2% 2% 2% 1% 2% 2% 2% 10% 11% 10% 11% 11% 10% 11% 80% 11% 10% 10% Transfers back to the institution 70% 16% 16% 15% 15% 19% 17% Other expenses 18% 22% 60%% Guarantees 32% Recruiting 50% 33% 31% 34% Game expenses and travel 32% 40% 38% 32% 36% Facilities and equipment 36% 30% Compensation Athletic student aid 20% 38% 32% 34% 27% 30% 29% 10% 22% 24% Data Source: NCAA 18% 0% FBS FBS FBS FCS FCS FCS Division I Division I Division I Total Top Half Bottom Half Total Top Half Bottom Half No Football No Football No Football $73 Median $77-$121 $38-$76 $20 Median $22-$50 $12-$20 Total Top Half Bottom Half $17 Median $18-$50 $6-$17 17 23 24 50 25 25 Schools Schools Schools Schools Schools Schools Schools Schools Schools Spending in $ Millions9B18B022 Page 11 EXHIBIT 4 (CONTINUED) Panel B: Private Institutions Funding Where the Money Comes From... Sources of Athletic Budget Revenue for Division | Private Institutions, 2015 100% 1% 3% 10% 3% 3% 1% 1% 7% 1% 4% 9% 9% 7% 2% 0% Generated Revenue 909% 5% 7% 4% 5% 6% 3% 1% 1% 1% 6% 1 1% 1% 4% Other revenue 5% 80% 4% Corporate sponsorship, 16% 16% 17% 4% advertising, licensing 70% 3% 0% 1% Donor contribution 1% Guarantees 60% 19% NCAA/conference 50% 34% 28% distributions and television agreements 89% 16% 87% 40% 83% Ticket sales 80% 78% 71% 30% 15% 15% Institutional Funding 20% (Subsidy) 35% 10% 22% 25% Institutional/government support 0% Student fees FBS FBS FBS FCS FCS FCS Division I Division I Division I Total Top Half Bottom Half Total Top Half Bottom Half No Football No Football No Football Data Source: NCAA $73 Median $77-$121 $38-$76 $20 Median $22-$50 $12-$20 Total Top Half Bottom Half $17 Median $18-$50 $6-$17 17 8 47 23 24 50 25 25 Schools Schools Schools Schools Schools Schools Schools Schools Schools Spending in $ MillionsPage 12 9B18B022 EXHIBIT 4 (CONTINUED) Panel C: Public Institutions Spending Where the Money Goes... Distribution of Athletic Expenditures for Division | Public Institutions, 2014 1% 2% 1% 1% 0% 0% :0% 100% 12% 11% 11% 90% 15% 14% 14% Transfers back to the instituion 16% 1% 1% 2% 3% 3% 2% 2% 2% 2% Other expenses 80% 3% 2% 2% 2% 11% 11% 2% 11% 12% 12% 12% Guarantees 70% 11% 15% 16% Recruiting 15% 60% 17% Game expenses and travel 19% 19% 21% 50% Facilities and equipment 33% Compensation 40% 32% 36% Athletic student aid 35% 37% 36% 30% 34% 20% 10% 24% 28% 24% 14% 17% 10% 14% 0% FBS FBS FBS FBS FBS FCS Division I Total Quartile 1 Quartile 2 Quartile 3 Quartile 4 Total No Football [high] $53-88 $29-53 [low] $4-44 Tota $88-154 $12-29 $4-28 Spending Quartiles (spending in millions)EXHIBIT 4 (CONTINUED) Panel D: Public Institutions Funding Where the Money Comes From... Sources of Athletic Budget Revenue for Division I Public Institutions, 2014 100% 5% 5% 4% 4% 8% 11% 7% 3% 3% 3% Generated Revenue 90% 6% 7% 8% 8% 9% 8% 8% 2% Other revenue 30% 13% 5% 4% 7% Corporate sponsorship, 5% 3% advertising, licensing 22% 21% 3% 70% 8% 5% Donor contributions 29% 12% 6% 50% 2% 1% Guarantees 35% 12% NCAA/conference 50% 0% 22% distributions and 30% 29% 43% television agreements 10% 23% Ticket sales 33% 30% 21% Institutional Funding 20% 21% 41% (Subsidy) 26% 33% 10% 11% 26% Institutional/government 7% 17% support 8% 2% 0% 10% 5% Student fees FBS FBS FBS FBS FBS FCS Division I Total Quartile 1 Quartile 2 Quartile 3 Quartile 4 Total No Football [high] $53-88 $29-53 [low] $4-44 Total $88-154 $12-29 $4-28 Spending Quartiles (spending in millions) Note: All currency amounts are in US$; NCAA = National Collegiate Athletic Association; FBS = Football Bowl Subdivision; FCS = Football Championship Subdivision Source: "Finances of College Sports," Knight Commission on Intercollegiate Athletics, accessed November 28, 2018, www.knightcommission.org/finances-college-sports. Used with permission.Page '14 93183022 EXHIBIT 5: TEAM USAGE OF FACILI11ES BY HOURS PER WEEK Nicholson Team Mason Arena W Center Center mm Cardio Basketball Room Ice Surface Gymnasiums Pool Room Court W Basketball 4 2 20 W Volleyball 4 18 2 M Hockey 6 28 4 M Basketball 4 2 25 W Soccer 4 4 2 W Softball 4 4 W Golf 4 3 W Lacrosse 4 5 2 M Baseball 4 4 M Soccer 4 4 2 M and W Tennis 4 4 M and W Cross Country 4 M and W Swimming and Diving 4 30 M Golf 4 3 W Track and Field 4 Total 62 49 30 16 45 Note: University facilities staff estimated that 90 per cent of costs at Mason Arena were attributable to maintenance of the ice surface, 80 per cent of costs at W Center were attributable to the swimming pool, and 10 per cent of costs at each facility were attributed to the gymnasium and the cardiovascular exercise room. W = women's; M = men's Source: Company documents. Page o 3186022 EXHIBIT 1: SUMMARY OF EXPENSES AND REVENUES FOR THE ATHLETICS DEPARTMENT, 2017 (IN US$) Panel A: Sources of Expenses Department Operating Budget Salaries Salaries and Benefits | Scholarships | Expense by Department Administration 250,000 287,600 106, 100 656,100 Marketing and Sponsorships 53,000 97,500 129,400 182,400 Broadcast Radio and TV Sports Information 41,100 143,300 173,300 214,400 Facilities 600,700 600,700 Athletic Training 39,500 304,000 120,700 460,200 W Basketball 309,900 293,500 424,700 555,600 1,290,200 W Volleyball 99,700 53,400 72,100 235,800 107,600 M Hockey 348,800 458,600 648,400 437,600 1,434,800 M Basketball 551,100 394,400 566, 100 620,000 1,737,200 W Soccer 89,800 88,700 121,700 341,700 553,200 W Softball 90,700 48,500 64,000 248,500 403,200 W Golf 23,300 8,100 8,900 68,000 100,200 W Lacrosse 99,200 71,600 86, 100 397,000 582,300 M Baseball 145,900 53, 100 70,700 338,100 554,700 M Soccer 109,600 73,000 101,500 297,000 508, 100 Tennis (M and W) 60,600 21,200 23,000 129,900 213,500 Cross Country (M and W) 37,900 14,300 18,200 78,700 134,800 Swimming and Diving (M and W) 45,900 61,300 79,900 325,600 451,400 M Golf 20,600 10,300 1 1,300 26,000 57,900 W Track and Field 28,400 70,600 98,800 133,700 260,900 3,045,700 2,553,000 3,524,90 4,233,200 10,803,800Page 5 931 83022 basketball teams played and m. Several more ofces for coaches and sports administrative staff were also in this building. Uses of the Eacilies Different teams had different needs for the facilities. For example. the hockey team was the only team_ E used the ice surface in Mason Arena. Similarly, only the basketball teams used the Nicholson Center for practice. In comparison, the gymnasiums at the W Center hosted multiple teams because the equipment could be arranged to suit a variety of needs. Unlike the specialized facilities, the weight training room in the W Center was used by all teams (see Exhibit 5). Other Expenses More information on shared expenses and non-team-specic costs was available (see Exhibit 2). The main component of expenses was wages and benets for the athletic department staff, including McKenzie. Unlike the coaches. who worked mainly with one particular _t_e_a_r_1_1_, department staff members were responsible for a variety of tasks including coordination with NCAA and conference administrative staff, selling tickets. promoting the teams on radio and television stations, and supporting the teams that travelled for away games. CONCLUSION As McKenzie relled his cup of coffee, he began to consider how the report to the board should be structured. He was aware that although he was the athletic director, the school's board of trustees had ultimate authority on the decision to cut nding for any particular program. Beyond providing information for the board to make__a__deci__s_i_on on the future of university teams, the report could also help administrators understand the efciency of the athletic department's operations and its progress on gender equity. Finally, McKenzie considered the specic characteristics of the report's readers. Although the board trustees were highly competent individuals, they lacked professional accounting and nancial expertise. Therefore, it was important that McKenzie presented his analysis in an easy-to-understand format, and that the report outlined the various alternatives in a concise manner. Page 2 9B1 83022 schools reported. McKenzie wondered what his school's costs would look like after applying the ABC method to his calculations. McKenzie was also asked to report on Grand River University's performance regarding gender-equal treatment to all athletes. The US. Department of Education had a mandate to achieve gender equity in all levels of education. The department had set up a database called Equity in Athletics Data Analysis (EADA) where athletic spending data, separated by gender, from individual universities was published for scrutiny by the public. Grand River University had submitted data to EADA in the past, but McKenzie wondered if the numbers the school had provided had reected the full cost. He also wondered if the per- athlete spending would look different when calculated using the ABC method, and how it would compare to a peer school, such as Grand Island University (see Exhibit 3). As athletic director, McKenzie spent much of his time meeting with people in different locations. He rarely had the chance to spend a full day in his ofce, as he would that day, so he took a moment to glance over all the championship trophies from past Water Buffalo teams. He yearned to bring more trophies to the school, but rst he had to make sense of the numerous nancial reports his staff had generated for him. 11-IE WATER BU FFALOS Grand River University was located on the banks of the Grand River, one of the mightiest rivers in the United States and the world, commonly known as \"The Grand.\" It was a small, independent, and faith- based institution that prided itself on providing high quality education while maintaining a very safe and inclusive community environment on campus. Grand River University's enrolment was consistently between 2,500 and 3,000 students. Despite its relatively small size, more than one in 10 students played competitive sports for the school and received various levels of scholarship aid. The Water Buffalos had a proud sporting history. In the previous 20 years, the university's basketball, soccer, volleyball, tennis, and swimming teams had captured multiple conference championships and secured entry positions into the prestigious NCAA national tournaments. Currently, Grand River University was labelled by the NCAA as a \"Division I institution without football\" and had 18 NCAA Division I sports teams. Many current and prospective students cited the vibrant sports culture as a strength of the school. The school's athletic teams were also popular within the local community, with many teams offering young athlete clinics and lessons. The hockey team had a particularly strong presence in the community due to its afliation with the Grand River Junior Water Buffalos minor hockey association. In fact, McKenzie's 12-year-old son, Ian, was a big fan of the Water Buffalos and played in the minor hockey association. The close ties between the athletes, the student body, and the local community had made the loss of the women's hockey team in 2012 especially hard. The Junior Water Buffalos gg program had been continually growing, but since the removal of the program, the numbers of girls in the organization had dropped to half. Many players and team alumni felt shunned by the school, which was expected to have an impact on alumni relations for years to come. NA110NAL COLLEGIATE A11-ILE11C ASSOCIAHON The NCAA was a non-prot organization that regulated athletes of 1,123 colleges and universities.2 It was organized into three divisions. Division I schools generally had large student bodies, managed the 2 \"Where Does the Money g " National Collegiate Athletic Association, accessed November 28, www.ncaa.orglaboutlresouroesfnanm?division=dl. Page 3 93183022 large athletic budgets, and provided many athletic scholarships 3 The NCAA determined who would be eligible to participate in NCAA- sanctioned sports and events Generally, student athletes had to meet certain academic standards and only moderate scholarship funding to qualify as amateur athletes. The NCAA also served as a source of 1ncome re-distribution. Most of the NCAA s revenue came from ticket sales, television rights, and marketing rights to its Division I Men's Basketball Championship, or March Madness.4 A portion of the funds were given to schools that participated in March Madness. The remainder was distributed as student aid to all schools who funded programs in NCAA Division I sports.5 FUNDING AND SPENDING IN ATHLETICS Although the Grand River University men's basketball team had not competed in March Madness in the previous 10 years, the university received US$335,4'1'66 from NCAA and $77,000 from its regional conference in 2016. These amounts were partially based on the number of Division I sports at the school and on the amount of grants and aid the school provided to its students. Despite the help these sources of income provided, most of the athletic department's funding came from the school itself, in the form of operating budget funds. In fact, a recent internal document showed that revenue from college sports covered only approximately 15 per cent of the school's $10 million overall cost of maintaining these teams (see Exhibit 1). Of that overall budget, more than $4 million consisted of scholarships to subsidize tuition for selected students, rather than providing cash directly to the students. McKenzie was unsure how this cost should be factored into the calculation. Grand River University's sports funding model was neither unique nor extreme. McKenzie had read a report from the Knight Commission? showing that in 2017, among institutions that did not have football programs, about 7889 per cent of all athletic funding had come from government and institution grants and from extra student fees.8 Sources of spending and funding of athletic budgets came from both private institutions (see Exhibit 4, panels A and B) and public institutions (see Exhibit 4, panels C and D). Grand River University did not have a football program. Costs for participating in sports included travel, coaching, and facilities. These costs were increasing at a faster rate than school revenues, which caused many university administrators to question the viability of college sports. It seemed that the success of a few universities was built on continuous losses from others.9 McKenzie was also alarmed by critics who claimed that the athletic departments of universities were intentionally obfuscating actual costs to avoid public backlash, as was stated in one report: A significant hurdle to the implementation of ABC is that institutions will be averse to applying ABC if other institutions do not. A possible fear is that ABC will result in a greater understanding 3 . lbld. 4 Unlike revenue from basketball, revenue from Division I Men's Football was not controlled by the NCAA. The football championships (known as \"bowts\") were independently operated. :' \"Where Does the Money 999 \" op. cit. 6All currency amounts are in US. dollars. ' \"Impact," Knight Commission on Intercollegiate Athletics, accessed November 28, 2018, wwwknightcommission.orglimpact. 8The Knight Commission on Intercollegiate Athletics was an independent advisory group formed by current and former university presidents, Chancellors, trustees, and fonner athletes with the goal to maintain adequate health and m standards as well as to promote educational achievements among schools that maintained athletic programs; \"About the Knight Commission," Knight Commission on Intercollegiate Athletics, accessed November 28, 2018, www.knightcommission.orglaboutlmightcommission. 9 Brad Wolverton, Ben Hallman, Shane Shifett, and Sandhya mm \"The $10Billion Sports Tab," The Chronicle of Higher Education, November 15, 2015, accessed November 28, 2018, www.chroniclecorrinteractiveuasubsidiesmain. Page 4 93183022 of the high cost associated with some sport programs. The programs that are already known to be expensive such as football will become more expensive if ABC is implemented. Thus, it would be unlikely that a single athletic department would choose to make public nancial information, which may result in a more negative public perception for a single sport program or the entire athletics department.\" McKenzie was not familiar with ABC accounting methods, but he thought it might be prudent to learn about ABC in preparation for tough questions about athletic spending. He was also condent that if ABC helped to generated more accurate costs, the board of trustees would be better informed for their decisions, during their evaluation of the optimal number of teams for the school to support. COST OF ATHLE11CS AT GRAND RIVER Looking at the total costs incurred by the athletic department, McKenzie had several concerns. He was unsure how the shared expenses of administration, marketing, broadcast, sports information, facilities gd athletic training should be allocated. Ln_p_a_rt_i_c}_l_l_ar,__fai_l_i_ti_s__exp_1_1_s_s_ were costs associated with the use of facilities by the athletic department and were allocated from the university's overall facilities budget. These expenses consisted of costs related to several buildings used by the athletes and other students, staff, and faculty. A simple method would be to evenly distribute the costs to each team, but McKenzie was intent on being more precise, so he had his staff generate several different reports including a description of each facility, its uses, and other expenses. Facilities The three sport facilities at Grand River University included the Boschetto Center, the Mason Arena, and the Nicholson Center. The Boschetto Center was a workout facility that housed a weight training room, three gymnasiums, a cardiovascular exercise room, and a swimming pool. The weight training room was open to all athletes throughout the day, as well as to any student or staff member that had a membership. The gymnasiums were used according to a schedule where athletic teams were allotted specific times. However, the gymnasiums could also be booked for intramural sports or for drop-in recreation by students. The swimming pool was booked for much of the day by the university's swimming and diving team but was open to all students during the evening. The Boschetto Center also housed the main athletic training facility for injured and rehabilitating athletes. The Mason Arena's ice surface was used mainly by the university's hockey team, but it was also available for rent to a private hockey club, the Grand River Junior Water Buffalos organization, and to the geggraL pglglig. The arena also housed the ice hockey team locker room and the coaches' ofces, the women's lacrosse team locker room and coaches' ofce, athletic laundry facilities, a weight training room reserved for athletes, and ofces for sports administrative staff. The weight training room in this facility was run by the strength and conditioning coach, who typically scheduled team workouts throughout the day. The Nicholson Center was a two-level building. The lower level was a food court and relaxation area for students. The facility's upper level held a 2,400-seat basketball court, where both the men's and women's 1n Heather J. Lawrence, E. Ann Gabn'el, and Lauren E. Tuttle, "Using ActivityBased Costing to Create Transparency and Consistency in Acoounling for Division I Intercollegiate Athletics," Journal of Intercollegiate Sport 3, no. 2 (2010): 366381