How Taxpayers Finance College Football’s Biggest Bowl Games

This is the second part of a three-part series on college football’s bowl system, the Bowl Championship Series. You can read the first part here.

Bowl season, college football’s month-long end-of-season extravaganza, generates millions in revenue and often millions in profits for the organizations that run each bowl game. But because many of those bowls are classified as nonprofit charities, they often pay little, if any, taxes on those earnings.

The largest bowls — the five that make up the Bowl Championship Series — dole out huge salaries to their CEOs and send executives on lavish trips. At the same time, several of them have received millions of dollars in tax subsidies from the states that play host to them, and the taxpayer-financed public universities that play in the games often lose money by participating. That has fueled questions about why the bowls are classified as tax-exempt nonprofits and whether they should be in the future.

The Bowl Championship Series was formed in 1998 as a consortium of the 11 Football Bowl Subdivision conferences and the University of Notre Dame. At the end of the season, 10 schools send teams to the five BCS bowls — the Rose, Orange, Fiesta, and Sugar Bowls and the BCS National Championship game. 57 of the 67 schools that make up the six major conferences that receive automatic invites to those games are public universities that depend on taxpayer funds. But many of them lose substantial sums of money from expenses incurred traveling to and participating in BCS games.

In 2011, Virginia Tech’s athletic department lost more than $420,000 from the school’s appearance in the Orange Bowl. Had the Atlantic Coast Conference, of which Virginia Tech is a member, not helped cover its losses, the school would have lost $1.3 million in 2008, $2.2 million in 2009, and $1.6 million in 2011, all years in which it appeared in a BCS bowl. Tech isn’t alone: over a three-year span, universities lost an average of $331,137 in BCS bowls, according to the Arizona Republic. The average loss in non-BCS games in 2011 was $139,604.

The BCS does, in theory, provide money to schools in other ways to help them make up those losses. Athletic conferences that have a participant in a BCS game receive payouts from BCS bowls — the six major conferences will split a total of $145.2 million this year — that is then divided between the schools. But as HBO Real Sports found during an investigation into the bowl system, those payouts often aren’t as lucrative as the bowls claim.

In an interview with HBO, a tax adviser to 23 bowls set up as charities said most bowls “pay out 75 to 80 percent of all revenue to schools.” HBO’s investigation, however, found that reality was much different. Out of 16 nonprofit bowls that provided complete records, none gave 75 to 80 percent of their revenue back to schools. The average percentage payout was in the mid-50s, and the Humanitarian Bowl (which is not affiliated with the BCS) gave less than 30 percent of its revenue to schools.

At the same time, multiple bowls take taxpayer-financed subsidies from state and local governments, including the Sugar Bowl, which tonight will host this year’s edition of the BCS National Championship. The Sugar Bowl has taken $11 million in subsidies from Louisiana since the BCS began, including $1.4 million in 2009, even as the state cut spending on many public programs to fill a budget gap. Such deals faced scrutiny from local lawmakers and residents and have since stopped. Tempe, Arizona, meanwhile, will pay the Fiesta Bowl $6.45 million through 2013 to host a smaller bowl game, the Insight Bowl.

The BCS and its advocates counter that bowl games provide economic boons for the cities that host them. An Arizona State University study found that Tempe saw a $355 million economic boost from hosting the Insight Bowl, Fiesta Bowl, and BCS National Championship in 2011. Still, the arrangement begs the question: at a time when states are cutting spending to vital programs, including funding for state universities, are taxpayers getting a fair shake from bowls that utilize tax-funded universities and, at times, public subsidies to earn millions in profits that are often tax free?