College Athletics is a world of haves and have-nots. At the pinnacle of intercollegiate sport is the University of Texas, which boasts annual revenues in excess of $165 million and aims to have a $200 million operating budget by 2020.
Texas is one of just a handful of self-funded athletics programs in the country. Money generated from ticket sales, donations, media rights, and merchandising replaces the revenue that traditional athletics departments get from student fees and institutional or state sources.
In what seems like a race to fund the biggest stadiums, build the best training facilities, and hire the most expensive coaches, fundraising for college athletics has become a relentless machine with an ongoing pursuit for more dollars.
Shifting from annual campaigns to endowments
The cost of fielding a competitive college sports program is growing rapidly and the smartest schools have recognized that their best chance of survival is to build endowments – or large funds that spin off annual income to cover the cost of running programs.
The largest sports endowment is at Stanford University, with a whopping $270 million in the bank. At 4 percent interest, the fund can generate a healthy income in excess of $10 million per year.
In the basketball hotbed of Chapel Hill, North Carolina, fans wanting to purchase Tar Heels’ season tickets are first asked to contribute $200,000 to the school’s endowment fund.
Michigan has launched a fundraising effort to endow the offensive coordinator’s salary for their football team – a tactic that is becoming more widespread across the country.
The point of an endowment is to build sustainable lifelong income. Schools can continue fundraising on a smaller scale in order to meet ongoing annual expenses, or they can ramp-up efforts with huge one-time campaigns to establish a nest egg that pays dividends for generations.
An income stream for life
Building an endowment to support college athletics is a lot like building your own personal retirement fund. You need income to cover your annual expenses and for most people that means a decades-long career. But eventually you’ll want to retire, which is why you (hopefully) save a slice of your income each year to build a nest egg that can replace your working income in retirement.
How much you need to save depends on your goals and when you want the income to start flowing.
Early retiree hopefuls might need to ramp up their efforts, saving 50 percent or more of their income each year in order to build a large enough endowment to sustain a longer retirement.
A traditional “retire by 65” approach might only require a fraction of that amount.
In the Michigan example, one of the goals was very specific – build a fund large enough to pay for an employee’s salary indefinitely, accounting for rising inflation over time.
In your case, the goal might be to replace 70 percent of your income for a period of 30 years. Your “fundraising campaign” is the amount you set aside each year for retirement.
How’s your retirement endowment coming along?