In an interesting special section on the business of football in today’s Wall Street Journal ($), one of the section’s articles addresses the controversy generated earlier this year when a McKinsey & Company report bolstered longtime Rice University faculty advocacy for downgrading Rice’s expensive NCAA Division I athletic program to Division III (i.e., no athletic scholarships). As the WSJ article notes, Rice’s legacy in intercollegiate athletics is formidable:

Rice has a long football tradition. It began playing other schools in 1912, and it helped form the Southwest Conference in 1914. In several ways, its standards serve as a model for other schools. It has had no major violations cited by the National Collegiate Athletic Association, and its athlete graduation rate of 81% in 2003 was one of the highest in Division I-A. Its baseball team won the College World Series last year.

But the development in the big-time college and professional football over the past 40 years has not been kind to Rice:

But questions about the high costs of big-time sports and the admissions trade-offs necessary to bring in star athletes have gained momentum since the 1960s. Around that time, rivals such as the University of Texas and Texas A&M University exploded in size, gaining huge recruiting advantages, according to the McKinsey report. The birth of the Houston Oilers professional team in 1960 drew fans away from Rice games. In the 1960s and ’70s, faculty members voiced concerns about athletes’ academic caliber.
More recently, schools in the conferences that participate in the college Bowl Championship Series — the Rose, Sugar, Orange and Fiesta Bowls — have received a much larger share of the football revenue from bowl-ticket sales and TV-broadcasting rights than schools such as Rice, gaining further advantages.

Rice’s small size exacerbates the burden of competing with much larger schools in Division I athletics:

To understand just how large Rice University’s 70,000-seat football stadium is, consider this: It could seat all the school’s undergraduate alumni, living and dead — and it wouldn’t even be half full.
And to understand the financial burden that football places on the private Houston university, consider this: Largely because of the football team, the school’s athletic department runs annual deficits in the millions of dollars.

While the dilemmas at Rice are magnified because of its size — with about 2,850 undergraduates, it is the smallest school in Division I-A after the University of Tulsa in Oklahoma — and high academic standards, they illustrate problems other colleges and universities face as they grapple with the admissions pressures and skyrocketing budgets of big-time athletics.

The McKinsey & Co. report’s conclusion is bleak regarding Rice’s future in Division I:

Without improved gate receipts, better support from a group of alumni who are already contributing more than ever, or membership in a [Bowl Championship Series] conference with its much larger annual payouts, the economic outlook is bleak.

And the report is not optimistic regarding the prospects for change in the financing or purpose of Division I athletics:

The large and growing financial incentives among NCAA teams (whether formally controlled by the NCAA or not), combined with multimillion dollar coaching salaries, make Division I athletics look increasingly like a business instead of an extracurricular activity.

The report calculates that, including the increased financial aid an athlete receives compared with an average Rice student, the deficit between revenue and expenses in the athletic department has ballooned to more than $10 million a year. Football takes the largest share of the blame: While it produces about $2 million in annual revenue, it was responsible for nearly $4 million of that deficit in 2002, McKinsey calculates.
Rice is not alone. The McKinsey report notes that fewer than a dozen schools, regardless of their division, profit from their sports programs. And on average, a football team costs more than three times as much to support as a basketball team, and more than nine times as much as a baseball team.

William C. Friday, chairman of the Knight Foundation Commission on Intercollegiate Athletics, a sports-reform group, cited a NCAA study showing that overall Division I-A schools have seen athletic department expenses exceed revenues in each year from 1993 to 2002, according to his testimony in May before the U.S. House Subcommittee on Commerce, Trade and Consumer Protection.
The commission’s last comprehensive report, in June 2001, said that at more than half of Division I-A schools in 1999, athletic department expenses exceeded revenue by an average of $3.3 million, a margin that widened by 18% from 1997.

Read the entire article. The Rice Board of Trustees ultimately decided to continue making a go of it in Division I. But the problem will not go away. As the University of Chicago (a former Big 10 member) and several other great private institutions have proven, Division I athletics is unnecessary to maintain financial support and public relations benefits for top flight universities. Although Rice’s Board of Trustees is dominated by many older Houstonians who remember the bygone days of Rice’s Division I football glory, those members need to realize that those days are gone and that the marginal benefits of running large deficits in the athletic department are not commensurate with the benefits of maintaining a Division I program. Division III is the answer for Rice, and the sooner, the better.