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Introduction

Last modified: January 10, 2011

An auxiliary enterprise, or auxiliary service, is defined as an activity that exists to provide a service directly or indirectly to students, faculty or staff, and for which a fee is charged that is related to, but not necessarily equal to, the cost of the service. Auxiliary enterprises are operated on a self-supporting basis, where the combination of fees and other revenues is sufficient to meet costs. Further, auxiliary enterprises are not subsidized by state appropriations, or other educational and general revenues, except as provided in Section 7.2.2 of the Board of Regents (BoR) Policy Manual, which states:

Exceptions to the requirement that institutions operate their auxiliary enterprises on a self-supporting basis shall be recognized as follows:

• Institutions may choose to operate some auxiliary enterprise activities on a loss basis, but must indicate in their five-year plans how the costs of such activities will be covered by revenues generated through other auxiliary operations. It shall be the Board of Regents’ determination as to whether such losses are sustainable based on the institution’s five-year plan.
• Institutions may apply general fund resources to auxiliary enterprise operations where such expenditures can be justified as supporting the primary mission of the institution. In no instance may general fund revenues be used to support athletic scholarships. The use and amount of general revenues applied to the support of auxiliary enterprise operations shall be included in the five-year plan.

15.1 Managerial Responsibility

Last modified: February 9, 2015

All auxiliary enterprises are classified as business operations, and therefore must be under the direct management, control and supervision of the chief business officer of the institution. Additionally, all operations of auxiliary enterprises are to be budgeted in accordance with published budget instructions, and annual budgets are to be submitted to the Board of Regents in accordance with the schedules established under section 8.0, Budget Process.

For both budgeting and accounting, the following accounting codes should be utilized within auxiliary enterprises. Refer to section 2, Chart of Accounts, for additional details of these codes.

• Fund: Code 12000
• Function*: Codes 21xxx through 32xxx
• Funding Source: Codes 42100 through 43996
• Department: Develop locally – not standardized
• Account: All as needed
• Budget Period: As appropriate
• Project Indicator: Optional Use

15.2 Auxiliary Enterprise Activities

Last modified: November 2, 2010

Auxiliary enterprise activities include:

• Housing Operations: student apartments, residence halls, and faculty and staff housing.
• Food Services: cafeterias, snack bars, and some vending operations.
• Stores and Shops: bookstores, supply stores, gift shops, and uniform stores.
• Health Services: health service operations with full-time staffing.
• Transportation and Parking: all transportation and parking operations.
• Other Service Units: barbershops, golf courses, laundry services, print shops, some vending operations, and other operations that cannot be logically categorized in any other defined activity.
• Intercollegiate Athletics

Descriptions of these auxiliary enterprise activities are presented below.

15.2.1 Housing Operations

Last modified: November 2, 2010

This enterprise is to reflect all housing operations for students, faculty, and staff.

Student Housing

• Apartments: The operation of all apartments, whether rented to married or single students, is to be reflected in this enterprise.
• Dormitories: The operation of all dormitories for students is to be reflected in this enterprise.
• Hotels: The operation of all facilities usually associated with public service programs, i.e., hotels and motels, is to be reflected in this enterprise.

Faculty and Staff Housing

• Apartments: The operation of apartments maintained exclusively for faculty and/or staff is to be reflected in this enterprise.
• Houses: The operation of houses maintained exclusively for faculty and/or staff is to be reflected in this enterprise.

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15.2.2 Food Services

Last modified: November 2, 2010

This enterprise is to reflect all food service operations. Marginal operations in terms of volume and type should be examined carefully in order to determine whether the enterprise should be classified as a cafeteria or snack bar.

Cafeterias

The operation of food services that include meal preparation and significant kitchen operations should be classified as cafeterias and is to be reflected in this enterprise.

Snack Bars

The operation of small-scale food services that sell, in the main, packaged food, i.e., drinks, potato chips, crackers, candies, ice cream, etc., should be classified as snack bars and is to be reflected in this enterprise. Some operations classified in these enterprises might even vend hot dogs, hamburgers, or food for regular meals, as opposed to snacks or refreshments.

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15.2.3 Stores and Shops

Last modified: November 2, 2010

This enterprise is to reflect all operations of bookstores, supply stores, gift shops, and uniform stores.

Bookstores

Stores selling books and supplies to students and faculty are to be reflected in this enterprise. Occasionally some vending operations of small proportions might appropriately be attached to a bookstore. The materiality of the sales proceeds should serve as the basis for judgment.

Gift Shops

The operation of shops that vend gifts, i.e., art, glassware, jewelry, and souvenirs, is to be reflected in this enterprise. These operations are usually associated with public service areas or hospitals. Such shops may be operated as adjuncts to bookstores if deemed advisable by the administration.

Uniform Stores

Operations of stores that handle uniforms and military supply items for R.O.T.C. programs are to be reflected in this enterprise.

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15.2.4 Health Services

Last modified: November 2, 2010

This enterprise is to reflect the operation of health services that are large enough to require full-time staffing and are capable of caring for patients on a twenty-four hour basis. These operations would also have the services of medical doctors, either on a permanent basis or on a consulting basis.

Those health service operations that are smaller in nature, usually associated with institutions not housing students, should be included in resident instruction under the Student Services function.

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15.2.5 Campus Transportation and Parking

Last modified: December 29, 2010

This enterprise is to reflect the operation of campus transportation and parking systems.

Campus Transportation

This enterprise is to reflect the operation of transit systems designed to move students, faculty, and staff from peripheral parking lots to the central campus, and also to handle intra-campus traffic. When parking lots are operated in conjunction with this overall system, they are to be included in this enterprise.

This enterprise is also to reflect those operations that provide transportation to students for educational and recreational purposes. Transporting students on field trips, to debating tournaments, and for other educational functions are appropriate uses of vehicles included in this enterprise. Transportation of athletic teams to and from intercollegiate athletic events would also be an appropriate use.

In accordance with Section 7.11.4.2 of the BoR Policy Manual, users of institution-operated buses are to pay adequate rates per mile for such use in order to provide all maintenance, operating, and replacement costs for these buses.

Campus Parking

This enterprise is to reflect operations that provide parking for students, faculty, and staff on a rental basis. All appropriate costs to operate lots or facilities, such as security, maintenance, etc., would be included. However, lots or buildings operated as parts of campus transit systems would not be included in this enterprise, but would be included as part of Campus Transportation, as noted above.

This enterprise is not to include auto registrations that are primarily for vehicle identification. Revenue generated from vehicle registrations is to be included in resident instruction, as will expenses connected with this procedure.

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15.2.6 Other Service Units

Last modified: November 2, 2010

This enterprise is to include those operations that meet the definitions of auxiliary enterprises, but cannot be logically categorized in any other defined enterprise. These operations may include the enterprises listed below.

Barbershops

The operation of barbershops is to be reflected in this enterprise.

Golf Courses

This enterprise is to reflect the operation of golf courses that basically serve the institution community for recreational purposes. To whatever extent this facility is used for educational purposes, the cost should be appropriately reflected in resident instruction expenditures.

Laundry Services

This enterprise is to reflect operations that provide students with laundry services.

Print Shops

Print shops and duplicating operations that serve a larger market are to be reflected in this enterprise. Print shops and duplicating operations that serve a local campus are classified as administrative services and should be included in resident instruction.

Vending Operations

This enterprise is to reflect the operation of all systems that issue merchandise to the students, faculty, and staff.

If certain vending machines (isolated and few in number) are considered as part of Food Service or Stores and Shops, as described in sections 15.2.2 or 15.2.3, they may be excluded from this enterprise.

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15.2.7 Intercollegiate Athletics

Last modified: November 2, 2010

This enterprise is to reflect the operations of an intercollegiate athletic program.

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15.3 Auxiliary Revenues and Expenditures

Last modified: November 2, 2010

15.3.1 Revenues

Last modified: November 2, 2010

The revenues for auxiliary enterprise operations consist of sales, rents, fees, and commissions. Any other revenues incidental to the operation of an auxiliary enterprise also should be included.

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15.3.2 Expenditures

Last modified: December 29, 2010

The expenditures for auxiliary enterprise operations consist of cost of goods sold, direct operating costs, and indirect operating costs.

Cost of Goods Sold

The cost of goods sold should be developed in the accounting records for all auxiliary enterprise activities engaged in selling merchandise or food. Implicit in this determination is the use of appropriate purchase accounts, inventories and inventory adjustments at the close of each accounting period. The percentage of the cost of goods sold may be significant in evaluating management effectiveness.

The cost of goods sold must be booked monthly by enterprise prior to providing data to the data warehouse. The amount of the entry may be calculated using actual or perpetual inventories, or may be calculated using a historic percentage of sales method during months when an actual inventory is not available

Direct Operating Costs

Direct operating costs include:

• Salaries and wages of all employees in the various auxiliary enterprise operations
• Staff benefits for all employees
• Travel, operating supplies, and expenses
• Charges for any share of debt service and/or lease rentals that are borne by the particular auxiliary enterprise operation

Equipment purchases shall be budgeted and recorded in the Auxiliary Enterprise fund group. Depreciation expenses for equipment will also be recorded in this fund group

Indirect Operating Costs

Indirect operating costs are defined as costs incurred by the institution that are allocated to auxiliary enterprises on an equitable basis. An example would include costs relating to the operation and maintenance of physical plant. Each USG institution is required to allocate a portion of its cost of operating and maintaining the physical plant to auxiliary enterprises unless it is directly charging these costs to auxiliary enterprises.

Costs to be allocated to auxiliary enterprises should be accumulated within resident instruction in separate cost centers so that the total allocated amount from each area can be readily determined. Major account code identity must be maintained. The amounts in these cost centers relating to auxiliary enterprises are then transferred to each operating unit within auxiliary enterprises on an allocated basis.

Note: This would not apply to any direct charges associated with physical plant or other administrative activities.

The percentage being allocated to auxiliary enterprises must be included with the budget request, and must be approved by Fiscal Affairs. This percentage must be used for the entire fiscal year, unless permission to change is granted by Fiscal Affairs.

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15.4 Auxiliary Assets and Liabilities

Last modified: November 2, 2010

15.4.1 Assets

Last modified: November 2, 2010

Assets of auxiliary enterprises may include, but are not limited to:

• Cash on hand
• Petty cash
• Demand deposits
• Accounts receivable
• Prepaid items
• Merchandise inventory
• Investments, buildings
• Equipment
• Facilities
• Any amounts due from other funds

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15.4.2 Liabilities

Last modified: November 2, 2010

Liabilities of auxiliary enterprises may include, but are not limited to:

• Accounts payable
• Accrued expenses
• Deposits
• Sales taxes payable
• Deferred revenues
• Any amounts due to other funds

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15.5 Auxiliary Enterprise Revenues and Net Assets

Last modified: December 13, 2010

The reserves of auxiliary enterprises may include reserves for renewals and replacements, reserves for subsequent years’ expenditures and reserves for investment (improvements) in plant.

Note: For Fiscal Years 2009 through 2012 only, the Board of Regents Reduction Plan allows institutions to use reserves of auxiliary enterprises for general operating purposes.

Institutions are required to fund current year depreciation as an addition to the renewal and replacement reserve. The renewal and replacement reserve can be used for renewal and replacement of capitalizable assets only. Items that do not meet the capitalizable threshold should be funded from the reserve for subsequent years’ expenditures (funds generated from operating profits). The renewal and replacement reserve can be used for capitalizable expenditures that extend the useful life or improve the performance of an asset.

15.6 Accounting and Reporting Requirements for Intercollegiate Athletics

Last modified: October 14, 2016

Section 4.5 of the Board of Regents (BOR) Policy Manual acknowledges the importance of intercollegiate athletics to the overall collegiate experience. It provides overarching guidelines for the management, funding and accountability of intercollegiate athletic programs, along with stressing the BOR’s commitment to promoting well managed and successful intercollegiate athletic programs at participating institutions.

In order to improve consistency in capturing and reporting intercollegiate athletics activity, the ���ӽ�APP (USG) has adopted the accountability reporting framework established by the NCAA. The sections below will provide specific guidance for accounting, reporting, funding and monitoring of intercollegiate program activities.

15.6.1 Accounting, Reporting and Funding Requirements

Last modified: October 20, 2016

Section 4.5.8 of the Board of Regents Policy Manual outlines the requirements for this subject area. It presents the concepts of Direct Institutional Support, Subsidy, and Subsidy percentage and sets parameters as to how USG institutions may fund intercollegiate athletics properly. The remainder of this section will be dedicated to expanding on those areas, providing definitions for components of athletic operating revenues and expenses and creating a framework for accounting, reporting, funding and monitoring of intercollegiate athletic operations.

Section 4.5.8 of the BOR Policy Manual provides that: “Institutions may expend Education & General fund resources on behalf of the institution’s intercollegiate athletics program except as noted: Institutions must not expend Fund 10000 state appropriations on athletics and must not expend Education & General fund resources in support of athletic scholarships.”

Section 7.2.2 of the BOR Policy Manual further expands on that guidance by providing that: “The use and amount of Education & General fund resources applied to the support of auxiliary enterprise operations shall be included in the five-year plan.”

Direct Institutional Support

Direct Institutional Support (DIS) is defined as institutional funds used to directly subsidize a portion of intercollegiate athletic program(s) operations. Tuition funds (10500) and other general funds (10600) are the appropriate educational and general (E&G) funding sources to capture DIS provided in support of intercollegiate athletics. Since State budgetary law precludes the transfer of funds from any E&G funding source to Auxiliary enterprises, each institution that uses any E&G funds in support of intercollegiate athletics must establish a specific department code to report intercollegiate related athletic expenses. If possible, the department code(s) used should coincide with the department code(s) used in the Intercollegiate Athletic Program(s) housed in Auxiliary enterprises. In some instances, institutions may transfer funds from other Auxiliary units to subsidize activity of the Intercollegiate Athletics Program(s). This should be recorded as a non-mandatory transfer and reported as part of DIS. If a student athlete receives federal work study funds, those would qualify as DIS only if the student athlete is employed in an athletic department capacity. Those salary charges would be reported as expenses in restricted funds (20000), with the same stipulations as to department codes. Endowment funds may only be used as DIS if the endowment gift instrument allows.

In general, any expense(s) paid from funds 10500 or 10600 in support of athletics must have an institutional related purpose supporting the overall mission of the institution. For USG institutions, this support would normally be for salaries and benefits of Athletic administrative personnel or coaches. Therefore, if an institution charges a percentage of an Athletic department employee’s salary to 10500 or 10600, there should be some documentation to indicate that a benefit is being conveyed to the institution. An example would be where a portion of a coaches’ time (15%) is charged to 10600 and as justification his/her job description requires that portion of time to be spent fundraising. This would be appropriate because there is a benefit conveyed to the overall mission of institution and the allocation is specified. However, if a coach is teaching an academic class unrelated to athletics, as part of his/her normal duties, that cost would be part of normal instruction and not considered athletic support.

Another example of E&G funds for Athletic support would be when an athletic director’s salary is prorated, with a portion charged to 10500 or 10600. This would be appropriate for consideration as DIS of athletics as long as the position is structured so that there is a benefit accruing to the institution.

Note: E&G institutional resources are available to support, not supplant Athletic program funds, therefore, there should be no instances where E&G funds are paying the predominate portion of such salaries. Also, when splitting salaries and benefits between funds, documentation should be maintained to support the split.

Subsidy and Subsidy Percentage

Subsidy is the amount of institutional resources provided and fees assessed by the institution in support of intercollegiate athletics. Subsidy will be calculated as the sum of DIS plus student athletic fees less out of state tuition waivers.

Subsidy Percentage reflects the percentage of institutional support provided for an institution’s intercollegiate athletics program(s). Each institution’s Subsidy Percentage will be calculated as follows:

Subsidy Percentage = Subsidy / Athletics Operating Revenue

Athletics Operating Revenues and Expenses

Athletics Operating Revenues (AOR) is the total revenues generated by the institution’s intercollegiate athletic program(s). This includes revenues from the institution, related athletic foundations, booster clubs and any other entity supporting intercollegiate athletics. Selected AOR’s will be used in the Subsidy and Subsidy percentage calculations. Per BOR guidelines, AOR’s fall into two major categories, institutional revenues supporting subsidy calculation and other revenues that are considered to be externally generated for reporting purposes.

Institutional Revenues used in Subsidy Calculation

• Direct state/government support- State/Federal appropriations specifically earmarked for athletics. (USG institutions should not report any activity for this revenue source.)
• Student athletic fees - Fees assessed directly for support of intercollegiate athletics.
• Direct institutional support - Unrestricted funds provided by the institution for intercollegiate athletics. This could include resources provided from tuition funds (10500) and other general funds (10600) for salaries or other intercollegiate program related activities.
• Other inputs for direct institutional support include:
  • Out of State Tuition Fee Waivers – Total athletic fee waivers may not exceed 1/3 of total Presidential waivers for which the institution is eligible to offer,
  • Federal Work Study- for student workers employed by athletic department,
  • Transfers-Transfers from other Auxiliary units to support intercollegiate athletics,
  • Endowment Income-Only to the extent that institutional endowment fund income is used to support Athletics. Endowments, which are specifically designated for athletics, are not included in DIS and would be considered Other Operating Revenue, which would be part of external support.
• Indirect Institutional Support is the value of services provided by the institution for athletics, but not charged to athletics. Examples would be maintenance, grounds, and utilities costs where the institution makes no specific allocation charge to athletics. (This would not include activity that has been included as part of the plant overhead allocation, since the value of those services has been provided/charged to athletics through the allocation.) The number reported here should be the same amount as reported for the corresponding expenditure category for a zero net effect to overall operations.

At the present time Indirect Institutional Support is not included in subsidy calculations; however, it will be tracked and reported for future use.

Other Operating Revenues (considered to be external revenues and not subject to inclusion in DIS)

• Ticket sales - Revenue received from admissions to athletic events. Only face value of tickets reported here.
• Guarantees-Revenue received from participation in away games and neutral site games.
• Contributions (including in-kind)-Gifts from donors and revenues for preferential seating priority. Also include in-kind items such as dealer provided automobiles and other athletic endorsements. Pledges should not be reported until actually received.
• 3rd party provider benefits - Benefits provided by a third party and contractually guaranteed by institution, such as country club membership, housing/clothing allowances, speaking fees, camp revenues, media income and shoe/apparel revenues.
• Media rights - Revenues received from radio, television, internet, digital and e-commerce, including conference distributions for media rights.
• NCAA Distributions-Revenue received from all NCAA distributions.
• Conference Distributions-All revenues received from conference, exclusive of media rights, which are reported above.
• Game day revenues - Game programs, novelties, food and concessions and parking. If Auxiliary Services operate sales for Game day revenues, only the commissions paid by Auxiliary Services to Athletics should be recognized.
• Royalties, licensing, advertisements and sponsorships- Include revenues from corporate sponsorships, sales of advertisements, licensing agreements and royalties. Also include in-kind products or services provided as part of sponsorship agreement.
• Sports camps - Amounts received from sports camps and clinics managed by the institution or athletic association. Camps or clinics operated by coaches as separate businesses would not be included.
• Athletics restricted endowment and investment income - Revenues for intercollegiate athletic purposes strictly from athletic restricted endowments.
• Other operating income-Any other athletic related revenues not properly classified above.

Athletics Operating Expenses represent the total amount expended by the institution’s intercollegiate athletics program(s). This includes expenses from the institution, related athletic foundations, booster clubs and any other entity supporting intercollegiate athletics.

Note: Operating expenses should include interest expense, but should not include depreciation expense.

• Athletic Student Aid-Total athletic student aid awarded for the reporting year. Include aid awarded to student managers, graduate assistants and trainers
• Guarantees-Amounts paid to visiting institutions for scheduling home games, including per diem, travel and meal expenses.
• Coaches’ Salaries, Benefits and Contract incentives
  • Paid by Institution or related entity-compensation, benefits, and contract incentives paid to all coaches by institution and/or related entities on w-2’s and 1099’s. Bonuses paid by related entities should also be included.
  • Provided by third party-compensation, benefits, and contract incentives/bonuses provided by third party and contractually guaranteed by the institution. Examples would be car stipend, country club memberships, apparel contracts, speaking engagements, camp compensation, etc. These expenses must be offset by revenues from 3rd party providers.
• Support Staff/Administrative Compensation
  • Paid by Institution or related entity-compensation, benefits and bonuses paid to all athletic administrative and support staff as reported on the institution’s and/or related entities w-2’s or 1099’s.
  • Provided by third party- compensation, benefits, and bonuses provided by third party and contractually guaranteed by the institution. Examples would be Car stipend/allowance, club memberships, apparel contracts, speaking engagements, camp compensation, etc. These expenses must be offset by revenues from 3rd party providers.
• Severance Payments-Payments and benefits made to former coaches and/or administrative personnel.
• Recruiting Expenses-transportation, lodging and meals provided for prospective student athletes on campus visits. Also include travel for institutional personnel on recruiting visits and include in-kind value of transportation that has been loaned or contributed.
• Team Travel-Payments made for air and ground travel, lodging, meals and other incidentals.
• Equipment and Uniforms-Amounts expended for equipment and uniforms for the teams only.
• Game Expenses (other than travel)-officials, event staffing, security ambulance services, etc.
• Fund Raising, Marketing Expenses-media guides, brochures, recruiting publications, etc.
• Sports Camp Expenses-expenses paid in association with hosting sports camps.
• Spirit Groups/Auxiliary corps-payments made for support for bands, cheerleaders, mascots, dancers, etc.
• Athletic Facilities Leases/Debt-rental expenses, principal and interest payments on athletic facilities.
• Direct Administrative/Overhead Expenses-administrative/overhead expenses paid or charged to intercollegiate athletics, such as facility maintenance, security, risk management, utilities, repairs and maintenance.
• Indirect Institutional Support-administrative/overhead expenses not paid directly from or charged to athletics. (The amount should be same number as reported for revenues, for $0 net effect,)
• Medical Expenses and Insurance-medical expenses and insurance premiums (if any) paid for student athletes.
• Conference and Association Dues-payments for memberships, conference and association dues.
• Other Operating Expenses-include any athletic expenses not properly classified in one of the other expenditure categories.

Note: With the exception of members of Power 5 conference schools, all remaining institutions must limit athletics operating expense growth to no more than 5% per year unless specific approval is received from the Chancellor in writing prior to the year in which the excess growth is anticipated.

Subsidy Percentage Limits and Calculation Methodology

As defined in the BOR Policy Manual, an institution’s subsidy percentage shall not exceed the following limits based on intercollegiate athletic affiliation:

10% for NCAA DI-A institutions affiliated with the Power 5 conferences (ACC, Big Ten, Big 12, Pac-12 or SEC);

65%: NCAA DI-A institutions affiliated with other conferences;

75% for NCAA Division I-AA institutions;

80% for NCAA Division II institutions;

85% for NAIA and NJCAA institutions.

As seen in the examples below, Out of State Waivers are subtracted from the subsidy calculation.  This is beneficial to institutions because it reduces the numerator of the subsidy percentage calculation, effectively treating out of state tuition waivers as support from external sources. One important factor in creating the BOR policy on intercollegiate athletics was to encourage institutions to enhance fund raising activities and create new external sources of revenue. Since Out of State Tuition Waivers are not actual external revenue sources and should not be viewed as such, institutions should make every effort to grow external revenues, thus limiting the dependence on Out of State Fee Waivers as a component of Subsidy Percentage Calculation.  It should be noted that BOR policy on out-of-state tuition waivers limits the use of athletic waivers and the use of athletic waivers will be monitored as part of the BOR policy 4.5 implementation.

Examples of Subsidy Percentage Calculations

Example 1

Institution that competes in NCAA Division 1-AA reports the following activity:

Athletic fees of $ 2,000,000; Direct Institutional Support (DIS) of $ 900,000 (includes Out of State tuition waivers of $500,000); revenues from indirect institutional support of $ 100,000; remaining revenues from “external sources” of $ 1,000,000, which results in total Athletics Operating Revenues of $ 4,000,000. Total Athletics Operating Expenses were $ 3,900,000. Net indirect institutional support of $ 100,000 should be removed from revenues and expenses, therefore Athletics Operating Revenues, net of indirect institutional support will be $ 3,900,000 and Athletics Operating Expenses, net of indirect support will be $ 3,800,000.

In this example, the institution is in compliance because the Subsidy Percentage is calculated at 62% and the ceiling for NCAA Division 1-AA is 75%.

	CALCULATION
Athletic Fees	$ 2,000,000
DIS (Includes the out of state tuition waivers of $500,000)	900,000
Out of State Tuition Waivers	-500,000
Total Subsidy	$ 2,400,000

Subsidy Percentage $ 2,400,000 / 3,900,000 = 62%

In this example, external support would make up the remaining 38% and would be calculated as follows:

	CALCULATION
External subsidy support	$ 1,000,000
Out of State Tuition Waivers	500,000
Total external support	$ 1,500,000

External Support Calculation $ 1,500,000 / 3,900,000 = 38%

Note: Institutions that are within the Subsidy Percentage threshold should not view the Subsidy limits provided as an opportunity or reason to arbitrarily increase the use of institutional funds to push the Subsidy Percentage towards its upper limit based on affiliation level. If your institution anticipates increasing the Subsidy percentage by more than 3% in any given year, you must notify the Chancellor, Vice Chancellor for Fiscal Affairs and Vice Chancellor for Organizational Effectiveness in writing prior to end of fiscal year for which increase is anticipated.

Example 2

Institution that competes in NCAA Division II reports the following activity:

Athletic fees of $ 2,000,000; Direct Institutional Support (DIS) of $ 500,000 (includes Out of State tuition waivers of $400,000); revenues from indirect institutional support of $ 100,000; remaining revenues from “external sources” of $ 200,000, which results in total Athletics Operating Revenues of $ 2,800,000. Total Athletics Operating Expenses were $ 2,700,000. Net indirect institutional support of $ 100,000 was included in revenues and expenses and should be removed for purposes of the calculations, therefore Athletics Operating Revenues, net of indirect institutional support will be $ 2,700,000 and Athletics Operating Expenses, net of indirect support will be $ 2,600,000.

In this example, the institution is in compliance because the Subsidy Percentage is calculated at 78%; however, the ceiling for NCAA Division II is 80%. As displayed in this example, out of state tuition waivers totaled $ 400,000, which exceeded external revenue of $200,000. Out of state tuition waivers should not be the primary contributor to external support. Therefore, institutions, with this situation should enhance revenue generation from external sources. The external support is calculated as follows:

	CALCULATION
Athletic Fees	$ 2,000,000
DIS (Includes the out of state tuition waivers of $400,000)	500,000
Out of State Tuition Waivers	-400,000
Total Subsidy	$ 2,100,000

Subsidy Percentage $ 2,100,000 / 2,700,000 = 78%

	CALCULATION
External subsidy support	$ 200,000
Out of State Tuition Waivers	400,000
Total external support	$ 600,000

External Support Calculation $ 600,000 / 2,700,000 = 22%

Example 3

Institution that competes in NCAA Division II reports the following activity:

Athletic fees of $ 2,000,000; Direct Institutional Support (DIS) of $ 500,000 (includes Out of State tuition waivers of $300,000); revenues from indirect support of $ 100,000; remaining revenues from “external sources” of $ 400,000, which results in total Athletics Operating Revenues of $ 3,000,000. Total Athletics Operating Expenses were $ 3,400,000. Net indirect institutional support of $ 100,000 was included in revenues and expenses and should be removed for purposes of the calculations, therefore Athletics Operating Revenues, net of indirect institutional support will be $ 2,900,000 and Athletics Operating Expenses, net of indirect institutional support will be $ 3,300,000. In this example, the institution reported a net operating loss of $ 400,000 (Revenue, net $2,900,000 (–) Expenses, net $ 3,300,000). The institution had adequate carryover reserves in athletics to cover current year operating loss.

In this example, the institution is in compliance because the Subsidy Percentage is calculated at 76%; however, the ceiling for NCAA Division II is 80%. As displayed in this example, the institution reported a current year net operating loss for athletics of $ 400,000; however, there were adequate athletic fund carryover reserves to cover the loss, so there was no effect on the overall subsidy calculations.

	CALCULATION of Subsidy and Subsidy Percentage
Athletic Fees	$ 2,000,000
DIS (Includes the out of state tuition waivers of $300,000)	500,000
Out of State Tuition Waivers	-300,000
Total Subsidy	$ 2,200,000

Subsidy Percentage $ 2,200,000 / 2,900,000 = 76%

The external support of 24% and is calculated as follows:

	CALCULATION
External subsidy support	$ 400,000
Out of State Tuition Waivers	300,000
Total external support	$ 700,000

External Support Calculation $ 700,000 / 2,900,000 = 24%

Example 4

Institution that competes in NCAA Division 1-AA reports the following activity:

Athletic fees of $ 3,000,000; Direct Institutional Support (DIS) of $ 2,000,000 (includes Out of State tuition waivers of $500,000); revenues from indirect institutional support of $ 100,000; remaining revenues from “external sources” of $ 900,000, which results in total Athletics Operating Revenues of $ 6,000,000. Total Athletics Operating Expenses were $ 6,400,000. Net indirect institutional support of $ 100,000 was included in revenues and expenses and should be removed for purposes of the calculations; therefore, Athletics Operating Revenues, net of indirect institutional support will be $ 5,900,000 and Athletics Operating Expenses, net of indirect institutional support will be $ 6,300,000. In this example, the institution reported a net operating loss of $ 400,000 (Revenue, net $5,900,000 (–) Expenses, net $ 6,300,000). The institution had no athletic carryover reserves to cover deficit and no transfers were made from other funding sources, therefore, the deficit was indirectly covered through general operations. This will have several effects on the subsidy calculation.

In this example, the institution is not in compliance because the Subsidy Percentage is calculated at 78% and the ceiling is 75% for an institution competing in NCAA Division 1-AA.

	CALCULATION of Subsidy and Subsidy Percentage
Athletic Fees	$ 3,000,000
DIS (Includes the out of state tuition waivers of $500,000)	2,000,000
Out of State Tuition Waivers	-500,000
Net current year loss (with no athletic carryover funds, loss covered by institution)	400,000
Total Subsidy	$ 4,900,000

Subsidy Percentage $ 4,900,000 / 6,300,000* = 78%

* Since there was no carryover athletic fund reserves available to cover the $ 400,000 deficit and no transfers were made, the loss must be treated as DIS and the numerator and denominator must be adjusted to reflect the $ 400,000 needed to cover net operating loss.

Note: If a transfer had been made from other auxiliary funds to cover the loss, the subsidy calculation would be the same because the transfer in would be a revenue source as part of DIS.

The external support of 22% is calculated as follows:

	CALCULATION
External subsidy support	$ 900,000
Out of State Tuition Waivers	500,000
Total external support	$ 1,400,000

External Support Calculation $ 1,400,000 / 6,300,000 = 22%

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15.6.2 Reporting

Last modified: October 14, 2016

For reporting purposes, the institutions will be provided an annual Intercollegiate Athletics Activity Report (the Report) template by the system office that will include the revenue and expense items listed in section 15.6.1. It will also include sections for non-operating revenues; capital and related expenses; total beginning athletics equity position; and total ending athletics equity position. The Report is designed to provide an account of financial intercollegiate athletic activity in the format designated by the NCAA. In addition to requiring financial data, the Report will have sections for academic progress data, graduation rate data, as well as other general information.

The Report is required in addition to information mandated by the NCAA, NAIA or NJCAA. Institutions still are expected to follow existing reporting requirements for those organizations.

The Report must be submitted annually to the Chancellor and/or designee no later than December 31st for the prior fiscal year ending June 30th. The Report should be accompanied by audits received on athletic associations, booster clubs or any other entity supporting intercollegiate athletics at the institution. If audits are not available, financial statements should be provided.
Institutions must also forward to Chancellor or designee copies annual reports submitted to their intercollegiate affiliated organization and/or conference regarding academic progress and graduation success rates of student athletes.

If an institution must use existing prior year reserves to cover current year operating losses, the institution must reflect separately to what extent reserves were used to cover losses in the report. Also, as soon as it becomes evident that operating expenses will exceed operating revenues for a fiscal year, the institution is required to notify the USG chief business officer of the projected operating loss, reasons for the loss, and a plan to correct the problem with a timeline.

The Vice Chancellor for Organizational Effectiveness, in conjunction with the Office of Fiscal Affairs, will review the report submitted as well as Subsidy and Subsidy Percentage calculations provided by each institution and inform the Chancellor of any problems noted. The System Office shall periodically conduct reviews of selected athletic programs as a part of its overall review of athletic program financial soundness.

The President of an institution should notify the Chancellor’s office immediately if the institution receives notification/inquiries from the NCAA, NAIA or NJCAA related to any investigations of infractions that could lead to eligibility issues. This notification must be in writing, providing details as to the nature of the infraction and potential consequences. Infractions that are inadvertent, isolated and technical in nature are generally considered incidental issues that would not require notification. However, if there is any doubt, report the issue.

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15.6.3 Monitoring and Oversight

Last modified: October 14, 2016

Effective July 1, 2016, any institution exceeding the Subsidy Percentage ceiling for the prior fiscal year must submit a plan to the Chancellor that reduces the Subsidy to a point that the Subsidy Percentage is within the Subsidy Percentage Limits listed in Section 15.6.1. (Fiscal year ending June 30, 2016, is the first reporting year for this requirement). The reduction plan cannot exceed 4 years and the Subsidy must be reduced each year of the plan. If an institution on a 4-year subsidy reduction plan fails to be in compliance by the end of the 4th year, the Chancellor will review the athletic offerings and program mandates and make the decisions necessary to bring the institution’s intercollegiate athletic program into compliance with the Subsidy Percentage requirements listed in Section 15.6.1. Changes may include, but not be limited to, mandates for reduction/change in sports offerings, change in conference affiliations, and changes in governing body/division membership. Any institution that is in compliance with Subsidy Percentage Limits as of the effective date of July 1, 2016 (fiscal year ending June 30, 2016), but exceeds the limits in fiscal 2017 or any succeeding year, will have only 1 year to re-establish compliance or be subject to the Chancellor’s review and possible changes in athletic offerings and/or program mandates. The Vice Chancellor for Organizational Effectiveness will provide oversight for compliance.

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