NEW YORK, April 2 /PRNewswire/ — College in the U.S. is big business. In an increasingly competitive market, high-profile sports tournaments such as the NCAA basketball tournament can give public and private colleges and universities an edge in attracting new students and increasing their revenue base, Standard & Poor's Ratings Services said today. And although winning an NCAA title won't have an immediate effect on an institution's credit rating, it does have a financial benefit over the long term.

"College sporting events such as the NCAA basketball tournament help to increase marketing appeal to students who might want to attend a nationally recognized institution with a winning team," said Standard & Poor's Managing Director Mary Peloquin-Dodd. "In the Final Four men's basketball tournament, for example, Ohio State University, University of Florida, UCLA, and Georgetown, will certainly benefit from the substantial positive publicity they receive. At the same time, it's a win-win situation for these investment- grade institutions financially because the national exposure helps them in development and fund-raising efforts as well as in raising their profile among prospective students."

This year's Final Four carry these related long-term debt ratings: Florida State University System, AA/Stable; Ohio State University, AA/Stable; Georgetown University, BBB+/Stable; and University of California Board of Regents, AA/Stable (issuer credit rating).

Since sport programs can be very expensive to administer, you aren't likely to see very small colleges with Division 1 programs reaching the Final Four. "While higher education sports programs can bring rewards, they are also very expensive to support, running into the millions of dollars," said Ms. Peloquin-Dodd. "For the most part, that's why you might only see institutions with a certain size or level of financial resources even getting into the Final Four because they can afford to spread the costs of big athletic programs around their institutions."

College sports are part of an institution's auxiliary enterprise category, which also includes revenues from athletics, student housing, dining, and parking. For the most part, auxiliary programs tend to be either self supporting, or as in the case of the NCAA basketball tournament, big paydays. For some rated private colleges and universities, as much as one-fifth of their revenues might come from auxiliary enterprises, which includes dormitories, dining facilities, and bookstores, but also can include sales of sports memorabilia, licensing, conference sharing revenues, and ticket sales.

Since tuition and fees are already high and rising well above the level of general consumer inflation, most colleges and universities cannot solely rely on raising tuition to close their financial gaps. "Let's face it, there's a lot of money at stake when it comes to competing in the NCAA basketball tournament and you don't necessarily have to win the championship game to reap the benefits," said Ms. Peloquin-Dodd. "By participating in a highly visible sports tournament, there is a positive revenue effect for most institutions, either through ticket sales, sports memorabilia, or television contracts, which can run in the millions of dollars for top-ranked Division 1 teams."

Participation in sports programs can be a proxy for how well an institution is doing overall. High-profile sports programs can also be a tickler system for alumni contributions, which represent a significant portion of total operating revenues, and support an institution's endowment program. For instance, alumni contributions can often account for about 5%-10% of a school's unrestricted revenues. "Sports tournaments such as the NCAA basketball tournament are really an effective form of marketing," said Ms. Peloquin-Dodd. "People want to give money to a winner, and contributors often think that because institutions are excelling at sports they are doing the same academically."

There's also a big push in fund-raising efforts to encourage donors to give unrestricted gifts to an institution rather than to a particular program. This gives the institution greater flexibility with how the money is actually spent. "Whether it's because of their sports or academic programs, we also find that institutions that are considered to be more successful, well known, and visible, receive stronger donations," said Ms. Peloquin-Dodd.

More and more colleges are running themselves like big businesses. "A key attribute in running a business is name brand recognition and that's what competing in the NCAA basketball tournament does," said Ms. Peloquin-Dodd. "Being in the tournament is really free publicity for these institutions that are seeking to draw new students."

Many of the colleges and universities also try to build name brand recognition by hiring professional marketers and by advertising on television during the games. "Potential students definitely pay attention to which institutions have leading sports programs and win NCAA basketball championships," said Ms. Peloquin-Dodd. "Higher student enrollment numbers at these institutions often rise after their participation in such high-profile sporting events."

Nationally, institutions are facing a temporary growth in the number of high school graduates through 2012 and in some demographic regions even beyond that. To remain competitive, colleges and universities are striving to keep up with the latest advances in technology. Perhaps more importantly than whether institutions are located in a fast growing state is their size and ability to offer Division 1 sports programs.

Overall, U.S. colleges and universities fared well in 2006 with gift giving rising to record levels. Investment performance was favorable for a third consecutive fiscal year, which is evidenced by increasing university endowments. However, higher education affordability remains a major U.S. policy issue, as the costs of attending college keep rising faster than real wages. Most state funding for the majority of public universities is rising, continuing a rebound from the cuts of several years ago. For fiscal 2006, operating appropriations from states to public universities increased by 6% to a total of $66.6 billion, and the outlook for fiscal 2007 is for a larger increase.

"Although trends for the sector are looking positive at this point, institutions are facing rising health care costs, increased spending for risk and property insurance, greater security expenses, and higher postretirement benefit liabilities," added Ms. Peloquin-Dodd. "But tournament milestones like the road to the Final Four can be a big win for income statements and attracting potential students."

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CONTACT:

Media Contact:
Mimi Barker
New York
(212) 438-5054
mimi_barker@standardandpoors.com

Analyst Contacts:
Mary Peloquin-Dodd
New York
(1) 212-438-2079

Todd Whitestone
New York
(1) 212-438-2113