American universities

It's been known for a while that many (or possibly most?) private American universities have major problems with their endowment funds. As in: They decided to invest them in shares, hedge funds, private equity and the like. And now they're discovering that they've lost money, big time.

So not only are there hiring and salary freezes, but also (according to the FTD), some rather more drastic measures: Brandeis is trying to sell the paintings in its museum for 350 m $, which would be ok I guess, except that the paintings were donated for the explicit purpose of being put on display in the museum. And the University of Hawai no longer turns on the aircon for parts of the day. No aircon in an American university? Things are dire indeed.

Anyway, I was wondering why American universities actually need endowment funds in the first place, considering the exorbitant fees they charge, and the donations they receive on top.

But then an American colleague pointed out a WSJ article about university sports teams. Everyone knows that "academic" sports teams are a big thing in the US, and that you needn't worry about your academic performance, as long as you're on a sports scholarship. But what I didn't know is: Universities subsidise their sports teams big time!

The WSJ article focuses on basketball. Apparently, the typical net operating loss incurred by a university basketball team is about 1 m $ annually, excluding university overhead and capital expenses, which can easily reach another 1 m $ or so if the university has invested in good facilities. (Why are there losses in the first place? Well, for a start, team coaches typically receive compensation packages of 1-3 m $, plus various perks. Not bad, huh?)

So if a university has -say- 20,000 students, 100 $ out of each student's tuition is needed to cover the basketball team's losses (operating + capital expenses).

And of course basketball isn't the really big thing: Football and baseball are, and presumably produce even bigger losses. So in aggregate, all those various sports teams might easily cost 300-500 $ per student and year!

And then I stumbled across a different article, which discussed the salaries of university presidents. It appears that all 32 research-intensive private universities pay their presidents salaries in excess of 500,000 $. And 1/3 of the public universities does the same. So based on 20,000 students, at least 30 $ of your tuition money goes to pay for the president's salary. (Not sure what a German university president earns, but considering he's a civil servant, it can't be more than 100,000 € or so.)

I'm beginning to understand why those high tuition fees are needed...