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<p>The situation is a little more complicated than you describe it. The fact is, athletic departments at most big-time sports schools were pushed out the door by the administration and the trustees because they could be, i.e., they were bringing in enough revenue that they could be told to stand on their own feet and be self-sufficient. That’s how most universities treat their law schools, medical schools, and business schools, as well; they don’t get a subsidy from the central administration because they generate enough revenue to pay for themselves, so they’re made to go it alone. And the athletic departments welcomed the additional degree of autonomy that came with self-sufficiency, along with the ability to free themselves from a lot of uninformed public yammering that the taxpayers were paying the football coach too much (when in fact football had been running a huge surplus all along). It’s not total autonomy, however; the athletic director still reports to the president and the athletic department budget still needs to be approved by the trustees, and if the president and trustees think varsity fencing should be a higher priority than, say, varsity water polo, they’re in a position to insist on it.</p>
<p>Different schools arrange things different ways, but at my undergrad alma mater, most of the Athletic Department revenue comes directly or indirectly from football, with a healthy though smaller contribution from men’s basketball and an even smaller but nonetheless net positive contribution from men’s ice hockey. All other men’s and women’s varsity sports lose money; 100% of their budgets come from Athletic Department revenue, which is to say football, men’s basketball, and men’s hockey. And generally there’s a surplus after all the Athletic Department’s bills are paid (including upkeep and debt service on Athletic Department facilities, which are 100% the responsibility of the Athletic Department). Some of that surplus goes into an Athletic Department rainy day fund, and the rest goes to the central administration to help subsidize academics, jazz band, or whatever. </p>
<p>But here’s where it gets a little complicated: not all athletic activity on campus is supported this way. Non-varsity sports, including intercollegiate club sports and intramural sports, are in an entirely separately department, the Department of Recreational Sports, funded out of central administration funds and student fees. Rec Sports also runs the student recreational athletic facilities. That’s where the trade-offs between fencing and jazz band come in. The central administration can decide to allocate more or less money to Rec Sports, and more or less to music and other non-athletic extracurriculars, as it sees fit.</p>
<p>Then, of course, there’s a whole additional tier of physical education classes, run by the physical education department in the School of Kinesiology. That’s funded through the normal academic budgeting process.</p>
<p>At my alma mater there’s some back-and-forth between club sports and varsity sports; in fact, there’s an intermediate category called “varsity club sports” that are officially still club sports (meaning inter alia no athletic scholarships) under the supervision of the Department of Rec Sports, but they work closely with the Athletic Department as varsity-sports-in-training, I suppose. An example is lacrosse which for many years was a club sport, then moved up to “varsity club” status, and next year officially becomes a varsity sport under the Athletic Department. But that wasn’t just the Athletic Department’s decision; it was a plan that was fully supported and possibly even instigated by the central administration and the trustees in response to growing student interest, a great deal of success at the intercollegiate club level, and perhaps some ideas about how the university wanted to position itself (you know, more head-to-head competition with all those fancy-pants Northeastern schools where lacrosse is a big deal). That, coupled with a calculation that the Athletic Department’s budget was strong enough to absorb an additional varsity team, which then frees up Rec Sports money for other sports, or reduces the Rec Sports budget by a like amount to free up more money for music, or sociology, or whatever. So I think the kinds of trade-offs you suggest do get made. It’s almost never a question of a sport going away completely; it’s a question of whose budget they’re on, and what resources they have to work with. Those currently in the Athletic Department are the most protected and the best-funded because they have the securest revenue stream behind them; but the day may yet come when a decision is made that water polo should really be a non-varsity sport, and fencing should go from club sport to varsity sport. But again, that decision will ultimately be made by the central administration and the trustees, and not by the Athletic Department alone.</p>