Would small liberal arts D3 colleges have sports if the market didn't force them to? It costs them money, it goes against the grain of what they are about academically, and many NARP students resent seeing athletes get preferred admissions.
This is a good question that doesn't get talked about enough. Heres my take...
I don't think it actually sets them back at all. Let's take Swarthmore for example, hovering around 70k a year in tuition. 37 rostered players last year + what I would assume is a few more who were cut. The baseball team alone is bringing in over 2.5 million to the school. They're probably operating on a budget of less than $250k.
The thing is it's almost necessary. There is some academic leeway for the best athletes, but the athletes at these schools are top students as well. If they were to cancel sports and Tufts doesn't, now you have good students who will choose another option. The goal is to make the school as attractive as possible to lure top students in. Certain extracurriculars make the school appealing. Radio club, LGBT, frats, philanthropy, etc. Baseball is no different. The idea is that if School A has a better reputation than school B, but school B has better sports. School B can lure the better student away from school A.
Now the argument against is that those student athlete spots would be filled by regular students and that is probably true. But they are regular students who probably would not have been accepted to the school, making them their second rate students taking away from the academic reputation of the school.
Regular students complaining about admissions when it comes to D2/3 schools have a leg to stand on. But at selective schools there may only be 3 or 4 kids who get thru admissions. At non selective schools, they can't complain because the school isn't selective to begin with. It's not an argument they're going to win and the argument has more to do with their disdain for athletes than it does the admission slots.
I don't think cutting sports is the way to go. I think saying - we're not going to travel more than X miles and only do 3 hotel stays a year - has to be the new way to go for schools with budget problems.