I think this vastly oversimplifies the economic incentives at play here.
The economic purpose of a top-tier collegiate football team is not to produce revenue for the school. The economic purpose of that football team is to produce great feelings and connections among alumni and other voters who will achieve relative status and prominence in the community, and especially among those alumni who direct the state budgeting process and/or write endowment checks (for the handful of private universities with big football programs).
High profile athletic programs aren’t money-makers. They’re an expensive form of signaling. They signal to prospective students that the university offers more than just an academic environment (which you could get from online courses, TBH). They signal to alumni that the university is a relevant institution in their lives after graduation. They create “fans” among not just alumni but voters at large, so that when budgeting comes up there’s a ton of people who care about MSU even if they never went.
The below article is old, but I’m sure it’s still true - back in 2011, about 1/3 of Michigan state legislators had attended either U of M or MSU. I’m sure that you’d see similar proportions among other elected officials that are the “feeders” into those state legislator jobs, and among the lobbyists and campaign donors that make all those local campaigns possible. That’s more valuable to those universities than any amount of revenue they could get from their athletic programs.