Sports are like additional advertising for the college. The colleges student-athletes are in the paper, they are winning championships, they are constantly in the publics' eye. This type of publicity reaches future students. It also reaches alumni. People are more likely to get behind a winner than a loser is.
College sports gives something for the students, faculty, community, etc., to rally around.
It provides a sense of pride for where you are and allows everybody to relate to the school in a positive way. Most likely it would be the Cobbers even if they didn't like the sport. A sense of pride can only benefit the college. If a team were to do well, for example make the final four in hockey, the NCAA gives the program bonus funds that would help support the team next year. This would result in a decrease in the athletic budget, and previous expensed money could go elsewhere to benefit the school.