American universities were buoyed for decades by the fact that every talented person in six continents competed for a position at even mid-tier U.S.-institutions.
Now higher education is fundamentally a profit machine that floats on predatory student loans, and investments in research and researchers have not kept up. Also, U.S. is a significantly less attractive place to move to.
The part about funding being an issue is definitely true. My partner is a professor, and she's constantly worried about writing grants looking for funding.
The recent NCAA conference kerfuffle proves money was only part of the problem, though. While there certainly have been declines in state support and endowment revenue, they've also spent decades prioritizing things like sports, facilities, and coaches over research and academic programs. And we can't even justify it by claiming that Universities need to prioritize revenue-generating entities to support non-revenue generating entities, because sports lose a stupid amount of money each year. They've lost track of what Universities are supposed to be doing, which is education, and they're doing it in a way that keeps them trapped in a financial doom loop.
As an example, UW Madison which has a fairly large and profitable athletics program generated 12 million in profit last year. They aren't the largest athletics program in the country, but it is bigger than many. Sits around the middle.
The patents and IP owned by the university provided $134 million in grants and support. Again, the school has a large STEM component, but it isn't a top tier university. Again, sits around the middle. The organization providing this funding manages its investments carefully and intends to provide this level of funding year after year.
Research departments generated more revenue and the funding is likely more reliable.