I wouldn't even say that. You suspend a player for drug use or conduct that is against the law, that is saving face on the universities end. However, admission is a completely different story. Look at how much money colleges bring in from College Football alone (granted, this is probably the majority of sporting revenue for most colleges). From a business perspective, letting in a handful of athletes that are clearly not cut out for the academic rigor in exchange for millions of dollars is a no-brainer.
Agreed, if I were in charge of a Universities P&L and someone suggested I do something to jeopardize the revenue stream from my basketball or football program because the players couldn't read I'd probably say "hooked on phonics worked for me!"