Big Ten and Pac-12 conference schools like Penn State and UCLA are discovering what millions of Americans learned when COVID-19 brought their jobs to a halt—even though income stops, the bills keep coming.
The conferences postponed football season yesterday because of the very real health risks of the pandemic. The decision comes with wide-ranging financial consequences—the conferences will be losing hundreds of millions of dollars in revenue while having to scramble to pay or put off bills.
“This is a rare case where the big guys are in way worse shape than the little guys,” said Victor Matheson, a sports economics professor at College of the Holy Cross. “Quite honestly canceling football will not have a big effect on the Yales and Holy Crosses of the world. But for Ohio State, for example, this is a huge revenue impact because they count on generating huge numbers to fund their athletic department.”
The average Big Ten athletic department has an annual budget of $139 million while Pac-12 members spend $107 million, according to 2019 disclosures to the NCAA by the public member schools of the two conferences. Not playing football eliminates the need for a large slice of athletic department expenses, much of those related to gamedays and football team travel. Not every expense can go away, however. Two schools, Penn State and Wisconsin, have said they may face a $100 million athletics deficit because of no football. Ohio State faces similar losses, according to Matheson, who has analyzed the school’s finances.
The breathtaking losses starkly display how Power 5 athletic departments are managed: Every dollar that comes in goes back out. The Big Ten and Pac-12 combined pulled in $2.9 billion in athletics revenue in 2018 and spent $2.8 billion, according to data compiled by the Knight Commission. Plus, most schools have piled up large, long-term debts to finance athletics facilities—debt that has to be paid every year or risk going into default.
Eleven of the Big Ten Conference’s 14 football playing schools have mandatory annual athletic facility debt service payments that exceed income the programs receive from athletic endowments funds—the only income that’s effectively guaranteed when there is no revenue from tickets or media rights. In the Pac-12, every public school’s debt service payments exceed athletic endowment income by wide margins. The University of Oregon’s athletic department, for instance, pays debt service of $18.4 million while generating endowment income of $11,049—almost enough to pay a year of in-state undergraduate tuition.
Of course, schools will still likely receive some income from television partnerships, and donations to athletic departments aren’t stopping—although donations that provide access to stadium-seating assignments and parking spots may fall. Regardless, the bottom line is athletic departments generate hundreds of millions of dollars a year in revenue but rarely put anything away for a rainy day. That means schools—and possibly even taxpayers—will need to bail them out.
In the Big Ten, only Nebraska for certain has no long-term athletic debt, but it also has no athletic endowment income. It disclosed lease expenses and service fees related to the athletic program of $711,550 in fiscal 2019. The conference’s lone private school, Northwestern University, doesn’t have to make detailed financials public. Based on information from municipal bond market databases, which may be incomplete, Northwestern has $2.2 billion in debt, all of which are general school obligations—none backed specifically by athletics revenue.
Penn State is the sole conference school where athletics endowment income exceeds athletics debt service. The school generated about $6.5 million income from its $165 million athletics-only endowment funds. It had $3.9 million debt service payments in 2019. But even Penn State is already feeling the revenue crunch. The school set up two $125 million lines of credit in recent weeks to support university operations as needed during the pandemic, according to a university spokesperson. The school has taken $25 million from one of the lines of credit, as of July 31, according to a bond market disclosure last week. According to the school, the lines of credit could be used to support departments that are normally self-financing, which could include athletics.
In the Pac-12, the University of California–Berkeley sits on the largest debt burden among college athletic departments; an amount totalling $438.6 million. Despite the largest general endowment in the Power 5, Stanford has already moved to slash 11 varsity sports, to help meet budget cut needs. Only UCLA’s sports endowment income of $2.5 million comes close to matching its debt service, which is $3 million. Yet UCLA’s athletic department has already required a bailout from the school at large in February from deficit spending. The conference has arranged a central loan program to provide each member school with up to $83 million in loans payable over 10 years.
As Sportico detailed in June, bond holders may get nervous by the sudden lack of revenue backing athletics departments bonds, but they fully expect the schools at large to pay their athletic departments’ obligations. With more than $3.7 billion in athletics department debt in the Big Ten and Pac-12, there may be no choice but for schools to step in.
“A huge amount of an Ohio State athletic department’s $200 million in annual revenue disappears. Most of that’s not magical revenue that comes from student fees and is always there,” added Matheson. “And if there’s a move for a spring season, you’re likely talking about a pared down schedule anyway. It’s going to be hugely problematic for the colleges.”