The global pandemic has brought low the most powerful economies in the world. Six months after the initial shock nearly knocked the U.S. into a depression, the economy remains impaired and is operating at 80% capacity. The need to pull back on normal social and economic activity to avoid a greater social and economic catastrophe is reshaping much of what constitutes modern life. Consequently, the business of sports has suffered an outsized impact; nowhere is that more evident than in college football.
The circumstances surrounding COVID-19 have exposed all of the underpinnings—the good and the bad—keeping the complex college football business together. But as some begin to fray, it has forced the question to be asked: Can this business model survive at scale? A look at the data within the Knight Commission Intercollegiate Database tends to suggest that there will need to be significant change if a sport that rivals the NFL and NBA in popularity will survive this crisis intact.
The Business Model: Peak College Football?
The business model of college football is predicated on a combustible mix of media contracts, ticket sales, government support, corporate sponsorships and donor contributions. The average FBS School obtains roughly 56% of its revenues from media rights (29%), ticket sales (17%) and government/institutional support (10%). So with a reduced number of games, few or no spectators in the stands—all the necessary steps taken to mitigate the pandemic’s effects—FBS budgets have taken a hit and will continue to do so over the next season or two.
Why should you care? A sharp contraction of inflation-adjusted growth in revenues, which had already begun to slow prior to the pandemic, has far-reaching implications beyond the balance sheet. The lack of resources will affect facilities and recruiting. It’s not unreasonable to think players will begin to consider other options, and if NFL decides to develop a minor league, that could change the nature of college football altogether. It could ultimately result in diminished quality of play and possibly fewer teams that populate the FBS in coming years.
Moreover, state and local governments will be facing such large budget deficits because of the pandemic that it is quite likely that the federal government will need to provide $1 trillion in fiscal aid to prevent mass layoffs of teachers, firefighters and peace officers. Under such conditions, it will be difficult for most schools to cover cost deficiencies without passing along costs to students, tapping endowments or turning to state governments for help. There’s no reason to think athletic departments would be spared.
Given a probable second wave of the pandemic, the idea that there will be a traditional college football season prior to 2022 or 2023 is likely unrealistic and will almost certainly lead to consolidation in the college football business. While the programs that make up the Power 5 will survive, some of those that make up the Group of 5 or compete in the Football Championship Subdivision may not be so lucky. A good majority of those programs will face financial haircuts, which will only exacerbate the (already enormous) inequality in resources.
The Data: Illustrating the Haves and Have Nots
One clear difference between Power 5 and Group of 5 programs is the latter’s outsized dependence on government and institutional support. The former derives approximately 2% of its revenues that way, while the latter relies on it for 35% of revenues to operate their college football programs.
Power 5 groups like USC or Notre Dame, with university endowments north of $5 and $13 billion, respectively, can likely weather a storm of a year or two of reduced athletics revenues from ticket sales, media and government funding. But publically funded institutions and Group of 5 schools face a different reality; no financial rescue is coming.
However, the differentials in media revenues clearly point out that any reduction or renegotiations of those revenue streams will disproportionately affect the Power 5 schools, which on average obtain 34% of their revenues from media contracts. If those are renegotiated and less revenue is on the way, then even the Power 5 schools will need to downsize their programs.
Change is Coming to the Game and Business Model
Until there is a vaccine there will be no meaningful economic recovery, and stadiums will not be filled in Saturday’s America. If we get lucky and one is developed soon, there is a chance that at least the Power 5 programs will make it through the crisis more or less unscathed. Should a vaccine not be found in the near-term, however, there will be greater challenges, and we will have likely observed college football’s peak come and go over the past decade.
The great universities that make up the game will need to make long-run changes to the way they operate their programs, pay their coaches, negotiate their media contracts and operate their own networks. A partnership with the NFL makes sense. Oh, and I have not even mentioned paying the players, profit sharing or Title IX.
Getting ready to play games in a post-pandemic America just may be the easiest thing college football is facing.
Joe Brusuelas is the chief economist for RSM US, the 5th largest accounting firm in the country. In more than two decades of experience, the frequent CNBC and Wall Street Journal commentator has worked as a senior economist at Bloomberg L.P. and a director at Moody’s Analytics, covering the U.S. and global economies for the Dismal Scientist website.
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