Rutgers athletics borrows against future Big Ten revenue to cover $38M shortfall

[Tango Two]

"The university is demonstrating a commitment to success in the Big Ten," Hobbs said. "They recognize that we can't simply wait until 2021. We have to gain competitiveness now. With an expectation and some certainty around future stream of payments, you can model that financially where it allows us to make investments today that we'll pay off in the future."


http://www.nj.com/rutgersfootball/i...hletics_borrows_against_future_big_ten_r.html

 

[RutgersRaRa]

Title of the article is misleading since it will give headline readers the impression that we are borrowing $39mm, when we're borrowing $10mm. I like that we are doing something to start the wheels in motion to upgrade things.

 

[AreYouNUTS]

i guess not lol...

 

[Knight Shift]

 

[BoroKnight]

Title of the article is misleading since it will give headline readers the impression that we are borrowing $39mm, when we're borrowing $10mm. I like that we are doing something to start the wheels in motion to upgrade things.

The shortfall IS $39 million. The $10 million is on top of the $28 million-plus subsidy, which HAD been going down until we had to start paying off people to make them go away. It WILL go down again, revenue WILL go up, and sooner or later this will be a non-issue. But for now, more fodder for those who don't go much beneath the surface.

Interesting to me was the $29,163 in "state government support." If that's the figure we can use for how much the "taxpayers" fund Rutgers sports (simplistic, I know, but still ...) we can throw it back at people who somehow think we raid their piggy banks to build weight rooms. Somehow I don't think $29,163 divided by every person who files a New Jersey income tax return amounts to very much ...

 

[RutgersRaRa]

The shortfall IS $39 million. The $10 million is on top of the $28 million-plus subsidy, which HAD been going down until we had to start paying off people to make them go away. It WILL go down again, revenue WILL go up, and sooner or later this will be a non-issue. But for now, more fodder for those who don't go much beneath the surface.

Interesting to me was the $29,163 in "state government support." If that's the figure we can use for how much the "taxpayers" fund Rutgers sports (simplistic, I know, but still ...) we can throw it back at people who somehow think we raid their piggy banks to build weight rooms. Somehow I don't think $29,163 divided by every person who files a New Jersey income tax return amounts to very much ...

A subsidy isn't the same thing as a cash shortfall. For example, scholarships across all sports are included in the subsidy figure, but it doesn't cost RU anything to let the student-athlete sit in a classroom since there is a surplus of desks. We've talked about this a lot on here, but I like to point out once in a while that the university isn't writing the athletic department a $29mm check and then allowing the athletics department to borrow another $10mm against future earnings. But that's how most people think it works.

If, for example, there are 500 student-athletes on scholarship, and their average tuition is $20k/year (in-state and out-of-state are different rates), you've got $10mm/year of a "subsidy," but what is being subsidized isn't a dollar amount in the form of a payment, it's a dollar figure placed on the education the athletes are receiving. You might already know this since you post here a lot, but I do it for those who it might help to clarify more about how it works.

 

[RUSK97]

I was surprised to hear that between 2015 and 2016 the B1G paycheck only increased a few hundred thousand from something like 9.2 to 9.6 million. I have to imagine the 2017 payout is over 10 million.

 

[ZipSu]

Any idea what other athletic departments in the B1G netted (in all sports) this year? Especially Maryland?

The only thing I could find is that Maryland also borrowed from the B1G (11.6M).

And this: "The conference distributed roughly $32.4 million to each of its longest-standing 11 members, amounts that put those schools on par with amounts the Southeastern Conference distributed to each of its 14 member schools from conference revenue that totaled $527.4 million.

In fiscal 2015, Nebraska received $19.8 million, Maryland $24.1 million and Rutgers nearly $10.5 million, according to the new return."

 

[Roy_Faulker]

Is it true that the scholarships are all not fully endowed? If so I would think that costs a ton.

 

[jtung230]

Dynamic Scoring. I'm not a big fan of it. But in our case, most of the future income is guaranteed.

 

[Upstream]

Is it true that the scholarships are all not fully endowed? If so I would think that costs a ton.

Or that costs virtually nothing (see @RutgersRaRa 's post above)

 

[RutgersRaRa]

Is it true that the scholarships are all not fully endowed? If so I would think that costs a ton.

Athletics scholarships are recorded as a function of accounting, and as such have a line-item value assigned to them, but money does not change hands from the athletics department to the university. Since most classes are not full, the surplus of desks in which the scholarship athletes sit does not create an additional financial burden on the university.

 

[Upstream]

Athletics scholarships are recorded as a function of accounting, and as such have a line-item value assigned to them, but money does not change hands from the athletics department to the university. Since most classes are not full, the surplus of desks in which the scholarship athletes sit does not create an additional financial burden on the university.

While I agree with the point you are making (and have previously made the same point myself), you can't claim that all of the cost of athletic student aid is "funny money". Part of the cost is room and board, and that is real money: student athletes eat real food and they take up housing space that could otherwise be used by a paying student. And while most classes may not be full, some classes may be full and placing student athletes in those classes potentially takes a seat away from a paying student or requires the university to pay to open an additional section.

However, it is clear that for the most part, the cost of athletic student aid is a budget transfer from the athletic department to the university general fund. It either offsets the subsidy, or if it is greater than the subsidy it actually results in a net positive transfer from the athletic department to the university general fund.

 

[RU85inFla]

I'm guessing RaRa doesn't have college age kids. 55% real costs, 45% tuition at Rutgers. Now with football players that eat a ton more call it 65% real expense.

 

[RutgersRaRa]

While I agree with the point you are making (and have previously made the same point myself), you can't claim that all of the cost of athletic student aid is "funny money". Part of the cost is room and board, and that is real money: student athletes eat real food and they take up housing space that could otherwise be used by a paying student. And while most classes may not be full, some classes may be full and placing student athletes in those classes potentially takes a seat away from a paying student or requires the university to pay to open an additional section.

However, it is clear that for the most part, the cost of athletic student aid is a budget transfer from the athletic department to the university general fund. It either offsets the subsidy, or if it is greater than the subsidy it actually results in a net positive transfer from the athletic department to the university general fund.

There are real costs to having an athletics program, especially one that's in a growth phase like ours is, but I like to point out that when the media reports a $39mm subsidy it doesn't mean a check is being written for that amount. And then there are different accounting methods that different universities use, so the numbers don't mean much without understanding those methods and what the actual numbers represent.

 

[LC-88]

Or that costs virtually nothing (see @RutgersRaRa 's post above)

Correct. Cost vs. value.

 

[Upstream]

I'm guessing RaRa doesn't have college age kids. 55% real costs, 45% tuition at Rutgers. Now with football players that eat a ton more call it 65% real expense.

Room and Board at Rutgers NB is approximately 46% of the cost for in-state students. But the price that Rutgers charges is greater than what it costs Rutgers to provide those services, as Rutgers uses housing and food service as profit centers. So the real cost is lower than that 46%.

Although the real figure is probably closer to 60% "funny money" and 40% "real money", for the ease of estimating, let's just say it is a 50:50 split.

 

[RutgersRaRa]

I'm guessing RaRa doesn't have college age kids. 55% real costs, 45% tuition at Rutgers. Now with football players that eat a ton more call it 65% real expense.

You're missing the simplicity of what I said above. I purposely used tuition (and not board) as an example of a number that does not cost the university actual dollar amounts because it's an easy way to illustrate that the $39mm subsidy is not reflective of a dollar transfer to the athletics department. This should come as good news to those who embrace athletics because something is more sustainable when it costs less. It helps to understand what the numbers represent and what the actual costs are.

In the case at hand, with Hobbs getting permission to borrow $10mm against future revenue/earnings, knowing that it isn't being borrowed to pay for the athletes' tuition, for example, means it is being used for something else. Even if they aren't telling us what it is being used for, we would be on slightly safer ground guessing that it's going for facilities upgrades, for instance.

 

[RU85inFla]

I'm guessing RaRa doesn't have college age kids. 55% real costs, 45% tuition at Rutgers. Now with football players that eat a ton more call it 65% real expense.

You're missing the simplicity of what I said above. I purposely used tuition (and not board) as an example of a number that does not cost the university actual dollar amounts because it's an easy way to illustrate that the $39mm subsidy is not reflective of a dollar transfer to the athletics department. This should come as good news to those who embrace athletics because something is more sustainable when it costs less. It helps to understand what the numbers represent and what the actual costs are.

In the case at hand, with Hobbs getting permission to borrow $10mm against future revenue/earnings, knowing that it isn't being borrowed to pay for the athletes' tuition, for example, means it is being used for something else. Even if they aren't telling us what it is being used for, we would be on slightly safer ground guessing that it's going for facilities upgrades, for instance.

I get it. My personal favorite is when foolish parents that never plan to send their kids to college figure out that room and board is 3 times the cost of tuition. I assumed you used the whole number. I agree if you just used tuition.

 

[RutgersRaRa]

While I agree with the point you are making (and have previously made the same point myself), you can't claim that all of the cost of athletic student aid is "funny money". Part of the cost is room and board, and that is real money: student athletes eat real food and they take up housing space that could otherwise be used by a paying student. And while most classes may not be full, some classes may be full and placing student athletes in those classes potentially takes a seat away from a paying student or requires the university to pay to open an additional section.

However, it is clear that for the most part, the cost of athletic student aid is a budget transfer from the athletic department to the university general fund. It either offsets the subsidy, or if it is greater than the subsidy it actually results in a net positive transfer from the athletic department to the university general fund.

True. And to be sure, I never made the assertion or claim that it is an accounting trick and that the athletics department isn't operating in the red. I was addressing the idea that when numbers are thrown around that there is more to the story than most people are aware. A $39mm subsidy might indicate an actual cash shortfall of $10mm, it could mean $25mm, it could mean close to zero, and without understanding how the accounting is done at each university the numbers don't mean what many think they do. People who don't follow sports might get the idea that the state is wasting $39mm on athletics and that the bridge in their town that needs a $39mm facelift isn't happening due to Rutgers athletics. If the actual dollar amounts were extracted from the athletics shortfall it would be substantially less than $39mm.

 

[RutgersRaRa]

Any idea what other athletic departments in the B1G netted (in all sports) this year? Especially Maryland?

The only thing I could find is that Maryland also borrowed from the B1G (11.6M).

And this: "The conference distributed roughly $32.4 million to each of its longest-standing 11 members, amounts that put those schools on par with amounts the Southeastern Conference distributed to each of its 14 member schools from conference revenue that totaled $527.4 million.

In fiscal 2015, Nebraska received $19.8 million, Maryland $24.1 million and Rutgers nearly $10.5 million, according to the new return."

I don't know specific numbers on Maryland, but they were allowed to borrow money or were given longer to pay down their buy-in of the BTN, or both, due to their huge exit fee when they left the ACC. Delany wanted Maryland as the 13th school, and we rode their coattails since he wanted to add an even number of teams. Maryland was making a lot of money in the ACC and also had a big penalty for leaving, so they had leverage with Delany and Silverstein and we did not. IIRC, Maryland won't receive as much in later years as they pay down what they borrowed, but at some point all 14 teams, including Rutgers, Nebraska, and Maryland, will be receiving the same payout.

 

[bac2therac]

Perhaps Janine Percaro was canned for the way she has been reporting the subsidy

anyway people have been clamoring for borrowing for years and Barchi kept saying no, what changed now

 

[Upstream]

Perhaps Janine Percaro was canned for the way she has been reporting the subsidy

anyway people have been clamoring for borrowing for years and Barchi kept saying no, what changed now

Maybe the wrong people asked. He's not going to say yes to you or others on this board asking to borrow.

 

[ru66]

yup--the wrong or the unskilled people asked

 

[srru86]

canned for the way she has been reporting the subsidy

I suspected for a long time that we were doing a much poorer job of sinking certain football costs into other nooks and crannies of the budget than some of our counterparts.
It was proven when we learned RU Dining Services was only claiming to clear $100,000 for an entire season of football concession sales. We really knew it was wrong when that payment on revenues generated by Athletics was included in the University subsidy number.

 

[RUsojo]

I really don't think this is the case of adding to a shortfall. To me, and I could be wrong, it sounded like Hobbs had already committed to additional expenses to expand the budget and increase competitiveness to the the tune of $10M, and secured permission to borrow $10M from the school to do so.

So we didn't magically end up $10M more in the hole, it was a conscious decision to spend $10M more, knowing they were taking a loan from the university to do so.

 

[HeavenUniv.]

I may have missed this,but how much is the interest ? When does the athletic department have to start and end repaying the loan ?

 

[Upstream]

I may have missed this,but how much is the interest ? When does the athletic department have to start and end repaying the loan ?

I'm assuming it is an interest-free loan. Think of it as lending money to your wife.

 

[koleszar]

I'm assuming it is an interest-free loan. Think of it as lending money to your wife.

Sweat, then the University can expect to never see the money again.

 

[HeavenUniv.]

How many other Big Ten schools have endless financial articles written about them by their own state's media?

 

[Roy_Faulker]

Sorry to belabor this - regardless of the use of open classroom capacity from an accounting perspective are scholarships costs reflected in the subsidy?

 

[Upstream]

Sorry to belabor this - regardless of the use of open classroom capacity from an accounting perspective are scholarships costs reflected in the subsidy?

Scholarship costs are an expense for the Athletic Dept.

The subsidy is how the university subsidizes Athletic Department revenue so that there is enough revenue to cover all expenses.

So the subsidy can be considered to apply to scholarship costs.

 

[BoroKnight]

How many other Big Ten schools have endless financial articles written about them by their own state's media?

How many other flagship state universities didn't already have big-time sports by the 1970s? And how many had to spend and borrow and spend and borrow and spend to get there? And how many of them were still small schools in the lifetimes of state residents at the time of those decisions? Then factor in that we're in the Northeast, where many states do not have a lot of pride in their public universities (think UMass compared to all of those elite schools around Boston). Now toss in how the lack of a big-time athletics program for decades meant few people that didn't go to Rutgers rooted for the now-state university. And now add the incredibly high tax burden in the state, which makes people wary of any public institution spending anything on anything even if it isn't directly from tax dollars. Then toss in an alumni base that, at the time, still had a lot of people who fondly recall playing Princeton, Lehigh and Lafayette and think the change harms academics; and add a portion of the old-time faculty to that group.

We are in an almost unique situation with our history, both as a school and as an athletic program. You can't compare us to almost anyone. There is simply no reason for most state universities to have "endless financial articles" written because what they are doing now is what they always have done, although the athletics arms race has become more intense. For us, it was a conscious choice and not everyone agreed with it.

 

[RutgersRaRa]

How many other flagship state universities didn't already have big-time sports by the 1970s? And how many had to spend and borrow and spend and borrow and spend to get there? And how many of them were still small schools in the lifetimes of state residents at the time of those decisions? Then factor in that we're in the Northeast, where many states do not have a lot of pride in their public universities (think UMass compared to all of those elite schools around Boston). Now toss in how the lack of a big-time athletics program for decades meant few people that didn't go to Rutgers rooted for the now-state university. And now add the incredibly high tax burden in the state, which makes people wary of any public institution spending anything on anything even if it isn't directly from tax dollars. Then toss in an alumni base that, at the time, still had a lot of people who fondly recall playing Princeton, Lehigh and Lafayette and think the change harms academics; and add a portion of the old-time faculty to that group.

We are in an almost unique situation with our history, both as a school and as an athletic program. You can't compare us to almost anyone. There is simply no reason for most state universities to have "endless financial articles" written because what they are doing now is what they always have done, although the athletics arms race has become more intense. For us, it was a conscious choice and not everyone agreed with it.

Also, the perception of us having "endless financial articles" about us isn't the perception of those outside of those of us who follow it closely--we are collectively on guard so we can post things here, so it is a distilled and therefore concentrated form of media whose articles have a longer shelf life due to our regurgitation of everything RU. Other schools have about the same concentration of articles written--perhaps more for winning programs--so we just have to keep making progress and eventually the media will be more positive.