The cost of big time athletics debt

[RUevolution36]

Bloomberg has an article today on how debt servicing is becoming unmanageable for some big-time college athletic programs. For once, RU was not named as one of the biggest offenders...
https://www.bloomberg.com/news/feat...tball-s-top-teams-are-built-on-crippling-debt
https://www.bloomberg.com/news/feat...tball-s-top-teams-are-built-on-crippling-debt

 

[RU4Real]

That article left me wondering if there was more that the author was trying to express. On its face, it's kind of a snoozer of a story.

 

[Scarlet_Scourge]

progress

 

[MozRU]

That article left me wondering if there was more that the author was trying to express. On its face, it's kind of a snoozer of a story.

I agree. I read the article this morning. I was left with, "That's all your got?" The journalist needs to do some more digging and apply some more math and give us some real projections.



RUevolution36 On BBG? What business are you in?https://rutgers.forums.rivals.com/members/ruevolution36.2560/

 

[RUevolution36]

I agree. I read the article this morning. I was left with, "That's all your got?" The journalist needs to do some more digging and apply some more math and give us some real projections.



RUevolution36 On BBG? What business are you in?

I'm in management consulting. I tend to get most of my news from Bloomberg and Reuters, as I find them to be more in tune to the type of things I want to read about - as well as breaking news about M&A activity, industry trends and news, etc.

 

[BuckeyeLegion]

Bloomberg has an article today on how debt servicing is becoming unmanageable for some big-time college athletic programs. For once, RU was not named as one of the biggest offenders...
https://www.bloomberg.com/news/feat...tball-s-top-teams-are-built-on-crippling-debt

Considering that he name checked in the article Cal, 'Bama, Illinois, and Kansas State and that the largest debt according to the graph is Cal, A&M, Washington, Illinois, Georgia Tech, Texas, Oregon, Michigan, Minnesota, and LSU the title should be:

College Football’s "Top" Teams Are Built on Crippling Debt

Or

Some College Football’s Teams Are Built on Crippling Debt

 

[RUfinal4]

It is a blah article as mentioned but there is a bigger issue at hand. Because of football and basketball schools have joined conferences that are not as regional as the past (ie. Rutgers in the B10 with Nebraska or UConn in a conference with Tulane). These new more countrywide conference do bring in more tv money but does the money cover all the added costs?

Football is once per week and most schools will have a charter plane flight to 5 or more road games.

Basketball is twice to 3 times a week. The newer conference tv deals cover the added cost of travel to further conference rivals.

Now with Soccer, Softball, Baseball, and a host of other sports the costs add up.

In the old Big East days Rutgers non-revenue teams had bus rides to UConn, West Va, Viginia, Tech, Providence, St Johns, Seton Hall, Villanova, BC, Pitt, Syracuse, and Georgetown. The schools that were not easily drivable were USF, UCF, Notre Dame, Louisville, Cincy, DePaul, and Marquette.

In the B10 Rutgers can bus to Penn St, MD, and maybe Ohio St. The rest of the schools are more than 8 hours away driving and probably require flights.

In the B10 Rutgers will earn at least $10 mil more than the Bi East days when fully vested but th schools in the AAC and other smaller conferences may not really earn more money to cover travel costs.

What we may see for non-revenue sports is less dual competitions and more group competitions. It already happens with Golf and Cross Country but may extend to Wrestling, basketball, or even baseball / softball. There may even be efforts made to group competitions so that multiple teams will play the same away opponent at the same time.

Examples:
Group competitions:
UConn, Tulane, Tulsa, and UCF have a joint wrestling meet
Multi sport competitions
UConn visits Tulsa
Fall - Mens and womens soccer the same weekend as a football matchup
Winter - Mens and womens hoops plus wrestling
Spring - Baseball, Softball, and Lacrosse

 

[RUMBA-JK]

Bloomberg has an article today on how debt servicing is becoming unmanageable for some big-time college athletic programs. For once, RU was not named as one of the biggest offenders...
https://www.bloomberg.com/news/feat...tball-s-top-teams-are-built-on-crippling-debt

- but you can fully expect that some hack will write an attack article that scorches RU in various ways - and will make a contorted (and semi-irrelevant) reference to this article as a fallacious way to validate their point

 

[TheB1GTerp]

Bloomberg has an article today on how debt servicing is becoming unmanageable for some big-time college athletic programs. For once, RU was not named as one of the biggest offenders...
https://www.bloomberg.com/news/feat...tball-s-top-teams-are-built-on-crippling-debt

The idiots who do these articles crack me up. They do a few google searches, look at the department of educations numbers, and conclude that college football doesn't make money for EVERY power 5 school.

Do they honestly think colleges wouldn't do it, if it didn't have a net result in making them money? I always tell the eggheads who think they are so smart, to look at schools like MIT and Carnegie Melon and ask where is the cheaper tuition due to the lack of a football team?

 

[srru86]

Somewhat OT but much bigger issues on the macro level are amount of debt carried by individual students to pay for school and the cost of institutional debt by colleges that have paid for capital expansion with money borrowed against future revenue.
New Jersey and Rutgers are leaders in both areas. This is largely driven by the public disinvestment in higher education that has been going on for a generation.

 

[Upstream]

It is a blah article as mentioned but there is a bigger issue at hand. Because of football and basketball schools have joined conferences that are not as regional as the past (ie. Rutgers in the B10 with Nebraska or UConn in a conference with Tulane). These new more countrywide conference do bring in more tv money but does the money cover all the added costs?

I think you are overestimating the impact of conference change on travel costs. In Rutgers' last year in the Big East (when we played regional teams like UConn, Pitt, and Cuse), we had travel expenses of $5.2 million. In our first year in the Big Ten, our travel expenses were $5.7 million.

 

[RUfinal4]

Somewhat OT but much bigger issues on the macro level are amount of debt carried by individual students to pay for school and the cost of institutional debt by colleges that have paid for capital expansion with money borrowed against future revenue.
New Jersey and Rutgers are leaders in both areas. This is largely driven by the public disinvestment in higher education that has been going on for a generation.

You bring forth 2 good points:
1. Amount of debt by students. If a kid finances all of his education with room and board at an in state school he / she could graduate with 75-100k in debt. For private schools that number can be double. It may take 20 years to pay that back.
2. Institutional debt will grow and depends on students being able to get loans to pay for college (item 1). If state's continue to provide less assistance each year then you may see some public colleges default on debts. If a state school has a 100 million in debt wit annual debt service of 4-5 mil they will need to assure they have enough students paying tuition and fees to cover it. If student loans cannot be obtained then students may not go to this school and the funds don't come in to pay the debt load.

For sports it is no different Eventually the sports tv rights money bubble will burst. The Power 5 may get $25-45mil per school the next 10-15 years but with cord cutters and consumer watching on mobile devices more you may see a significant change in these revenues.

 

[RUskoolie]

They wrote back to back crummy articles the past 2 days. Probably some 24 year old dodo.

 

[SHUSource]

I always tell the eggheads who think they are so smart, to look at schools like MIT and Carnegie Melon and ask where is the cheaper tuition due to the lack of a football team?

You do realize (or maybe not) that the tuition is higher at those universities because they are private, right?

 

[batts]

There has been several reliable (and well documented) articles that point out that despite huge television revenues, most Athletic Departments in the Power 5 conferences, including those in the Big 10, operate in debt. The costs of competing in a Power 5 conference in football and other sports exceed television revenues received.

One possible motive for Power 5 schools to operate in debt is to appease its big time donors, which can lead to very lucrative gifts to the university.

 

[Scarlet_Scourge]

Sports are the only thing that you have to see in real time, that either in person or on TV.

Even if everyone cut the cord, streaming services will just jack up their rates. Much like the NFL, MLB, NBA UFC, etc are doing today. Want ESPN? Just pay $9.95 a month for that channel alone.

If the Big Ten offered a $19.95 a month channel streaming package with all of the sports and all of the games, consider there are more Big Ten fans than there are fans of any other conference it may make more money than what they make now.

That said, you have to be smart. Schools MUST rely on donors to build things, that is what all the big programs do and that is what Rutgers is finally starting to do.

TV money, Bowl money, merch, tickets, will pay for the budget.

The last thing you want to do is try to keep up with the joneses when you can't afford it and are not bringing in anywhere near the money of the really big programs. That is how you get into trouble.

 

[huskersalways]

If athletic departments were run like a business, which they should be because that's what they are, then some of this stuff wouldn't be happening. This ability for athletic departments to operate while losing $10-$30mil annually and having the academic side or students foot the bill is ridiculous. Either drop some sports so still comply with title ix or drop down a level where costs are less.

 

[ru66]

we will be getting much more than the additional $10 million you quote when comparing the BIG to BIG East

 

[Upstream]

If athletic departments were run like a business, which they should be because that's what they are, then some of this stuff wouldn't be happening. This ability for athletic departments to operate while losing $10-$30mil annually and having the academic side or students foot the bill is ridiculous. Either drop some sports so still comply with title ix or drop down a level where costs are less.

The problem with dropping down a level is that although the costs are less, the revenues are also less. That is why FCS teams look to move up to FBS.

 

[rufancoe00]

You do realize (or maybe not) that the tuition is higher at those universities because they are private, right?

Compare them to duke/Stanford then

On the state side is UC Irvine significantly cheaper than UCLA since they have no football

 

[huskersalways]

The problem with dropping down a level is that although the costs are less, the revenues are also less. That is why FCS teams look to move up to FBS.

I realize that but it takes a lot less money to run the athletic program therefor in plain dollars it is less taxing on the students through inflated fees and, even though compared to the overall budget of a school the athletics is pretty small, not as much money from tax payers would be needed. I don't think any athletic department should be subsidized by tax money or student fees except for those that wish to purchase season tickets.

 

[ScarletKid2008]

Somewhat OT but much bigger issues on the macro level are amount of debt carried by individual students to pay for school and the cost of institutional debt by colleges that have paid for capital expansion with money borrowed against future revenue.
New Jersey and Rutgers are leaders in both areas. This is largely driven by the public disinvestment in higher education that has been going on for a generation.

DING DING DING ... this is the true underlying of America and its debt issues. Colleges are building new and fancy things like crazy off higher tuition and decreasing state/govt support. These students are having a harder and harder time paying back this increasing level of debt. This model WILL break. And students, schools, and ultimately tax payers will be drowning in a financial meltdown (ala housing crisis of 2008).

 

[GoodOl'Rutgers]

The debt and servicing the debt is an investment based on projected revenues.

Sure, there's a chance the market for college football and basketball will crash... but how can that be the assumption upon which a university is to make decisions?

The choice is really between having intercollegiate sports at all. Do they add value to the college experience? If they did not, I think they'd be gone by now instead of being worth billions in revenues. But it is a valid question.

And once you start looking at the cost of sports and stadiums and so on, perhaps you should consider looking at every major, every department and ask if it is truly needed and if it adds enough value to the academic mission.

There will be a sea change, I think, in the traditional schoolhouse and classroom model we think of a education. Its coming. Will collegiate sports disappear with a de-emphasis on classrooms? Or will collegiate sports be a factor in retaining campuses and classrooms and the whole American college experience?

 

[Bamm Bamm Rubble]

Move FBS football to a spring format and basketball to a Fall format and business will be booming. It's really that simple.... no reason to compete with the pro sports of the same nature.

 

[MozRU]

Division 1 College Football truly feels like the old cold war but with a little hot war on Saturday's.

Spend until your enemy dies. If this model keeps going at this pace there will be 60 teams left while the rest play old school 1AA or just die off.

 

[Crazed_RU]

All businesses, and that's what high level collegiate athletics is, borrow money and service debt. The annual debt payments are part of the budget and the debt in this case is secured by assurances of future revenue streams. If those revenue streams are generally secure, (not sure why anyone thinks that they wouldn't be), then it's simply a short term budgeting issue. Companies like Amazon and Apple had years where they lost money as they invested in their long term franchises. There is risk though that you become the next Blackberry though so not all schools will be guaranteed success. With Rutgers position now in the preeminent conference, I like our chances.

 

[MozRU]

With Rutgers position now in the preeminent conference, I like our chances.

With our proximity to NYC and fertile recruit grounds, Rutgers football will always be around. Some conference will at the very least keep us on life support.

 

[Crazed_RU]

With our proximity to NYC and fertile recruit grounds, Rutgers football will always be around. Some conference will at the very least keep us on life support.

I'm slightly more optimistic than "life support". Maybe something like a functioning addict ...

 

[Pritz99]

With 6-8 states strongly considering making college free (New York is the latest), how will this effect a school's financial model. Will the state be willing to finance sports when they're paying all that tuition...room& board?...books, etc. My guess is in the blue states(east coast, California) will see sports as draining and they'll fade away. Alabama, Nebraska, Ohio, Wva, will just keep pumping money into it. The final look will probably be 64 P5 schools, and the rest Div II or III. The NFL is going to have to start some subsidizing.

 

[BuckeyeLegion]

With 6-8 states strongly considering making college free (New York is the latest), how will this effect a school's financial model. Will the state be willing to finance sports when they're paying all that tuition...room& board?...books, etc. My guess is in the blue states(east coast, California) will see sports as draining and they'll fade away. Alabama, Nebraska, Ohio, Wva, will just keep pumping money into it. The final look will probably be 64 P5 schools, and the rest Div II or III. The NFL is going to have to start some subsidizing.

I think the answer to your question depends entirely on the program. Ohio State would keep pumping money in because their athletic department is entirely self-funding. Ohio, Miami, Akron, Toledo...probably not. Same with Alabama vs. Troy I would imagine. Texas vs. Rice, etc. So, the end result in your hypothetical may be similar, but I don't know that it would be for the same reasons you throw out.