The pandemic’s impact on Division I has athletics departments warming up to multimillion dollar loans to see them through 2020-21
Athletics Veritas is a weekly series aimed at helping higher education executives, faculty, and other stakeholders stay tuned in on trending national issues impacting college athletics, especially NCAA Division I. Athletics Veritas is created by senior DI athletic administrators around the nation.
As Division I's Revenues Slow, the Parade of Loans Accelerates
The pandemic’s impact on Division I has athletics departments warming up to multimillion dollar loans to see them through 2020-21
One of the highest profile Division I athletic programs is asking campus for a no-interest loan to help bridge its budget shortfall
Other sport entities including Under Armour, Disney/ESPN and NFL teams are seeking financial engineering solutions through loans and lines of credit
NCAA membership distributions for Division II and Division III institutions have also been cut due to Division I’s revenue shortfalls
Division I’s principles include prudent fiscal management by member institutions to ensure financial stability for student-athletes
Rutherford B. Hayes once observed that “it is the debtor that is ruined by hard times.” It would be premature to conclude that college athletics in 2020 has been ruined by the pandemic; however, the college athletics enterprise is clearly being tested like no other point in recent decades.
Beset by the unenviable combination of decreasing revenues and rising coaches’ salaries and novel medical testing costs, some of the highest profile Power 5 institutions have gone on record in recent weeks acknowledging their pursuit of additional loans to see through the 2020-21 academic year and corresponding athletic season.
Iowa, Ohio State, and Penn State from the Big 10 have reportedly either taken out loans or are considering taking out loans to help their athletic operations during the pandemic. In the case of Ohio State, the Buckeyes are seeking a (potentially interest-free) $107M loan from the university. Meanwhile, the Pac-12 has set up a loan program for its 12 member institutions’ athletic departments to take out loans upwards of $83M depending on the fate of the football season, which, if played, will improve the conference’s revenue distribution outlook.
Division I institutions’ bottom lines are also teetering from the splintered NCAA spring distribution that came in $375M short of initial estimates. The NCAA’s membership distribution outlook for the next six to 12 months is not crystal clear either as it anxiously awaits the fate of the 2020-21 men’s basketball season, particularly the Division I men’s basketball tournament. Aside from FBS institutions who also rely on home games and bowl revenues to help fill their revenue tank, March Madness is the revenue crown jewel for NCAA members.
The anticipated loss in revenue in areas such as ticket sales, parking, and corporate sponsorships due to reduced or canceled seasons were reasons Moody’s forecasted that Division I athletic departments would need financial parachutes from their universities to help bridge the gap. As reported by Inside Higher Ed, a Moody’s report outlined the following: “Given the revenue shocks, many athletic departments will not be able to cover debt service with net revenue from recurring operations, prompting the need to fill the gap from appropriate auxiliary and/or other reserves. In many cases, this is likely to take the form of internal loans that the athletic departments will need to repay the university over time.” Division I institutions’ operating budgets and the eternal facilities arms race have traditionally relied on debt service and leases. The Knight Commission reported that the total debt service, leases, and rental fees collectively carried in 2018 by Division I’s FBS subdivision exceeded $700M.
This year hasn’t been the only one in which Division I athletics departments sought financial security through sizable loans. In 2013, for example, Penn State gained approval from its Board of Trustees to take out a $30M loan to assist the athletics department in covering its anticipated operating expenses while it continued investing in capital projects and programs as well as maintain a reserve balance. The present-day pandemic only compounds the financial stresses in Division I. Division I institutions’ ability to cover these standing loans, or at least renegotiate the terms, has likely moved up the priority lists on campuses across the country.
The rest of the NCAA membership also feels the pain of a reduced Division I revenue stream. Division II members will receive 4.37% of actual revenues, currently projected to be about $13.9 million, which is $30M less than last year. Division III will receive 3.18% of actual revenues, about $10.7M, which is about $22M less than last year.
Division I institutions’ athletic programs aren’t the only college athletics stakeholders who have explored the loan market or debt restructuring in 2020. Under Armour, the exclusive athletic apparel provider to several Division I institutions, took out a $700M line of credit this spring as it navigated the pandemic. Disney, the parent company of ESPN which is a primary broadcast partner to Division I athletics programs, recently reported $6B in debt restructuring.
Philosophically speaking, through its “Principle Governing the Economy of Athletics Program Operation” under Division I Constitution 2.16, Division I institutions have committed to administering their intercollegiate athletics programs with prudent management and fiscal practices that ensure the financial stability necessary for providing student-athletes with adequate opportunities for athletics competition as an integral part of a quality educational experience.
To support its collective pledge of prudence and proper fiscal management, university leaders across Division I in 2020-21 will be heeding the famous line from All the Presidents Men: “Follow the money.”
Athletics Veritas is presented for information purposes only and should not be considered advice or counsel on NCAA compliance matters. For guidance on NCAA rules and processes, always consult your university’s athletics compliance office, conference office, and/or the NCAA.
