Big Red Business: Send the bill to Kevin Warren?
The bill for a fall without football or other Big Ten sports: Millions of dollars in athletic department spending cuts, and at least hundreds of layoffs across 14 conference campuses.
The financial and human fallout of the Big Ten’s decision to cancel fall sports is starting to show in Lincoln and elsewhere around the conference.
The projected losses have been pegged by several schools and sports experts at about $100 million per program, or $1.4 billion altogether, though a return to action this winter could help recoup some of that money through broadcast royalties.
In the aftermath of that Aug. 11 decision, Nebraska and other schools have announced an array of cost-cutting strategies, from firings and furloughs and the elimination of some varsity teams, to deferring maintenance, canceling magazine subscriptions, cutting travel and even the shutting down of athletic services, such as the training table cafeteria at Nebraska. Say hello to the grim reaper.
Some schools -- though not Nebraska -- are also exploring taking advantage of super low interest rates and borrowing to cover their daily operations.
So far, half of the schools in the Ben Ten -- the highest earning conference in the country at $781 million -- have announced detailed restructuring plans: Nebraska, Iowa, Penn State, Wisconsin, Indiana, Purdue, and Michigan State.
“This isn’t a year to try and figure out how we shave 10 percent off this or 5 percent off of that,” Michigan State athletic director Bill Beekman told the Detroit Free Press. “This is a year where we start with zero and try and spend as little as we possibly can.”
Nebraska, which is facing a potential shortfall of $80 million to $120 million, on Aug. 21 announced 51 staff members will be furloughed from Sept. 1 through Dec. 31. All other staffers in the department will take a 10 percent salary cut during the same period. Nebraska is also closing its training table cafeteria until further notice.
The measures are in addition to department cuts announced in June that included a 10 percent reduction in overall expenses for the new fiscal 2021 year, no merit raises and the elimination of 17 jobs, with several long-time employees being let go..
In total, staffing decisions announced so far are expected to result in a savings of about $3 million.
Other savings will come , among other things, by deferring capital investments, such as new turf on Memorial Stadium, while no games this fall mean no travel expenses for players and coaches, the marching band and cheerleaders, no security and stadium crowd control costs, no payouts to non-conference opponents, and no groundskeepers and other expenses associated with game activity for football, volleyball and other sports.
There are no assurances that this is the end of cost-cutting this year.
Athletic director Bill Moos said this has been a very emotional time. “The postponement of the fall sports season, and specifically the football season, has put us in the position of making some very difficult decisions that impact every member of our staff,” Moos said in a statement.
The $100 million haircut
It’s anyone’s guess on the magnitude of steep cuts in the approximately 357 Division I athletic programs around the country.
“No one has any idea of the number of job cuts coming in athletics,” said Victor Matheson, a sports economics professor at the College of Holy Cross in Massachusetts. “That’s at least in part because there is no telling how schools will deliver spending cuts.”
For example, Holy Cross lists about 110 people in its athletic staff directory, including all coaches, trainers and administration but excluding groundskeepers and custodial staff, Matheson said. There is a small gameday staff and there are no academic tutors.
“So even looking at bare minimum count, you are probably looking at 30,000 workers directly employed at the Division I universities alone” who could be in harm’s way, he added.
As for revenue declines, college athletics at the Division I level generates about $8 billion to the Power 5 conferences, mostly from football, Matheson said.
Big Ten and Pac-12 schools, according to Matheson’s estimates, will lose an average of $100 million, largely because of the cancellation of fall sports. This assumes they won’t restart in the winter or spring, which would provide an opportunity to regain the money from television rights, which indeed appears to be part of the Big Ten’s plan.
For schools in the other Power 5 conferences that are playing but can’t have many or any fans in person, the average loss will be about $40 million, he estimated.
Breaking down to the Group of 5 conferences, those schools are expected to lose about $20 million per school with no fall sports.
For the remaining Division I schools, the majority of their revenue is derived from contributions that are not linked to season tickets, Matheson said. Those revenues are not likely to fall, he added. “In general, these schools are sweating but most are not in any real jeopardy,” he said.
Where do you look for cuts?
“In the pros, you immediately go to the players themselves” for pay cuts, Matheson said. That’s not an option for college programs.
“The other problem is most Power 5 athletic programs are completely separate financial entities from their schools,” Matheson said. “While that means they never have to share their revenue with the rest of the university, they also can't necessarily rely on the rest of the university to cover a 50 percent (or more) revenue shortfall.
Former Maryland athletic director Kevin Anderson believes college athletics is in the midst of drastic changes that will resonate beyond 2020 and 2021.
Speaking on a radio program, Anderson said, “here’s what I see happening. I believe that intercollegiate athletics is looking at making a major correction and the kind of money that has been spent and need to run these organizations will be changed by all of this. We can see that already.”
Closing the budget gap
Imagine you’re John Jentz, the athletic department’s chief financial officer. Year-in, year-out, you produce a budget for the upcoming fiscal year, and you pencil in an operating profit for athletics, which last year amounted to $12.08 million.
Then came Covid-19, and all Nebraska’s budget projections were tossed in the dumpster.
Jentz has acknowledged several times to HuskerOnline that he has been unable to complete an operating budget for the current 2020-2021 fiscal year, which began July 1, because of the uncertainty surrounding football.
What spending is undoubtedly being heavily scrutinized? It’s hard to know how much of a gap Jentz is trying to close between revenues and expenses. But here are some obvious areas where big cuts can be made:
The largest expense item is the $27.3 million in salary and benefits to athletic department staff, excluding coaches, according to the latest 2019 financial statement. Another $19.5 million was spent on administrative overhead, such as security, maintenance, utilities, printer ink cartridges and such.
After that, $8.1 million covered team travel, and $5.9 million went toward home game expenses.
The athletic department has announced two rounds of cuts so far, and more could be coming if the revenue picture doesn’t shore up from television money coming from an abbreviated winter-spring football season.
Part of the Big Ten commissioner Kevin Warren’s strategy surely revolves around trying to preserve as much television revenue as possible. Getting a $35 million revenue-sharing check from the resumption of winter/spring football, volleyball and basketball -- or whatever the amount may be -- would do wonders for Nebraska’s budget. Same with every other conference school.
Unlike Iowa, Stanford and several other Division I schools, Nebraska has opted not to cut athletic programs. More than 200 sports programs have been cut across the NCAA’s three divisions and the NAIA since the pandemic hit in full fury in March, including more than 70 from Division I programs.
Moos said in his radio show last week that the last thing an athletic director wants to do is drop a program, and “we’re not going to do that.” Nebraska has 10 men’s programs and 14 womens’.
With the furloughs set to be reviewed at the end of this year, Moos said his hope is to "get back to some sort of normal after the first of the year."
Moos also said the athletic department would not need a loan and would be okay financially for at least a year. He said they are being very careful about cleaning out the entire "rainy day fund" of about $60 million that the athletic department has stored up.
Big Ten schools are wielding the ax in a number of directions to control costs. For example:
*Penn State is preparing for furloughs across the athletic department, according to Sandy Barbour, vice president for intercollegiate athletics.
"Furloughs, at a minimum, I believe are in our immediate future," Barbour said. "I just don't see how we get through this, how we get our gap or our loan number down to manageable size, a size that doesn't cripple our department and programs, for years to come."
According to a report in Statecollege.com, Barbour indicated that Penn State athletics' current reserve budget is "north of $25 million.” She publicly stated in the past that her department, which hosts 31 different programs, is looking at upwards of a $100 million in revenue shortfall if football were not to be played this fall or upcoming spring.
Additionally, Barbour is planning to guide the department through $15-20 million in expense reductions, some of which will happen organically through things like the lack of travel costs.
Even with such cuts, Barbour is still eyeing a revenue shortfall of $55-60 million. That number would continue to drop if winter sports such as basketball and hockey — which have not yet been canceled by the Big Ten — were to compete.
According to Barbour, much of the remaining losses would be covered by a loan, the size of which is undetermined at this time with so many factors still unsettled.
*Iowa, which is projecting a $100 million revenue shortfall in sports, became the first Big Ten school to eliminate programs since the pandemic hit hard in March. So far, no other programs have followed.
The Hawkeyes are eliminating four programs -- men’s gymnastics, men’s and women’s swimming, and men’s tennis -- to help combat the expected revenue decline.
According to federal filings for the 2018-2019 school year, the four sports cut involved 84 athletes and $4.8 million in expenses. They combined to produce about $559,000 in revenue.
“A loss of this magnitude will take years to overcome...we have a plan to recover but the journey will be challenging,” university president Bruce Harreld and athletic director Gary Barta said in a joint statement.
In July, the university announced budget cuts, including an initial $15 million reduction in athletics through pay cuts and furloughs.
*Michigan State operates a $140 million budget for athletics, including $42 million for salaries, fringe benefits, and retirement and the like, athletic director Bill Beekman told the Detroit Free Press. The school is anticipating a revenue decline of $85 million.
Beekman said the first area to be cut will be “functionally stuff, whether it’s equipment or rents, or travel or facilities, projects, whatever it might be,” Beekman said. “So we’re looking very hard at a starting point at our operational costs and reducing them as absolutely low as possible.”
In July, Michigan State announced salary reductions in the athletic department, with Beekman set to take a 10 percent cut, while basketball coach Tom Izzo, new football coach Mel Tucker and women’s basketball coach Suzy Merchant each taking 7 percent reductions. The cuts run through August 2021.
*Wisconsin is not planning cuts in athletic teams, at least not yet.
To mitigate the impact of slashing staff, the athletic department said it is working with a state program that reduces employees’ hours and allows them to file for a prorated share of unemployment benefits.
In addition, the top 25 wage earners in the nearly 400-person athletic department are taking wage cuts through the fall. Athletic director Barry Alvarez has repeatedly said since the conference canceled football that there would be layoffs in the athletic department.
*Ohio State, which supports more athletic teams than most schools in the conference, has yet to lay out its rescue plan.
When asked in mid-August by Ohio media if Ohio State would have to cut sports, athletic director Gene Smith said “at this time we are avoiding that.” Asked if coaching salaries would need to be reduced, Smith said, “Same.”
But if no football games are played, he acknowledged some drastic cuts may be unavoidable.
*Michigan said for the moment its athletic department is facing a $26.1 million operating deficit. The department does have money saved in its reserves and it is working on a debt-service plan to help work through the deficit. The Wolverines will still need to make budgetary cuts to their athletic department, though no details have been disclosed.
*Purdue said last week it was instituting furloughs and eliminating positions. Pay cuts would be as high as 40 percent, and the department’s top earners — including its football and men’s and women’s basketball coaches and athletic director Mike Bobinski — would take a 20 percent cut in pay and forgo incentive compensation for a year.
The adjustments begin today and last through Aug. 31, 2021.
*Indiana on Friday announced that the athletic department staff, including coaches, will take at least one, two-week unpaid furlough between Oct. 1 and June 30, 2021.
Other staff members whose “positions have been most directly impacted by the lack of sporting events this fall” will have their work hours reduced to “either every other week or, in some cases, in full,” the department said in a news release. That group does not include coaches.
In June, the athletic department estimated it needed to shed 10 percent of its expected 2020/2021 expenses — about $11.8 million — to offset a projected revenue shortfall. Around that time, the department instituted some initial cost-cutting measures, including freezes on bonus pay, salary increases, and hiring.
The Hoosiers may not be done cutting, saying that the athletic department “is continuing to explore additional financial mitigation measures."
Steve Rosen covers the business of sports for HuskerOnline. Questions, comments, story ideas? Reach Steve at email@example.com.