Penn State Board Meeting: September 2018 – Athletics Department Finances

 

psu financial statements

What I will attempt to convey in this Blog is the Financial Situation of the Penn State Intercollegiate Athletics Department.

I will provide summaries of the key items, with links to the full Financial Statements (see links at bottom of page).

The purpose is to paint a picture of:
Where PSU ICA’s Finances Are, How We Got Here, and What They Portend for the Future.

 

For those interested only in the “Cut to the Chase”, the picture can be summarized as such:

PSU ICA is benefitting (greatly) from revenue sources outside of their control.  Largely their cuts of the BigTen and NCAA pies – – – – which have skyrocketed in recent years.

Meanwhile, PSU ICA has been flat (or worse) with respect to those revenues they ARE responsible for generating.

Conversely, with respect to those expenses they are responsible for, PSU ICA is spending money like a sailor on shore leave – largely on Administrative Expenses (rather than expenditures to build long term assets).

Unless those outside revenue checks (from the BigTen and NCAA) continue to grow at what would appear to be unsustainable rates, and barring a huge philanthropic donor coming to the rescue, Penn State’s ICA financial picture will be bleak and insolvent.

Possibly as bleak as the current situation at Cal-Berkely (where Penn State’s AD, Sandy Barbour, was previously in charge)

To fully grasp the complete picture, one will need to review not only the information in this Blog (on the Operating Budget), but also the future Blogs covering the Pro-Formas and the Capital Budget.
I will link those Blogs below when they are published.

For now, for those who want to analyze the details….. we proceed with the Operating Budget information below:

The PSU ICA financial situation can be broken down into 2 broad categories:

The Operating Budget (money coming in and money being spent on a daily basis)
And
The Capital Budget (what assets the ICA department has, and what debts they owe).

In each case, we need to look at the history of each budget, along with the projections into the future (the “Pro-Formas”).

This Blog will focus on the Operating Budget.

An Operating Budget has two broad components:

Revenues (funds coming in) and Expenses (money going out).

In the case of the PSU ICA, the primary revenues are generated from:

Ticket Sales
Donations
and
Media (primarily TV contracts)

  • As with all major conference programs, the Tickets and Donations revenue are controlled by the University.
  • The Media revenues are determined by the Conference (In PSU’s case, the BigTen) and the NCAA, and are independent of anything the University ICA Administration does on its own…. which is a critical factor.

Lets look at what has happened on the Revenues side since 2010:

Ticket Sales:

Ticket Sales have increased from $35,634,458 in the 2010/11 Fiscal Year, to $38,187,382 in the most recent Fiscal Year (2017/18).
This is a total increase of $2,552,924 (7.2%).   Of that increase, most of it ($1,727,860) is due to Men’s Hockey ticket revenue (Men’s Hockey was NOT a varsity sport in 2010/11).

So the net gain in Ticket Revenue since 2010/11 is $825,064….. or 2.3%.   Basically, flat over the decade.

Donations:

At Penn State (and most major college programs), Ticket revenues and Donation revenues are significantly linked.
ie: When you purchase your Football (and sometimes Basketball) tickets, part of the cost you pay is the actual ticket price, part of it is labelled as “donation” (the STEP fee).

Donations have increased from $34,286,648 in the 2010/11 Fiscal Year, to $34,917,579 in the 2017/18 Fiscal Year.
This is a total increase of $630,931 (1.2%).

So, just as with the Ticket revenue, the Donation revenue since 2010/11 is basically flat over the decade.

Media.

As most people who follow the finances of sport know, media revenue for major college Football (and, to a lesser extent, Men’s Basketball) has skyrocketed.
With respect to PSU ICA finances, one can only say “Thank Goodness!”, because that has been the primary source of increased revenues.
The BigTen recently negotiated a new TV contract for their football rights – and has also seen increased profitability from the BigTen Network.
The media rights deals are negotiated once every several years (in the case of the BigTen, the new deal went into effect this year, and will last for 6 years).  When that deal expires, a new deal will likely be negotiated with the TV networks.
Penn State – and the other senior members of the conference – have also benefited due to the newest members of the conference (Rutgers and Maryland) not being allotted a full share of those funds, leaving more money for the senior members – including Penn State.
This unbalanced sharing will disappear over the next few years.
So, over the next few years, Penn State and other senior members of the BigTen will likely see their share of those revenues decrease slightly.

Media revenues have increased from $26,248,787 in the 2010/11 Fiscal Year, to $51,720,233 in the 2017/18 Fiscal Year.
This is a total increase of $25,471,446 (97.0%).

This incredibly growth in Media Revenue – paid to PSU through the BigTen and the NCAA – is, obviously, the primary driver of increased revenue for Penn State ICA.


For all intents and purposes, the Revenues created by Penn State’s ICA Department have been flat for the entire decade (which means, relative to inflation, they have actually decreased).

Only the skyrocketing growth in BigTen and NCAA media revenue has kept the department solvent.

Can PSU ICA rely on outside Media Revenues continuing to skyrocket, and providing solvency to PSU ICA?

Lets look at the Expenses for further clarity.

 

 

Now, lets look at what has happened on the Expenses side since 2010:

In the case of the PSU ICA, the primary expenses are:

Student Aid (Athletics Scholarships and related expenses)
Coaching Staff Salaries and Expenses
Administrative Salaries and Expenses
and
Facilities Maintenance and Debt Service

  • All of these expenses – with the exception of Student Aid – are under the control of the University’s ICA Administration

 Student Aid:

Student Aid expenses have increased from $12,289,069 in the 2010/11 Fiscal Year, to $21,713,853 in the 2017/18 Fiscal Year.
This is a total increase of $9,424,784 (76.72%).

As mentioned above, most of that increase is not under the control of PSU ICA.

Student aid expenses increase as Tuition Cost at the University increase – and that is part of the rise in expenses (and outside the control of ICA).
More significantly, the NCAA recently passed two new rules that significantly increased Student Aid expenses:
1 – The NCAA passed regulations providing an additional “stipend” to Student-Athletes (at most Universities, this amounts to about $4,000-$5,000 per Student-Athlete)
2 – The NCAA passed regulations allowing for the provision of “snacks”, in addition to regular Room & Board for Student-Athletes. This added about $1.5 Million to the costs of Student Aid.

In total, the increase of $9,424,784 in Student Aid costs were largely outside of the control of ICA.

 

Coaching Staff Expenses:

Coaching Staff expenses have increased from $14,098,568 in the 2010/11 Fiscal Year, to $29,229,628 in the 2017/18 Fiscal Year.
This is a total increase of $15,131,060 (107.3%).
Much of that increase – approximately $6 million of it – occurred from 2010/11 to 2012/13 (under Dave Joyner’s leadership), but has continued to increase – by approximately $9 million since then (under Sandy Barbour’s leadership)

Prior to 2013/2014, Penn State did not provide information breaking down the Coaching expenses by sport.  But in analyzing specific data, it is quite clear that the largest part of the Coaching Salaries increase was attributable to the Football program – which now amounts to $13,610,049 (plus $586,693 in bowl bonuses) for Football alone.

The increase of $15,131,060 in Coaching Expenses is fully within the realm of PSU ICA, and is (roughly) equally attributable to both the Joyner and Barbour Administrations.

 

Administrative Expenses:

Administrative Expenses have skyrocketed.  Administrative expenses have increased from $11,543,088 in the 2010/11 Fiscal Year, to $26,517,915 in the 2017/18 Fiscal Year.
This is a total increase of $14,974,827 (129.7%).
The overwhelming majority of that increase – over $11 million of it – occurred since Sandy Barbour took the reins at PSU ICA.

The increase of $14,974,827 in Administrative Expenses is fully within the realm of PSU ICA, and is largely attributable to the Barbour Administration.

 

Facilities Maintenance:

Facilities Expenses (including Debt Service) have increased from $28,135,841 in the 2010/11 Fiscal Year, to $32,169,663 in the 2017/18 Fiscal Year.
This is a total increase of $4,033,822 (14.3%).

The increase of $4,033,822 in Facilities Maintenance expense is partially within the realm of PSU ICA.

Some of it is required Debt Service (interest payments on ICA debt), and the rest is  spending on facilities upkeep (which, depending on the project, may be urgent or more discretionary).

In our next BLOG:
We will take a closer look at the Operating Budget Pro-Formas, to get a better picture on where Sandy Barbour thinks PSU ICA Financials are heading – and whether or not her expectations are realistic.

Meanwhile, open the video to see Sandy Barbour explaining some of the PSU ICA Financial Numbers to the always engaged PSU Board of Trustees:

 

 

LINKS to PSU ICA Operating Budget Financial Statements:

(click the NCAA Reports”  2011 to 2018 – for the full financial data)

https://gopsusports.com/sports/2018/8/8/ot-financial-reports-html.aspx

For a look into the future – the Pro Forma
financial statements – check out Part II, here:

https://barryfenchak4trustee.wordpress.com/2019/02/12/penn-state-intercollegiate-athletics-financial-data-pro-formas/

 

 

 

 

 

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