With the impact of COVID-19 on Intercollegiate Athletics, the Penn State Board of Trustees approved adjustments to the Penn State Intercollegiate Athletics’ operating budget.
These projections, known as pro-formas, are compiled for very important reasons.
Any business, including Penn State Intercollegiate Athletics (PSU ICA), relies on forecasts of Revenues and Expenses in order to appropriately plan their activities for the coming year.
Just as a household would need to know what their expected sources of income are, in order to make sure they are not overcommitting and taking on too many expenses, a business must do the same.
If a household makes unrealistic assumptions – lets say, assuming the household income will be $8,000 per month, when it is actually likely to be $4,000 per month – and acts on those erroneous assumptions – let’s say, by taking on a monthly mortgage of $5,000 – they are going to, surely, face catastrophic consequences down the road.
And so, with the clear knowledge that COVID-19 will impact the revenue streams of PSU ICA, Sandy Barbour presented modifications to their pro-forma (projected) financial statements.
So that PSU ICA can, presumably, act accordingly, so as to avoid catastrophic consequences down the road.
What types of catastrophic consequences? Basically, committing to expenditures that cannot be paid for from their revenues.
Sandy Barbour presented her adjustments – and the Board, without comment or question, accepted them.
Her adjustments? Sandy Barbour presented forecasts to the Board of Trustees that showed a reduction of $5 Million in annual revenues – due to the impact of COVID-19.
Is there reason to be concerned? Are Barbour’s “adjustments” unrealistic – to the point of being absurd? Indeed they are, which should come as no surprise, given Barbour’s track record.
How do we know this? We would first have to look at PSU ICA’s current operating budget:
Penn State ICA typically generates the following revenues, on an annual basis:
Ticket Sales: $41 Million
Contributions: $32 Million
(largely STEP fees for Football Tickets)
Media Revenue: $40 Million
(largely from the BigTen revenue distribution, from television rights for football games)
PSU ICA also receives additional revenues from:
Distributions from BigTen and NCAA revenue sharing: $14 Million
Licensing Fees: $22 Million
(fees from the sale of “PSU Gear” etc)
Distributions from the endowment: $7 million
Other miscellaneous revenue streams: $8 Million
For a total of approx. $165 Million per year of revenue.
PSU ICA MUST be reasonably accurate with those projections – since they must be sufficient to cover the expenses that the ICA department takes on.
So, typically, where does PSU ICA spend those revenues?
Primary expenditures are:
Athletics Administration Salaries: $30 Million
Coaches Salaries: $32 Million
Scholarships for Student Athletes: $23 Million
(including Tuition, Room & Board, and additional expenses):
Game Day Expenses: $15 Million
Travel Expenses: $8 Million
Equipment, Recruiting Expenses, Medical etc: $8 Million
Interest payments on ICA Debt: $16 Million
Facilities Fees transfer to the University: $13 Million
Other Miscellaneous and Overhead Expenses: $17 Million
For a total of approximately $160 Million per year of expenses
So, what adjustments would a reasonably astute ICA Director
– not Sandy Barbour – make:
In even a best case scenario – where PSU Football (by far and away the biggest revenue producer) is able to play a 10 game season, in front of severely limited numbers of fans – what revenue steams would be affected?
In even that best case scenario:
- Home games will be reduced from 7 to 5 (a 28% reduction)
- Televised games will be reduced from 12 to 10 (a 20% reduction)
- Attendance at games will be reduced (according to current PA State guidelines) by at least 75%.
So, how would those factors effect PSU ICA revenues?:
With fewer games and limited attendance, revenues from Ticket Sales and STEP Fees would drop by 82%….. a total loss of revenue of nearly $60 million
With a reduction of 20% in number of games available for the media networks, revenue would drop by another $8 million…. possibly a little less if the media partners placed a marginally higher value on broadcasting Conference games vs Non-Conference games.
BigTen and NCAA distributions:
It may be difficult to forecast how significant the impact would be, but it most certainly would not be positive – since both the BigTen and the NCAA would also be impacted by loss of revenue.
Even in a “best case” scenario, as of Summer 2020, the hit to PSU ICA revenues would likely be well over $60 Million – just from the impact on Football-Based Revenues.
What expenses would be impacted?:
With fewer games to host, and fewer games to travel to, the $23 Million spent on Game Day and Travel expenses may drop….. by, optimistically, as much as $5-6 Million.
What new expenses would enter the ledgers? That may be hard to forecast, but certainly PSU ICA will be incurring additional expenses for COVID testing, sanitation, adjustments to travel and housing requirements, etc. Likely more than wiping out any savings from reduced Game Day expenditures.
All in All, the net impact to the PSU ICA financial statements…. if Sandy Barbour and the PSU Administration don’t take proactive steps?
Likely AT LEAST a net impact of $60 million+ of shortfall. Even in an optimistic projection.
$60 Million of shortfall that would become the responsibility of the University’s General Fund (ie Tuition Dollars)
Why is it important to know this?
As we discussed earlier – just as a household, or any other business, has to do – only by knowing, as reasonably as possible, what your income is going to be, can a business plan its expenditures… to insure they are not setting themselves up for catastrophic consequences down the road.
One would – if they were even modestly competent – try to take proactive steps to avoid such consequences.
What SHOULD Sandy Barbour and PSU ICA be doing, if they want to have a chance to avoid catastrophic consequences?
What SHOULD the PSU Administration of Board of Trustees be demanding of Barbour?
Some of the best “proactive steps” have already left the barn.
Things like controlling spending on an annual basis – and building up reserves for down years. Barbour, of course, never met a dollar that she couldn’t spend…. two or three times over… and, alas, there are no reserves to speak of (in fact, her majestic capital spending plans have created a huge deficit). The PSU Administration and Board of Trustees, of course, share in this irresponsibility.
So, that option is NOT an option.
Job #1, right now, should be focusing on reducing their grotesquely out-sized annual levels of spending – by $60 million or more, if at all possible.
Where can PSU ICA reduce spending?
Looking at its primary expenditures:
Student Athlete Scholarships and Stipends:
Unless PSU decides to retroactively renege on scholarships given to student athletes, that $23 Million expense is “in the books”, and there is little that can be done to reduce it.
The largest single line item in the PSU ICA expense ledger is Coaching Salaries.
Many Universities have seen their coaches – especially the most highly-paid coaches – take significant voluntary pay cuts. To date, that has not happened at PSU.
Barring voluntary reductions, it is up to the ICA Director (Barbour) to impose such reductions. She has not, and I don’t expect she will.
PSU ICA Administrative Salaries have exploded in recent years – both due to adding large numbers of additional administrators, and giving out large salary increases to existing staff. Administrative Salaries – under Barbour – have nearly tripled – to nearly $30 Million per year.
Carrying this incredibly bloating administrative expense has been a drag on PSU ICA finances for years under Barbour…. and continuing with those dead weight burdens, during a time when “sports” have been effectively shut down, is even more ludicrous today.
Barbour has done essentially nothing to rein in these costs (Instituting “cost-cutting” measures of approximately $100,000 per month) – even when faced with a near-certain $60 Million+ shortfall.
What could be accomplished, with competent leadership?
It is highly doubtful that the entire $60 Million shortfall could be mitigated this year.
There simply are too many fixed costs baked into the PSU ICA cake. But reasonably prudent fiscal management could probably reduce that deficit in 1/2, at least.
Ideally, the remaining shortfall would be funded by PSU ICA reserves…. but, alas, as mentioned earlier, PSU ICA has none – thanks to Barbour’s long-term incompetence and mismanagement (aided and abetted by a dysfunctional and asleep-at-the-wheel Administration and Board).
Such is the price of Fiscal (and Managerial) incompetence from the PSU Athletic Director’s office… and the complete lack of oversight from PSU Administration and Board.
Some have also discussed “cutting” non-revenue sports as a means of reducing costs.
This has not been done at PSU, to date.
While reductions in the number of non-revenue sports sponsored by PSU ICA may, indeed, be a valid suggestion, such actions would have little impact on the PSU ICA financials (with one notable exception, Women’s Basketball).
Aside from Women’s Basketball (which costs PSU approximately $5 Million per year) the elimination of any other non-revenue sport programs would yield net cost savings of, at most, a couple of $100,000 in savings.
It may be prudent to do so…. but it would do little to help PSU ICA avoid a fiscal cliff, and is – when used – typically a face-saving measure undertaken by incompetent Athletic Directors.