Colleges could be on the hook to cover sports debt: Moody’s

Dive Brief: 

  • Colleges with suspended fall sports seasons will likely provide financial support to their athletic departments to help cover their debt service for athletic facilities, according to a recent report from Moody’s Investors Service. 

  • Colleges will step in to help because of the role sports play in boosting brand recognition and attracting students, Moody’s analysts wrote. Yet doing so could harm their budgets, which may already be tapped from lower tuition revenue and state support. 

  • The report comes days after the Big Ten and the PAC-12, two of the top Division I conferences, postponed fall competitions and tournaments. 

Dive Insight: 

Suspended fall sports could deal such a large financial blow to athletic departments that budget cuts alone won’t offset the losses, the Moody’s analysts wrote. 

Colleges will be able to save some money on game day operations and travel expenses, the analysts note, but that won’t make up for diminished key revenue streams. Athletic departments will miss out on revenue from media rights and ticket sales, and they could encounter disruptions to donor support. 

Postponing college football, in particular, could hurt athletic budgets. The sport brought in $5.8 billion in the 2018 fiscal year, accounting for 40% of total athletic department revenue across the sector that year. 

In many cases, athletic departments won’t be able to make their debt payments because of budget shortfalls, the report notes. Moody’s analysts expect they will find other ways to cover these payments, such as through internal loans from the college’s auxiliary income or reserves. 

The athletic conferences comprising the Power Five, whose teams are considered the most prominent in college sports, tend to owe large sums in debt and yearly leases. Public university members of the Southeastern Conference, for instance, owe around $160 million in debt payments and leases each year, the Moody’s report noted, citing data from the Knight Commission on Intercollegiate Athletics. Meanwhile, those in the American Athletic Conference, which is not a part of the Power Five but is still one of the country’s more prestigious conferences, owe about $50 million annually. 

“Athletic expenses have grown significantly in recent years … which will impact universities’ ability to adjust to the disruption,” Dennis Gephardt, vice president at Moody’s, said in a statement. “Budget difficulties at athletic departments will add to the financial strains facing universities, including a tuition revenue pinch, reduced state funding, and incremental expenses to combat the coronavirus.” 

Earlier this week, the Big Ten and the Pac-12 made the call to suspend fall competitions over concerns about player safety. Unlike professional sports teams, colleges can’t keep their athletes in a bubble separate from the rest of the student body, Pac-12 Commissioner Larry Scott said in a statement Tuesday.

“Our athletic programs are a part of broader campuses in communities where in many cases the prevalence of COVID-19 is significant,” he said.

Dozens of athletic programs have reported at least one confirmed coronavirus case among their players or staff members, according to a running list from USA Today. 

Yet canceled competitions don’t mean players won’t be at risk of contracting the coronavirus. For example, Michigan State and Ohio State universities, both members of the Big Ten, are still giving players access to athletic facilities, and the former is continuing small group workouts.

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