Bigtime collegiate athletic programs are on a collision course with reality, and the Penn State scandal will severely test one of the biggest money-makers.
The reality is that even the most successful athletic programs exist on university campuses struggling to make ends meet. Now Penn State will apparently have to rescue its athletic program.
Last week the NCAA came down hard on the university because of the Jerry Sandusky scandal. Oddly, nothing that happened apparently violated NCAA rules, but the university’s own investigation, headed by former FBI director Louis Freeh, was enough to trigger a harsh response.
The penalties included a $60 million fine, loss of 40 percent of football scholarships, prohibition from postseason play for four years and a loss of conference bowl revenues for that period — about $13 million more.
Penn State officials quickly agreed to to the sanctions because they could have been worse. The so-called “death penalty” — shutting football down for a specific period — would have been much worse. This way football will go on this fall, and revenue will continue to flow, albeit on a reduced basis.
Either way, it wouldn’t be easy. This death penalty doesn’t mean death in the real sense. Southern Methodist University was socked with that sanction in 1987, its football season canceled for one year. SMU was allowed to play an abbreviated schedule the next year but didn’t after deciding it couldn’t recover that quickly. Recovery has been slow and painful: the Mustangs had only one winning season until 2009, when they made their first bowl appearance since the sanctions.
Penn State perhaps can rebound more quickly because the athletic program has been one of the most wealthy in the United States.
CNN-Money analyzed Penn State’s financial reports and found that football took in revenue totaling $72.7 million last season, showing a profit of $53.2 million. That was second only to the University of Texas’ $71.2 million profit.
But remember that most college athletic teams take in little or no revenue. Football and men’s basketball must make up as much of the difference as possible.
USA Today has done some excellent research on college athletic program financing, compiling a database of 227 Division I schools. A May report said that only 22 schools in 2011 operated in the black, meaning that athletic revenue was enough to cover all athletic expenses. Only seven of those got no subsidy at all — no money from non-athletic sources such as state revenue, student fees, etc.
Penn State was one of those, reporting total revenues of $116.1 million and total expenses of $101.3 million — ranking sixth highest of all programs. (The University of Arkansas was one of the 22, but the database lists a subsidy of $1.85 million. I’m not sure what that is because state records don’t show a subsidy.)
All the top 20 programs had a net profit, but Nos. 10 and 11, Auburn and Wisconsin, would have gone in the red except for subsidies. No. 2 Alabama was one of the richest, but its revenue included $5.2 million in subsidies.
As a profitable program, Penn State has an athletic reserve fund. However, it’s apparently not enough to take the NCAA hit. University President Rodney Erickson said on “Face the Nation” on Sunday that the $60 million fine will be paid over five years from the football program’s reserves or through a loan from the university.
You can bet that the athletic program won’t show a profit for at least the next four years.
Here’s the problem with that: The university has an annual operating budget of about $4 billion and carries debt totaling $1.4 billion, CNN-Money reported. Moody’s Investors Service last November had placed Penn State on its “credit watch negative” list, meaning that a downgrade of its credit rating is possible. And now the university may have to cover some of its athletic program expenses.
The university also faces liability from numerous lawsuits filed by abuse victims, but university officials say insurance should cover those expenses.
Nevertheless, Penn State will join the majority of institutions struggling to afford competitive athletic programs.
The bigger picture of athletic financing is the growing disparity between the top programs and all the rest — even in Division I. A USA Today analysis last year, based on 2010-11 sports revenue of 99 schools, showed that the top 50 programs produced average revenue of almost $81.5 million, while the bottom 49 averaged about $28 million.
(Arkansas State University is well below that level, with about $13 million in annual revenue.)
The USA Today chart for 2011 shows a glaring difference, with most of the top 50 programs requiring little or no subsidization while every program starting at No. 53 needs subsidies of anywhere between 25 and 88 percent. For some that wasn’t even enough to break even.
The question is whether the NCAA will address this disparity or allow most of its member institutions to continue to flounder.
Roy Ockert is editor emeritus of The Jonesboro Sun. He may be reached by e-mail at email@example.com.