College football braces for ‘seismic’ financial losses

After a week in which the Big Ten and Pac-12 decided not to play football this fall and the SEC, ACC and Big 12 decided to keep trying to play, all of the conferences face dramatic financial fallout in the coming months.

Regardless of whether a league plays this year, regardless of whether it pushes the season to next spring, the inevitable economic losses caused by the coronavirus pandemic will have an unprecedented effect on college athletics’ football-driven financial engine.

“These are seismic losses,” Patrick Rishe, director of the sports business program at Washington University in St. Louis, told The Atlanta Journal-Constitution, “and it will take well past 2021 for offsets to occur to match the losses.

“For the conferences that play in the fall, they still are going to lose millions relative to years past. For the conferences that try to play in the spring, their 2021 season will be adversely impacted because you won’t be able to have a full football season in fall 2021 if students already played eight (to) 10 games in spring 2021.”

According to calculations by Rishe, the 65 schools in the “Power Five” conferences collectively generated more than $4 billion in revenue from football in 2018, an average of more than $61.5 million per school. That includes totals of $1.04 billion in the Big Ten and $595 million in the Pac-12; how much of those sums could be salvaged if the conferences play next spring is unknown.

But even if the SEC, ACC and Big 12 play this fall, which is an open question as the pandemic persists, the financial impact would be significant in those leagues, too.

For one thing, attendance would be expected to be reduced to a small fraction of previous levels because of social distancing, if fans are allowed in the stadiums at all. That means lost revenue from ticket sales, concession sales, in-stadium advertising and the like. Also, expenses would rise because of pandemic-related costs, particularly COVID-19 testing. Transportation and hotel costs would rise to accommodate social distancing.

The SEC and Big 12 already have reduced their teams’ schedules from 12 games to 10, and the ACC has gone from 12 games to 11. Conferences that play a season, though, would generate at least some of their usual TV money.

David Carter, a Los Angeles-based sports business consultant and University of Southern California associate professor, said in an interview with the AJC that he sees “a long-term reset going on” in college athletics that could prompt an increasing number of major programs to reduce the number of non-revenue sports they offer and to reexamine some coaches’ lofty salaries.

“I think the pandemic … proves to be the accelerant that finally and fundamentally changes the college sports business model,” Carter said.

The University of Georgia’s $149.4 million athletics budget for its current fiscal year, which runs through next June, reflects how dependent college sports’ financial engine is on football. The budget, as presented to UGA’s athletics board 2-1/2 months ago, includes $33.5 million in revenue from football ticket sales, $29.25 million from “Hartman Fund” contributions tied to football tickets, $6.75 million from Sanford Stadium suites and $45.5 million in SEC distributions that include the conference’s lucrative football TV deals and postseason football games.

The potential impact of COVID-19 on the economics of the 2020 season, while still impossible to fully assess, has become clearer since that budget was drafted.

“There’s not going to be a dollar of revenue coming into an athletic department that is not impacted,” said Vince Thompson, chairman and CEO of Atlanta-based sports marketing agency MELT. “I think even if three Power Five conferences play, you’re looking at a 50% to 70% hit in the athletics departments’ budgets.”

Georgia is better positioned than the vast majority of programs to deal with the financial storm because of its emphasis through the years on maintaining robust reserve funds. The UGA Athletic Association has about $102 million in reserves, about $65 million of which is unallocated, and its position long has been that the reserves should be sufficient to cover at least three to six months of operating expenses as well as satisfying bond covenants on the association’s debt.

Still, the loss of a complete season would cause financial tremors even at a school with such sizable reserve funds.

And according to a survey by the LEAD1 Association, which represents the athletic directors and programs of FBS member universities, only 41% of Power Five departments have any reserves in place “that can be used for this type of crisis.”

Colleges already have collected payments for 2020 season tickets, but could be on the hook for refunds for games that are canceled or played with limited (or no) attendance. Some programs already are reaching out to fans for help under such circumstances.

South Carolina athletic director Ray Tanner asked Gamecocks fans, in lieu of potential refunds, to “reinvest for success” by rolling over season-ticket payments to 2021 or converting them into donations.

“You have always been there for us when we needed you,” Tanner told fans in a video posted on the Gamecocks’ website. “Today, we need you more than ever.”

Georgia Tech has taken a similar step, asking season-ticket holders to convert any potential refunds into tax-deductible donations to a “Support the Swarm” fund to help offset losses from limited capacity or a reduced number of games.

One of the direst and most direct pronouncements came from Wisconsin athletic director Barry Alvarez, who wrote in an open letter to Badgers fans: “Due to the current challenges, we are facing a potential financial revenue loss of more than $100 million from our $140 million budget. … The reality is that this financial crisis threatens our ability to sustain the success we’ve celebrated. It threatens our pride in what we’ve built. It threatens our position in college athletics.”

Rishe said by email that it’s “unclear” how donations will be affected across college football.

“Some alumni might be more apt to give as they come to the aid of their alma mater,” Rishe wrote. “Some alumni may themselves be financially unable to contribute to the same level they have in the past.”

Economic fallout from the pandemic on sports hardly is limited to the college ranks. The Braves’ revenue plummeted 95% in the April-through-June quarter, falling from $208 million in the same period last year to $11 million this year. The Braves posted an operating loss before depreciation and amortization of $26 million for the quarter, compared to a profit of $62 million in the same period last year.

For college conferences that have canceled their fall seasons – and others who ultimately might be forced to do the same – the possibility of playing in the spring could mitigate losses. But there is skepticism about whether that will work.

While the Big Ten and Pac-12 have said they’ll explore the feasibility of playing next spring if the pandemic permits, neither league has committed to doing so.

Thompson, the sports marketing executive, sees the idea of a spring season in college football as “a total non-starter” for several reasons: concerns about whether players could reasonably play two seasons in one calendar year, the likelihood that many players eligible for next year’s NFL draft would forego a spring season and doubts about whether TV networks would find the programming as valuable in the spring as in the fall.

“It’s really a question,” USC’s Carter said, “of how economically viable it will be up against the amount of financial devastation that has taken place by then.”