Iowa athletics will suffer budget pain without football this fall — but don't bet on a new financial model

IOWA CITY, Ia. — Kinnick Stadium is sitting idle this fall for the first time since it was built in 1929, leaving a void that goes beyond the seven Saturdays when it would have been full of reveling Hawkeye fans.

Among the biggest impacts: Iowa's athletic department will pay a steep financial price.

Athletic director Gary Barta said he has a plan to overcome the eight-figure financial hit from a fall without football, and those who study the economics of college sports agree that the situation is not yet dire for America’s top universities.

There will be short-term pain, and it won’t be spread equally, but as long as college football returns in 2021, schools like Iowa will be able to rebuild their athletic departments, according to Joel Maxcy, a sports economist and professor at Drexel.

“They still have this valuable asset that’s going to generate money in the future,” Maxcy said, referring to football. “They can use that for financial leverage. They’ll be able to weather their way through it.”

Barta has estimated that Iowa could lose up to $100 million in athletic revenue after the coronavirus pandemic led to cancellation of all sports since mid-March. Notably, that cost American universities $375 million in outlays from the NCAA men’s basketball tournament. And now, for the Big Ten and Pac-12 conferences at least, it means a fall without their most lucrative sport. Football provides an average of $62 million in annual revenue for Power 5 schools like Iowa.

"Even if we play a version (of a football season) in the spring, which we certainly want to and plan to, the numbers are just staggering in terms of being able to come back," Barta said last month.

"That funding model is in serious jeopardy."

But the promise of a return to football normalcy is also what will allow those schools to take out loans to offset this year’s losses, Maxcy said. Barta is looking at acquiring a $75 million line of credit that he hopes to repay over 15 years. Maxcy anticipates university athletic departments will also refinance their debt service at lower rates and repay it over longer periods as a way to keep more cash on hand in the short term. Iowa athletics already has $227 million in outstanding debt.

“Some of the university access to capital markets will be able to smooth it out over time,” Maxcy said. “The more financial wherewithal that they have, the easier it will be for them to do that.”

Already, Barta has taken short-term steps to plug some of the gaps in his budget, which is around $150 million annually. He has instituted across-the-board pay reductions in fiscal year 2021 for his staff and laid off a few workers. And he has announced that he will cut four of his 24 sports programs entirely — men’s gymnastics and tennis, plus men’s and women’s swimming and diving — after this academic year.

That is the harsh reality, Maxcy said.

“Some schools will see cutting sports as an ‘easy play,’” he said. “And the most marginal people in the athletic department, the part-time people, will be the most likely to lose jobs.”

More:Leistikow: As 4 Iowa sports are cut, how much will football feel the financial pinch?

There will be a tendency to blame football for all of this, said Richard DeCapua, vice president for academic integrity for the educational technology company OneClass and former associate dean of students at Boston College.

“There isn’t a lot of sympathy in the nation for football without the understanding that football is really the gateway for all other student-athletes to play,” said DeCapua, noting that the sport finances 85% of Power 5 athletic budgets, largely due to multimillion-dollar TV contracts.

So if the absence of football is the cause for immediate concern at top universities, the presence of football is also the path back to sound financial footing.

The picture is far bleaker at smaller schools, which can’t rely on massive football TV contracts. Maxcy anticipates their athletic departments may not survive a year without football.

“That’s true in business generally,” he said. “If you were on the edge, this might be the thing that sinks you.”

Yet even for major-college athletic programs, larger questions loom. Will they take this moment to reconsider their financial model?

And how much longer will such decisions really be in the hands of athletic directors like Barta?

Why don't colleges dip into their endowments at times like these? 

Some people have wondered why so much consternation needs to exist at all. The University of Iowa, for example, has an endowment in excess of $1.5 billion, which makes the losses from a football season seem paltry.

But it’s simplifying things to think of endowments as merely savings accounts that can be dipped into whenever a crisis arises, DeCapua said.

“Almost all of the money in the endowment has legally been set aside for very restricted things. It just can’t be used willy-nilly,” he said.

“A lot of the endowment dollars have been earmarked as aid for students. A lot of the endowment money goes toward the debt service. And when you take out more against your endowment than you should, it could negatively affect your credit rating.”

Universities are required to hold the principal money in the endowment in perpetuity, enabling them to spend only some small portion of the interest income available, depending on state laws.

“The multibillion-dollar endowments therefore don’t leave much for administrator discretionary spending to help the universities out of short-term budget problems, even though that would seem to make sense in a crisis like this,” Maxcy said.

Why don't college ADs save money? 'They've never had any incentive to'

Experts are skeptical that the events of 2020 will cause athletic administrators to rethink their business model, or even to start saving more of their money, unless the federal government gets involved. Indeed, they may rely even more on football to pay all the bills in the athletic department.

Only 41% of athletic programs at the 50 largest public universities have a financial reserve, according to a report prepared by OneClass. Barta’s department had only recently managed to put $4.5 million in a reserve fund.

"You and I could go into the Iowa athletic department and cut millions of dollars and most people wouldn't even notice, because it's a lot of unneeded things," said David Ridpath, an Ohio University professor and president of the Drake Group, a college athlete advocacy organization. "I joke around about Ohio State that I doubt (football coach) Ryan Day even knows half of the people that work for the football program. Because there's just so much waste and excess, the locker rooms, the recruiting expenses, paying strength coaches close to $1 million a year.

"You would hope that there would be some kind of fiscal restraint and fiscal austerity after this. But the cynical side of me and I guess the realistic side of me knows that's not probably going to happen."

Ridpath is hoping that smaller colleges, like Ohio University, get the message that they need to reset their expectations and stop trying to compete with the large schools. The playing field is not level, and he thinks the major-college athletic departments will separate themselves further as a result of the pandemic.

"And that's not necessarily a bad thing because then at least we know that they're doing it for profit, for winning. It's not about education. Let's just call it what it is," Ridpath said.

Maxcy said the athletic departments won't change how they operate because they have no incentive to do so.

“All the payoff is to winning football games, basically, at the big schools. So they’re investing in coaches and facilities to attract the best players they possibly can," he said. "They don’t have much foresight beyond the next season. So, of course they could have had money in rainy-day funds, but the money made from football goes right back into football. Their incentives are to spend and try to win next year.”

DeCapua would like to see university presidents and athletic directors work to come up with an alternative revenue and scholarship model that would not be impacted so negatively if something like a pandemic were to happen again.

“I have little faith in those entities coming together" in conferences or at a national level to forge change, he said. “In sports, it’s even more complex because these are athletic programs. They compete against one another. It’s hard to bring consensus when your job is to win over other schools.”

Maxcy thinks college conferences may think about realigning in ways that make more geographic sense to reduce travel, especially for nonrevenue teams. And perhaps some insurance markets will open up that offer schools protection against future pandemics or acts of nature that could shut down a season.

But other than that, he anticipates a return to the norm for major-college sports once football games resume and money flows in again. It’s why conferences like the Big Ten keep trying to salvage some sort of winter football season, Maxcy said, to at least recoup some of the loss from the fall.

Will government force the hands of athletic administrators? Stay tuned.

Only the federal government could truly drive financial reform in college sports, Maxcy said. And politicians haven’t shown much stomach for that in the past. Anti-trust laws prevent the capping of coaches’ salaries, for example.

But the issue of student-athlete rights is getting attention, and last month a group of U.S. senators announced plans to introduce a bill for that purpose. The goal is not just to allow monetary compensation for athletes who can market themselves, an idea that has long been floated and now appears to be nearing reality, but also to guarantee long-term health care and lifetime educational scholarships, among other things.

If that passes, it would certainly force athletic directors to set aside more money for the players, perhaps taking some away from coaching salaries and gaudy new facilities, which is where it typically has been spent.

“Coaches who’ve demonstrated that they’re winners just rake in everything. It’s a really distorted situation,” Maxcy said. “So we’ll see if that changes. Politicians, like everyone else, can get really emotional about college sports.”

For now, Barta said he is done cutting sports. He has a budget for next year in mind that assumes things return to normal in 2021.

If not?

“Then I think our society and our economy will have huge issues,” he said. “I’m not intending to come back next year and have a budget that is 100 percent of what we intended in 2021-22, but I am intending to have a fairly robust budget and playing sports again.

“If that doesn’t happen, I’ll have to cross that bridge when I get there.”

Mark Emmert covers the Iowa Hawkeyes for the Register. Reach him at memmert@registermedia.com or 319-339-7367. Follow him on Twitter at @MarkEmmert.

No one covers the Hawkeyes like the Register. Subscribe today at Des Moines Register.com/Deal to make sure you never miss a moment.