Shannon Ludwig

October 11, 2020

szl5971@psu.edu
The Future of Penn State Athletics
The novel COVID19 first hit sports on March 9, 2020, as Jazz forward, Rudy Gobert’s
careless behavior which mocked the virus led to the NBA’s first positive case and ultimately the
shutdown of sports nationwide. As each professional league shutdown, college leagues began to
shut down as well and cancel sports seasons. As the NCAA conference to halted and then
canceled all winter sports post seasons, canceled the spring sports season entirely, it wasn’t too
long until the Big Ten decided to cut out non-conference play from their schedules. And then
made the decision to postpone fall sports. This decision was centered around the safety of the
rest of campus since football players only make up 0.2% of people on Big Ten campuses.
Additionally, according to Jay Paterno during a class lecture on September 3, one third of all
athletes in Big Ten who tested positive for Corona also tested positive for Myocarditis, which
could potentially cause death. Due to this, the Big Ten was really avoiding lawsuits and since
over 100 of the football players had already opted out. Because of this, postponing football
season seemed like the best course of action, but the big question that lingered since the first
cancellation of the NCAA men’s basketball tournament: How will schools recoup from the
revenue shortfall?
Since the original postponement the Big Ten made on August 11, the Big Ten has since
reinstated the football season and plans to start the 8-game season on September 16. Although
football is back, Penn State is still in a shortfall of $65-$80 million associated with lack of fans
and shortened game schedule.
In a pre-COVID season, football will normally generate $100 million in revenue from
ticket sales, sponsors, advertising, licensing, concessions, parking and souvenirs. This football
revenue accounts for 61% of Penn State’s athletics revenues and a chunk of that football revenue
comes from the NCAA and Big Ten. According to Poorman’s PowerPoint, Follow the Money
shown on September 10, in 2019 Penn State received $55.6 million from Big Ten revenue
sharing which includes TV revenue from agreements with ESPN, FOX, Big Ten Network, and
CBS and ABC for basketball. Within this revenue sharing, as Rick Kuluza explained in a class
lecture on October 6, there is another sum of money that’s based on game attendance where
schools with larger attendances give more money, and schools with smaller attendances give
less.
Furthermore, Rick Kuluza explained in a class lecture on October 6 how the Big Ten
makes money from football and men’s basketball post seasons. In the 2018 NCAA men’s
tournament, the Big Ten made $20 million. Last football season, they generated $126 million
from the College Football Playoffs by Ohio State playing in the semifinals, Wisconsin going to
the Rose Bowl and Penn State participating in the Cotton Bowl in addition to the base payoff. If
the Big Ten had decided to cancel the 2020 football season all together, they would have lost $1
billion dollars. Even if they decided to play in the spring, they would’ve lost a large amount of
money because all Big Ten schools would have missed the playoffs and bowl games. According
to Poorman’s PowerPoint, Follow the Money shown on September 10, it’s been projected
that the Big Ten will generate $29 to $40 million, so while they are retaining some of that money
due to playing in the fall, the Big Ten will lose $275 million in ticket revenue because no fans
are allowed in the stands.
In addition to losing money caused by the shortened season and lack of fans, name image
likeness will also take money away from the university. Jay Paterno in a class lecture on
September 3 expressed his belief that COVID will show the student athletes that the universities
and athletic departments will risk putting them on the field to keep the revenue flowing. If name
image likeness was legal in Pennsylvania in 2019 and 30% of Penn State’s $55.6 million they
received from the Big Ten’s sharing revenue, went to all of the athletes at a flat rate, Penn State
would have given up $16.7 million dollars. With this same 30% going to all athletes, in 2020
with the reduced share revenue Penn State would be losing at least $8.7 million. Additionally,
people will want to buy access to players, they don’t have to pay the university or athletic
department.
In summary, on top of all the revenue generated on a typical, pre-corona football
weekend, Big Ten schools will be losing a large chunk of revenue sharing and could potentially
permanently have to distribute a large amount of money to the athletes directly if name image
likeness is approved. Throughout the conference, the schools and athletic departments have
formed very different approaches to makeup the revenue shortfall.
In response to the money loss, Big Ten school, Iowa, resorted to cutting sports. Similar to
Penn State, according to Karen Weaver’s Iowa Hawkeyes Drop 4 Sports article published on
August 21, Iowa’s athletic department was projecting to lose $100 million if football didn’t play
at all or $60-75 million if the Big Ten opted to play in the spring. In 2019, Iowa athletics
recorded a $15 million gain over their 2018 revenues which was an 11% increase and also
showed a $7 million increase in donations. However, football coaching salaries grew from
$7.970 million in 2013 to $11.806 million in 2018. Instead of reducing salaries, Iowa cut men’s
gymnastics, men’s and women’s swimming and diving, and men’s tennis and saved a total of
$910,000 which only includes team expenses and ignores athletes who can retain their
scholarships and employment contracts that will be honored for all coaches and staff in 2020-
2021.
Penn State on the other hand, finds extreme value in offering 31 sports – which is the
second most in the Big Ten – and will be taking a different approach to overcome the revenue
shortfall according to Rick Kuluza during a class lecture on October 6. Poorman’s ICA
Solutions PowerPoint shown on September 10, shows that Penn State’s spends 46% of its
budget on salaries. In addition to cutting her own salary by 15%, Sandy Barbour, introduced pay
cuts of 5-10% and furloughed employees. On top of this, Penn State put extreme emphasis on
financial planning. Once the Big Ten reinstated football but limited it to a 9-game schedule, the
athletic department reduced expenses by nearly 20% which equated to $28 million. Also,
through a strict no spending policy the athletic department enforced, Penn State athletics was
able to break even despite the cancellation of the NCAA men’s basketball tournament and all
spring sports.
Furthermore, to try and create revenue, according to Chris Grosse during a class
lecture on September 15, Penn State athletics formed synergy and content teams to plan ideas
on how to get teams and the community more involved by creating virtual initiatives such as
virtual tailgates. They also unfortunately had to cut big, pricy advertisement campaigns and
special student offers such as free food and other giveaways. Despite these efforts and $15
million in the reserve, this was money is not enough to offset the revenue shortfalls.
The most viable solution to this shortfall would be to borrow money. Rick Kuluza
during a class lecture on October 6 said that in the past during the scandal years, the university
worked with the athletic department to obtain some interim debt service for 30 million over 3
years which helps supplement operations to do some capital projects and build the reserve. This
allowed for the athletic department to build the reserve back up to $15 million in June 2020.
Although there is already $100 million set aside for athletics and auxiliary serves by Old Main
and they’re receiving $1.6 million a year from Old Main until 2045, establishing a line of credit
or borrowing more money could solve the shortfall.
Another solution that seems obvious is to receive the money through donations and
endowments. From 2018-2019, Penn State recorded $31.5 million in overall donations to the
athletic department and $6.5 million in endowments and investment income.
However, another solution could be to cut coaching salaries. Poorman’s ICA Solutions
PowerPoint shown on September 10 concludes that Penn State’s top expense are coaches’
salaries, benefits and bonuses which equate to $32.4 million – a huge jump from 2010-11 when
that total was $14.1 million. James Franklin alone signed a contract through 2025 for $5.4
million, plus access to the earning potential of a $1 million insurance policy, in addition to a
$300,000 Dec. 31 retention bonus, as well as other financial incentives. In addition to Franklin,
coaches Russ Rose and Pat Chambers make about a million each. Cutting these salaries by 20%
would generate $12.4 million.
Though cutting coaching salaries and borrowing more money amount to a large sum on
their own, there are smaller options that lead to big amounts. According to the article, Penn
State Athletics Planning for Furloughs by Ben Jones published on August 19, team travel
amounts to 5% of Penn State’s total budget and spent $8.1 million on travel and lodging during
the 2019 fiscal year. For example, according to Char Morett-Curtiss during a class lecture on
September 17, women’s field hockey traveling to the west coast to play Stanford and Cal
would’ve costed $60,000.
Due to the scandal, Penn State athletics has been in serious financial trouble before and
was able to recoup the money and rebuild the reserve relatively quickly. With the cancelation of
March Madness and spring sports, the athletic department was able to come up with ways to save
money which in a way was practice for this new situation. Though athletics came out of the
2019-2020 seasons with a net value of 0 and that’s near impossible this 2020 fall season, they
have numerous options to recoup from the revenue loss. While cutting salaries and borrowing
money is a large part in financial savings plan, donation, endowments and cracking down on
team travel expenses is a crucial part. In conclusion, due to these reasons, Penn State athletics
has the ability to make it through the Coronavirus pandemic without major consequences.