Big-time college sports, already skating on thin ice financially, is being hit by a triple tsunami: NIL reform, the Black Lives Matter movement and the coronavirus pandemic. Prior to this trifecta, almost all schools’ athletics departments were bleeding money. Consider the 130 schools in the top subdivision (FBS) within the NCAA’s top Division I.

NIL reform promises to allow college athletes to market their name, image and likeness to third parties and threatens to reduce corporate sponsorship contracts with university athletics departments. The Black Lives Matter movement has emboldened college athletes to demand proper health and safety measures, a greater voice in decision-making and more resources devoted to athletes. The coronavirus pandemic has threatened to decimate massive revenue streams for athletic departments during 2020-21 and also the very existence of fall sports.

These challenges come on top of an already very challenging predicament. According to the NCAA’s own statistics, during the last reported year (2017-18) the median FBS athletics department deficit was $16.3 million. This deficit does not include a large share of capital expenses or of indirect expenses. The 130 FBS programs are sharply divided into the 65 schools in the Power Five (or Autonomous) conferences and the 65 schools in the Group of Five conferences. The median revenue in the Power Five conferences was $106.3 million and the median operating deficit was $2.6 million. In contrast, in the Group of Five conferences the median revenue was only $13.9 million and the median operating deficit was $22.2 million.

Even within the Power Five, there is a clear distinction between the top and bottom half of schools. The top half of Power Five schools had median revenue of $144.5 million and a median operating surplus of $3.2 million, while the bottom half had median revenue of $98.1 million and a median operating deficit of $10.6 million. One Power Five school ran an operating deficit of $44.6 million. Even for the top half (32 schools), it is important to keep in mind that most capital costs and many indirect costs are excluded. It is also significant that many of the most athletically successful Power Five athletics departments carry very heavy debt loads, e.g., Cal-Berkeley $438.6 million, Michigan $300.4 million, and Ohio State $250.7 million.

At the FCS level of Division I, the median program deficit was $13.9 million and at Division I without football the median deficit was $13.3 million.

How is it possible that such well-known, extremely popular athletic programs run multi-million dollar deficits year after year? The answer is that these schools do not have a revenue problem. They have a shopping problem. Without stockholders pressuring for profitability, these programs instead have stakeholders (boosters, alumni, state legislators, students) pressuring for victories. Whenever an athletics director sees a new revenue stream arriving, he/she finds a way to spend the money in the pursuit of a championship team. Since schools are unable to attract the best high school athletes by offering them more income (at least not over the table), they attempt to attract these athletes by offering them famous coaches, top-notch training facilities, first-class lodging, meals and transportation, modern stadiums and arenas with premium seating and oversized high-definition scoreboards, and so on. Without meaningful market discipline, the costs explode as schools chase each other to provide better allurements.

The foregoing is a snapshot of where the big-time college athletic programs found themselves prior to Covid-19. Sensible programs around the country have already shut down their fall sports. Others, however, look at the $60 million to $120 million in revenue that football generates, along with their pre-existing deficits and debt, and seem to conclude that no matter what the human cost, the show must go on. These programs, after all, can’t access their traditional bail-out mechanisms. The university budgets are stripped to the bone because students are not returning and state budgets are skeletal because the economic activity that replenishes their coffers is flagging (and the demand for state services is higher than ever.)

So, what is a big-time athletic program to do? While some of the Group of Five and FCS conferences have decided not to play fall sports and hope to be able to have modified football schedules in the spring, the Power Five conferences are going ahead with fall football, sometimes with a shortened schedule. For the Power Five conferences that persist on this perilous path, in addition to enormous health risks, they face player boycotts, heightened protests from players and their parents, reduced attendance revenue and higher costs to manage the public health crisis.

For programs already experiencing a deficit which often rises into the tens of millions of dollars and now face the prospect of lower revenues and higher costs, or, if they behave more rationally and shut down fall sports, how can they retain their 200 to 300 employees and maintain their operative capacity for when the public health situation ameliorates?

There are really only two sensible paths given that the traditional backstops (the university and the state) are themselves in dire financial straits. First, athletic departments need to take advantage of this crisis by restructuring and eliminating, or, at least, vastly reducing, the excess and waste that has become pervasive and endemic to big-time college.  Coaches’ salaries rise to $5 million and above with increasing frequency. Multiple assistant coaches per team earn $1 million to $2 million with regularity. Stadiums and arenas are studded with revenue generating accoutrements and cost hundreds of millions of dollars to build or renovate. Lounges, training facilities, and game rooms abound with luxurious appointments. Conference commissioners increasingly earn millions of dollars in compensation.  The list goes on and on.  These outlandish expenses only occur because the athletes themselves are not paid and the athletic departments do not face market discipline on their costs.

The other path is to access credit markets. Power Five conferences have long-term media contracts that are worth a billion dollars or more annually and can put these up as collateral to banking consortia. Whereas the lower half of individual Power Five schools might not have the option to get sufficient loans at reasonable interest rates on their own, if done at the conference level revolving loan funds at low rates can be expected. It is the conference, after all, that holds most of the media contracts. Carol Christ, Cal-Berkeley’s Chancellor proposed this strategy to the Pac-12 and now each school has $83 million potentially available at 3.75 percent.

Group of Five and FCS conferences do not have sufficient media contracts to make the Pac-12 deal feasible.  Retrenchment at these will have to be more severe.

Whatever strategy schools and conferences follow, it is increasingly clear that 2020 is a watershed moment for intercollegiate athletics. Major change is coming. We might see the long-threatened withdrawal of the Power Five schools (or a subset therein) from the NCAA to establish an untrammeled commercial league. The protection that the big-time athletics programs long derived from the NCAA cover (the amateurism veneer along with tax benefits) is fading these days with the advent of NILs and antitrust inroads into unjustifiably restrictive NCAA rules.  If the big-time programs depart, there will be more motivation for the rest of Division I to explore the re-entry into a truly academic model of college sports. Stay tuned.