The Rutgers athletics department should be required to hang a sign outside its front office: DANGER, KEEP OUT. It has been running growing financial deficits since 2003, piled up hundreds of millions of dollars in debt, been upgraded to the Big Ten where its football team is accumulating a dismal competitive record, and experienced multiple coaching and AD scandals.

Most observers are well aware of the extant hierarchies in the NCAA: Division I generates much more revenue than Division II, which produces much more revenue than Division III.  Within DI, FBS is the commercial leader over FCS and the schools without football. Within FBS, in fy 2018 the Power Five conferences with median generated revenue of $106.3 million dominate the Group of Five conferences with median generated revenue of $13.9 million.

It turns out there is also a sharp distinction between the top half and the bottom half among the 64 Power Five schools. Whereas the top 32 athletic programs have median generated revenues of $144.5 million and report a median operating surplus of $3.2 million in fy 2018, the bottom 32 programs have median generated revenues of $98.1 million and a median operating deficit of $10.6 million. 

Most athletics directors in DI and DII are looking to move their programs to higher levels in the hierarchy. There is little evidence, however, that upgrades pay off. More often, they lead to a school making major investments in facilities, coaches and recruiting. In exchange they get the right to play superior competition, garner a depressing record, and experience decreases in attendance.

Rutgers is a case in point. After six years in the Big Ten, their football team’s playing and financial performance remain abysmal. The athletics program ran a reported deficit of $45.2 million in fy 2019. In the fy 2020 budget, from before the coronavirus took hold, the projected revenues were $82.5 million and the projected expenses were $102.8 million, yielding an apparent projected operating deficit of S20.3 million. But there’s more. On the revenue side, there’s an $8.3 million subsidy from the university and a $2.9 million subsidy from the state. Without these subsidies, the revenues fall to $71.3 million and the deficit rises to $31.5 million. There were also contributions and gifts to athletics of $4.5 million. To the extent, that some of these gifts may have substituted for donations to the university’s general fund, the deficit would be still larger. Another $12.5 million came from student fees – a different form of subsidy at the students’ expense.

But it gets worse. As part of the price for being admitted to the Big Ten, Rutgers had to renovate its stadium at a cost of around $160 million. And from its annual operating losses since 2003, the athletics program has also accumulated a debt of $444.5 million. Hence, total borrowing for athletics is over $600 million, yet the athletics department’s budget reports spending only $10.9 million on interest and principal! Thus, there seems to be another $20-30 million in unreported debt service costs.   The athletics department budget does acknowledge a capital and maintenance expense of $16.5 million, but they put it below the line. Add all this up and the actual deficit in fy 2020 begins to push $70 million – all before the landing of Covid.

Are such expenses possibly justifiable? One line of defense is that Rutgers membership in the Big Ten is about to pay off. While it is true that 2020-21 will be the first year that Rutgers will get a full share of the conference’s TV booty, it is also true that the Rutgers’ athletics department borrowed $48 million from the conference (over and above the debt referenced above) at zero percent interest over the last several years. Repayment of that loan will commence during 2020-21 and continue through 2027, lowering the net conference revenues. These revenues will likely be further lowered due to the current and prospective weak condition of the economy and the growing availability of competitive video entertainment options, leading to lower subscriptions to the Big Ten Network, among others.

Then there’s the new economics of big-time college sports that is about to take hold. First, name, image and likeness payments to athletes should be a reality in the next year or two. It is hard to imagine that this won’t divert corporate promotion funds away from athletics departments to the athletes. Second, the Ninth Circuit recently ruled that athletic scholarships can include unlimited benefits above the cost of attendance as long as these benefits are educationally tethered — think laptops, internet, streaming subs, cars for traveling to school, study abroad, graduate school later in life, maybe a Steinway piano for music majors, and so on. As schools in recruiting wars begin to compete over the offering of these benefits, athletics department deficits will grow deeper and deeper. How will Rutgers and the rest of the bottom half of the Power Five do in the increasingly competitive recruitment game?

Covid will add tens of millions of dollars to already yawning financial shortfalls. It has turned a precarious situation into an unstable and untenable one. A shakeup is coming. Stay tuned.