For Washington State University, getting the athletics department out of debt might require diving into new debt.
The athletics budget for the current year is facing a projected $31.1 million shortfall, according to the most recent calculations, with officials attributing significant losses to COVID-19 restrictions on collegiate athletics in the past year.
To balance the budget, university administrators have proposed issuing approximately $35.6 millionin general university bonds. WSU officials have estimated the cost of the ensuing debt, which would be repaid through future Pac-12 Conference media and bowl revenues, at approximately $1.6 million per year based on a 20-year repayment term and current market rates.
The strategy is one part of the athletics budget fiscal recovery plan proposed by the administration.
And while the plan’s elements were initially put forth last fall, developers wanted to see the full financial impact of “the COVID year” before putting them into motion, said Stacy Pearson, vice president for finance and administration.
WSU’s athletics department has a history of incurring annual deficits even before the COVID-19 pandemic, accumulating upwards of $100 million in projected losses in the past decade.
“I think that the difference in this one is instead of the route we were going before of multiple years of coming out of deficit and then making adjustments, is we tried to look at (this) holistically,” Pearson said. “Incorporate all of the fiscal impacts of COVID, but also say now is the time to just get that budget balanced so that we’re not dealing with the growing deficit. Then, working with athletics in saying, ‘you tell us what is realistic to achieve on a going-forward basis,’ and then we’re going to continue to monitor that.”
The WSU Board of Regents will meet Thursday and Friday, partly to consider approving the financing plan, as well as an amended 2021 athletics budget and a spending plan for the upcoming 2022 fiscal year. The group will meet in committee Thursday, followed by a full board meeting Friday.
Down the road, additional steps with the fiscal recovery plan include committing the university, and not the athletics department, to the $2.4 million annual Pac-12 affiliation fees starting in 2023. The university took on that fee until six to eight years ago, said WSU spokesman Phil Weiler.
The plan does not include any new student fees, officials have said.
One of the goals is to enable athletics to build a reserve fund using excess revenues, which later could help pay off the department’s deficit, Weiler said.
“Any of that money that’s going to be in excess of expenses in the future is going to go into building a cash reserve – essentially a savings account,” he said, “so that in the future, if there are unanticipated financial surprises, there is a cushion to be able to address that instead of throwing their budget immediately back into deficit.”
Pearson said university officials hope to bring the later elements of the fiscal recovery plan, including a reserve fund, to the Board of Regents for approval in the fall.
“The long-term fiscal health plan is really no different than what we’re doing for the university,” she said. “The athletics department, and the university in general, has to do a better job of building reserves for emergencies.”
There was once a plan in place to have the athletics budget “break even” by 2023, but that was upended when restrictions, postponements and truncated sports seasons caused by the COVID-19 pandemic significantly affected revenues, Weiler said.
The Pac-12 revenues the department would use to repay the debt incurred by the financing are contractual media revenues that budget planners felt they could count on, Pearson said.
Pearson said WSU initially considered financing through the Pac-12 Conference, but found it unfavorable when comparing interest rates, fees, repayment terms and other factors. She said planners were keen on devising a financing strategy sustainable for athletics in the longer term.
“The financing that we’re proposing with the $35.6 (million) pretty much takes care of the deficit that we will end fiscal year 2021 with,” she said.
“It has a little bit of cushion in there because things could still happen, as well as it helps us with the uncertainty of fiscal year 2022.”
With the projected 2022 budget, administrators have made considerations with COVID-19 in mind. They are thus far planning on a 50% capacity for WSU’s Martin Stadium, along with attendance-related impacts on tickets and donations.
In addition, administrators have proposed using $11 million in cash savings from an October 2020 refinancing of existing debt to help address any COVID-19-related shortfalls in the 2022 fiscal year.
“We are all dealing with unprecedented challenges from this global pandemic,” WSU President Kirk Schulz said in a statement. “WSU’s affiliation with a top-level intercollegiate athletics conference like the Pac-12 brings us unrivaled visibility on a national scale that continues to benefit students, faculty, staff, alumni and other stakeholders throughout the University system.”