Analysis: Why UW Athletics’ financial situation remains rocky

SEATTLE – There are some problems even Michael Penix Jr. can’t solve.

Despite a redemptive 2022 football season that included an 11-2 record, an Alamo Bowl win over Texas, a No. 8 national ranking and an undefeated 7-0 home slate, UW’s athletic department expects a loss of $5.8 million in financial year 2023 (which stretches from July 1 to June 30).

Even though UW’s 93% season ticket retention rate is a historic high and the Huskies are College Football Playoff contenders this fall, UW projects that deficit to expand to $7.8 million in the coming financial year.

Those deficits stem somewhat from continued severance payments following the firing of former UW coach Jimmy Lake, totaling $5 million in FY23 and a projected $3.8 million more in FY24. Thursday’s performance report states that “severance payments are not expected to continue beyond FY25.”

There’s also, in some sense, the price of success; first-year coach Kalen DeBoer received a $1 million raise and a two-year extension in November, and UW’s football assistant salary pool grew from $5.745 million to roughly $7.483 million this offseason (the highest such figure in department history). Pending NCAA regulations expanding athlete benefits and paid coaching positions and eliminating scholarship limits could also cost the university close to $1 million.

UW’s losses in both FY23 and FY24 will be covered with the department’s dwindling reserves, which are estimated to total $9.1 million in July 2024. (For perspective, they were $34.5 million before the pandemic, in 2019.)

In a report Thursday, the UW athletic department’s credit outlook was listed as “negative due to operating losses, sector uncertainty, and low and declining reserve levels.”

But let’s dive deeper.

Season ticket sales, for starters, have yet to reach prepandemic levels. Thursday’s report states that UW “assumed football season ticket sales would stay flat between 2021 and 2022, however actual sales were 10.3% lower than budgeted. As such, (intercollegiate athletics) football gate revenue is $1.0 million less overall than the budget for the 2022 season.”

Specifically, UW sold 45,038 season tickets, with $17.1 million in seat-related contributions, in 2021. Those numbers dipped to 40,150 and $15.8 million last season. The Huskies project 42,415 season ticket sales and $16.8 million in seat-related donations this fall. (The university also hopes to bring in roughly $3 million more in total gate revenue, per a source.)

How much does it matter? Thursday’s performance report notes that “since roughly one-third of (intercollegiate athletics’) annual revenue comes from football season ticket sales, this is an important indicator of financial performance.”

The report adds that “current gate revenues are approximately $8 million lower than prepandemic projections due to fewer season and single game ticket sales and lack of price increases. ICA (intercollegiate athletics) is continuing to work on growing gate revenues and building back the football season ticket base to the prepandemic level of 51,293 while maintaining a strong focus on the gameday experience.”

But, ticket sales aside, the Pac-12’s next multimedia rights deal – or the Big Ten’s, if you’re keen to speculate – loom large over UW’s financial future. Thursday’s report acknowledges that “successful multimedia rights negotiations in FY24 are critical to (intercollegiate athletics’) financial health in FY25 and beyond.”

But what would success look like? The Pac-12’s current TV deal, signed in 2011 and expiring in 2024, nets each school roughly $20.8 million per year. That deal includes only Tier 1 rights, with less coveted games generating modest additional revenue on Pac-12 Networks. All told, the conference reported $385.6 million in revenue – an average of $32.1 million per school – via ESPN, Fox and the Pac-12 Network in the 2022 financial year.

The Big 12’s recent deal, established as a bar for the Pac-12 to either approach or clear in 2024, is reportedly worth $31.6 million per school, per year.

In his own Board of Regents meeting Friday, Washington State president Kirk Schulz said he expects a Pac-12 media deal to be completed “by the end of the month.” And, when pushed further to rate on a scale from 1 to 10 the likelihood said deal arrives in June, he put it “probably to a seven.”

But if the numbers don’t satisfy, the conference could crumble. And on Friday, Schulz offered that, “at least the projections that (athletic director Pat Chun) and I and others have seen … I’m not sure if (media revenue) will be a lot larger than what we saw in the past. It shouldn’t be a lot smaller than the past. It may be fairly flat. But when we add the (expanded College Football Playoff) dollars on to that, we should see a nice bump in revenue.”

Nice enough for UW and others to sign on the dotted line? That remains to be seen. On the subject of conference realignment, Thursday’s UW performance report did acknowledge the following:

While it is difficult to gauge the financial impact of USC’s and UCLA’s exit from the Pac-12, the following points are important to stress in regards to conference realignment and its impact on ICA’s long-range outlook:

• Washington has an incredibly strong brand and reputation.
• President (Ana Mari) Cauce and Athletics Director (Jen) Cohen are working diligently to achieve the best outcome for UW and ICA. This involves taking time to evaluate options and engaging with Pac-12 peers about next steps.
• The Pac-12 is actively exploring the conference’s next media rights deal, which will be decided on this year.

Speaking of UW’s long-range outlook, there’s still the matter of paying off the loan that financed Husky Stadium’s renovation in 2012.

After the university sold 30-year bonds to pay for the project, UW athletics must make annual payments back to the school throughout the life of the loan. To provide UW’s athletic department some flexibility and relief, that debt service has been restructured into interest-only payments in FY23, FY24 and FY25.

“Debt service will increase from $9.8 million per year to $17.7 million per year in FY26 due to the resumption of principal payments on ICA loans,” a document stated Thursday. “Prior to this increase in debt service, efforts are underway campus-wide to develop a solution that offers longer-term stability to Athletics.”

Long term stability, of course, is the ultimate goal.

It’ll take increased season ticket sales, an improved media deal … and, yes, more Penix touchdown passes to help the Huskies get there.