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Penn State Football and its Return on Investment

by on May 14, 2017 11:00 PM

CJF was talking ROI last week.

In other words, how football is the athletics cash cow for the former cow college now known as Penn State.

In Altoona on Thursday, as the rain poured down outside the penultimate stop of the 2017 Coaches Caravan, head coach James Franklin was explaining why football reigns supreme in the Penn State athletic department.

Franklin had just spent five minutes talking about all the necessary support staff to make sure his players are eating, sleeping, attending class, studying, being coached and performing like winners.

Then he got to the bottom line.

"We also know this is college athletics and these are student-athletes," Franklin said, "but there’s also a business component and there’s also a factor that we all realize — return on investment.

"Football probably gives you the best chance to have a return on investment. So when people are talking about all these different things — staff sizes, salaries, all these different things — well, it’s the business model and it gives you the best chance for a return on investment." 

In other words, the money Penn State spends on its football program yields more than just wins and losses, good players and good citizens. It also makes even more money. In 2015-16, the most recent Penn State fiscal year for which numbers are available (the ones submitted to the U.S. Department of Education, in compliance with Title IX), Penn State football had revenues of $75.4 million. It had expenses of $36.1 million, which left the program with a net of $39.3 million.

That's a margin of 52%. According to my in-house financial expert, my son Kyle (who graduates with a degree in applied economics and management from Cornell in two weeks), that's quite good. Compare that to the pre-tax margins last quarter of IBM (7.8%), the S&P 500 (9.6%), Apple (27.8%) and Goldman-Sachs (31.6%). Pre-tax, my financial guy says, "because Penn State is a tax exempt entity."

MOST MONEY EVER

The $75.4 million is the most Penn State ever made in gross revenue from football — beating out the $72.7 million Penn State made from football in FY 2010-11. (By comparison, just four years earlier, for FY 2006-07, the entire Penn State athletic department had overall revenues of $76.3 million, $44 million of that from football.)

The 2010 season was a high-water mark for football profitability, as the Nittany Lions — though 7-6 in the field — made a "profit" of $53.2 million, as its expenditures were only $19.5 million (additionally, about $1 million of Joe Paterno's salary at that time, from Nike and Learfield Sports, went directly to Paterno. These days, that money goes to Penn State, then to the head coach). The $53.2 million represented 63% of all revenues produced by Penn State athletics in 2010-11.

In 2010-11, the biggest source of football revenue came via ticket sales, over $34.3 million worth, to be exact. Home games that season were against Kent State, Temple, Illinois, Michigan, Northwestern and Michigan State, as Penn State averaged 104,234 fans per game in Beaver Stadium.

In 2015-16, Penn State had ticket sales of $31.4 million, averaging 99,799 fans for home games against Buffalo, Rutgers, San Diego State, Army, Indiana, Illinois and Michigan State (the first five games were played on consecutive weekends in September and October).

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Revenue that Penn State receives from the Big Ten Conference, although significantly dependent on football, is not credited to football. In 2011, Penn State got $22.8 million from the Big Ten, while in 2015 Penn State received $32 million. (With new conference TV contracts in hand from FOX and ESPN, Penn State should get about $43 million from the Big Ten for FY 2017-18 and over $50 million in 2022-23, the final year of those TV contracts, both of which run six years.)

BACK TO THE CARAVAN

The old adage is that you have to spend money to make money. And these days, as Franklin will tell you, its collegiate athletics corollary is that you have to spend money to attract big-time recruits who will help you make money.

Which takes us back to the Coaches Caravan. Franklin and his boss, athletic director Sandy Barbour, and his direct supervisor, Penn State athletics COO Phil Esten, spent a good bit of the caravan talking contracts, money and facility upgrades. 

All agreed that it costs money — more money than ever — to run a big-time college football program, one that can compete on annual basis not only in the Big Ten East against big money-makers and -spenders Michigan and Ohio State, but also nationally against the likes of Alabama and Clemson.

And, in a fairly significant way, Penn State has already ramped up its spending. Under Paterno, the inside Lasch joke was that the Nittany Lions were "a champagne program on a beer budget."

In Paterno's final season, the program had $19.5 million in expenditures. In 2015-16, expenditures were $36.1 million. According to reports filed with the NCAA for both years, increases were in such areas as student aid (up $1.1 million), guarantees (up $2.2 million), staff support (up $3 million), recruiting expenses (up $657,000), game expenses (up $1 million) and severance payments ($409,945 in 2015-16, $0 in 2010-11).

The biggest increase was, not surprisingly, in coaches' salaries. In 2015-16, Penn State reported that it paid $11.3 million in football coaching salaries, benefits and bonuses. In 2010-11, Penn State didn't break out the salary number for football. However, PSU did report that overall, it paid all of its coaches — Paterno, football and every other sport, men and women, head coaches and assistants — a total of $14.1 million. (Add another $1 million or so for those Nike and Learfield payments to Paterno.)

LASCHING OUT

Then there's the matter of Lasch building, the headquarters for the Penn State football program, which houses the coaches' offices, locker rooms, meeting rooms, team auditorium, strength training facility, training and recovery rooms, and lobby. The 89,000-square-foot facility was built in 1998 at a cost of $14 million. It is now in the midst of a multi-stage renovation project expected to cost nearly as much as the original price tag. Phases I and II are completed, with more on tap. Those phases included the locker room, nutrition bar, team auditorium and lobby.

On the caravan, Franklin bemoaned the state of Lasch as it awaits a few more stages of renovations, including the coaches' offices, team and coaches' meeting rooms, and other areas.

"I think a lot of people out there probably think that Lasch is done," Franklin said at the Philadelphia caravan stop. "We haven't touched 60% of Lasch. The locker room was a nice project for us, but we still have a lot of work to do. That's something where I probably need to do a better job of. We made a lot of progress this year, but we still have a lot of work to do. Programs that we want to compete against year-in, year-out...it's going to be a slow, steady, scratch, crawl, bite to get where we need to go. We still have a lot of work to do. That's, to me, what it is about -- all those other things, not necessarily me.

"There's a sense of urgency because if we had been pecking away at this for the last 20 years, then no. The fact that we hadn't done anything for 15 years, then yeah, because we weren't doing things other people were. So we had fallen behind, so that's why I was pounding the table so much when I first got here because I knew how far behind we had fallen. Right now, in Lasch for example, we have stuff that we are able to show that's really nice. Our lobby is really nice now. Our auditorium is really nice. Our locker room is really nice. Then you walk into another part of the building, the meeting rooms, and they haven't been touched in 16 years. There are things we just need to do."

I do recall heading over to Lasch in early 2014 and scaffolding enveloped a good part of the multi-story exterior of the building. Actually, it was a bad part. Lots of  ’em, actually. Clear plastic tarps caught some of the water, but not all of it. Lasch had seen better days in a number of ways.

Franklin's predecessor, Bill O'Brien, actually got the ball rolling. I remember meeting Bill in his office the day prior to the Fourth of July in 2012. Much of the second floor in Lasch was covered in plastic sheets and tarps, as huge drying fans whirled like airplane propellers. I counted over a dozen painters and workman, moving things around, applying primer and starting to paint. They were hanging new artwork as well. The lobby was already taped off. O'Brien paid it all no mind. He was in his office, the door closed and game tape of Ohio University displayed on the wall.

Franklin made a crack about how Penn State was behind the times before O'Brien arrived, and was using VHS tapes. In response, I heard about that from two former inhabitants of Lasch. While Franklin's comments may have been a bit of hyperbole, some folks took them literally.

According to sources who would know, Penn State football started using DVDs in 2001 and went all digital in late 2004, with a few exceptions. There were some VHS machines on hand to watch tapes sent in from high school coaches and for Paterno, who preferred to review prospects that way. Penn State programmed its playbook onto PlayStation memory cards in 2005, and in the same year synched up its offensive playbook to DVD — among the first in the nation to do either. Penn State added the Hudl online system, with video review and performance analysis tools, in 2009-2010.

LASCH TODAY

On the last stop of the caravan, in Williamsport, Esten said the bones of Lasch are strong.

"When you look at the Big Ten, you have a spectrum of football buildings across the conference," Esten said. "Some are investing more now than others, some are building new. I think the Lasch footprint is one of the best in the country, not just the Big Ten. The layout, as James has referenced in the past, cosmetically, we've got a little bit of work to do with it. The improvements we've made over the last two years have really helped us catch up a little bit with the rest of the conference. I think what we've done is comparable to what others have done, but we have stayed very true to Penn State values. It's not opulent, it's not over the top. It is very much in line with what our values are."

While on the caravan in Hazleton, Barbour said plans to continue the renovatlon of Lasch are on track.

"We already have a Lasch comprehensive plan that has a Phase I, Phase II, Phase III and Phase IV," Barbour said, while not ruling out a Phase V. "We've done two-plus phases of Lasch. It was absolutely worth it to get it done. James and I are all on the same page."

Such investments are worth it, Barbour said. Her goal, whether it is for football or any of the other 30 varsity sports at Penn State, is clear.

"Let's remember that whether it's selling a ticket or cultivating a donation or a corporate sponsorship or a T-shirt — whatever it is, to create revenue — it's about taking that money and putting it back into 800 student-athletes and 31 programs," Barbour said. "Whether it's a facilities question or it's about Michigan going to Rome, or whatever it is, this endeavor is getting more and more resource-intensive to keep up.

"Penn State doesn't have to do what everybody else does. I believe that with every fiber of my soul. You have an incredible university with an incredible tradition of success that means something.

"When I talk about facilities, we don't have to lead or win the arms race. But we do have to run the race. We have to be in it. We can't be so far behind that it's a huge disadvantage."



Mike Poorman has covered Penn State football for StateCollege.com since the 2009 season. His column appears on Mondays and Fridays. Follow him on Twitter at http://twitter.com/PSUPoorman. His views and opinions do not necessarily reflect those of Penn State University.
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