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For Penn State Athletics, Labor is at the Heart of Rising Expenses

When all is said and done, the immediate financial impact of the pandemic on Penn State Intercollegiate Athletics will result in a deficit of $18 to $20 million.

That’s for the fast-closing fiscal year, which began on July 1, 2020 and ends on June 30, 2021. It includes the 2020 football season.

Those numbers are according to Sandy Barbour, VP of Intercollegiate Athletics at Penn State.

“We started our budgeting process for the 2021 fiscal year,” Barbour said on the virtual Coaches Caravan last week. “We were using the number of having to borrow about $25 million. We’ve continued to bring that down. We think we have that number to about between $18-$20 (million), and the university will provide us access to a line of credit to help us address that gap.”

The actual deficit will be closer to $70 million, according to Penn State’s #OneTeam website, a figure also referenced by Barbour. Here is the math from that site:

Expense reductions ($25.8 million) + Reserve fund ($27.2 million) + Loan from Old Main ($20.5 million) = Revenue shortfall of $73.5 million.

Some of those cost-cutting measures were furloughs and salary cuts suffered by athletics staff, including Barbour, who said last summer she was taking a 15% cut in pay over the past year. Head coaches’ salary cuts were optional, and have not been released publicly.

We don’t know whether salaries, including Barbour’s, will revert to normal on July 1, when Penn State begins its new fiscal year.

And we won’t know exactly how much and where all those cost-cutting measures were made until Penn State releases a copy of its 2020-2021 financial report, which it must submit to the NCAA in January 2022 but does not share typically with the public until several months later. So, it will be at least another year until we learn the true impact of the pandemic on Penn State athletics’ pocketbook.

That report, which will include the 2020 football season, will include some football-related revenue, mostly TV monies from the Big Ten and seat-license contributions — the required “donations” fans must make for the right to buy seasons tickets, which fans paid to PSU in early pre-pandemic 2020 and Penn State did not return. 

Barbour said she hopes the pandemic-induced money crunch won’t be too long-lasting.

As she noted on the virtual caravan last week, “we don’t want to have what I’ve referred to financially as kind of that COVID hangover. We don’t want COVID to impact us for years to come.”

COST-CUTTING PATH?

All of which leads to the question: To make sure that impact is short-lived, will Penn State athletics continue on its path of cutting expenses?

Certainly, in all of college athletics and not just at Penn State, money will be tighter than ever, for next year and quite possibly beyond, for reasons beyond COVID-19:

With the impending arrival of Name Image Likeness for college athletes will come increased administrative costs and potentially less sponsorship money for the school. Barbour will have to get the checkbook out for Beaver Stadium, which is in need of both repairs and upgrading, and for other football big buys, like the continued renovation of Lasch Building. And then there are spiraling costs for labor — especially for student aid, athletics staff and administration, and football coaches’ compensation.

The business of big-time college sports is expensive. But, it is also lucrative. It’s a narrow tightrope, at least the trajectory that Penn State and many other big-time schools are walking.

Since Barbour took over as athletic director in August 2014, Penn State athletics’ revenues have increased by $39.4 million, from $125.7 million to $165.1 million. That’s about 31%.

At the same time, expenses during Barbour’s tenure have gone up $34.8 million, from $122.3 million to $157.1 million. That’s a jump of 28.5%.

So, spending is doing a good job of keeping up with revenue, which is part of the reason why the pandemic created such a financial panic.

Where does the money go?

In a word: Labor. As I preach almost daily in the “Introduction to the Sports Industry” course I teach at Penn State, labor is the No. 1 ongoing cost of doing business in the world of sports. Facilities can ultimately cost more, but the amount on that line item goes up and down, depending when and how many new buildings and stadiums go up.

Here is how labor costs have skyrocketed for Penn State athletics over the past six years, beginning in 2014-15 and ending in 2019-20 (all numbers are from Penn State’s annual reports submitted to the NCAA; they are available here.):

Student-athlete aid jumped 37%. That’s for scholarships, room and board and cost-of-attendance stipends. Overall, PSU ICA spent $21.6 million on student aid in 2019-20, which is essentially the on-the-field labor — 966 total participants — for its 31 teams. (Compared to pro rosters, that is a bargain – hence, in part, the advent of NIL laws).

However, it’s not like there are that many more athletes to support. Over the past six years, the total athletes participating in varsity sports at Penn State is up only 8% — a jump from 895 in 2014-15 to 966 in 2019-20, according to PSU’s own numbers. So why the increase? Athletics admirably pays its own freight as a self-sustaining division at Penn State, so rising rates that regular PSU students are feeling is also felt by athletics.

(Not included is the $1.876 million Penn State athletics spent last year on non-travel student-athlete meals.)

Staff and administration compensation was up 40%. This includes salary, bonuses and benefits. This number actually dropped in 2019-20, by $1.6 million. Salary cuts and furloughs should result in an even bigger cut when numbers are released next year. Still, this number has gone from $19.6 million to $27.5 million in six years.

This is due to many factors: inflation; more staffers and administrators, and additional assorted assistant and associate athletic directors; enhanced student opportunities and professional support on and off the field; increased wages and bonuses; and the increased cost of benefits.

And at Penn State, messaging matters, which comes with a cost of its own: In an audit of major college athletics’ in-house strategic communications staffs done by Chris Kutz of Opendorse in December 2020, Penn State athletics had the biggest communications and creative content group in the country, at 38, followed by Texas A&M (34), Michigan (31), Ohio State (30) and Florida (30). This entails video, graphics, social media and communications/PR staffers.

Football coaches’ compensation was up 68.5%. This includes salary, bonuses, benefits and severance. It was $11.308 million in 2014-15 (including $82,000 for severance) and $19.053 million in 2019-20. The 2019-20 numbers broke down this way: $17.82 million for salaries, benefits and bonuses; $570,672 for severance payments; and $662,048 for Cotton Bowl coaches’ bonuses. 

Non-football coaches’ compensation was up 18%. This includes salary, bonuses, benefits and severance. It was $12.538 million in 2014-15 and $14.823 million in 2019-20. This means that for the 2019-20 sports season, Penn State football’s 11 coaches — James Franklin and his 10 on-the-field assistants — made over $4 million more than all of the other head coaches and assistant coaches in Penn State’s 31-sport program combined. That was not the case in Barbour’s first year as AD. 

Franklin’s salary compensation was up 31.5%, but it could be up as much as 53%, depending upon how much he draws against an annual $1 million life insurance policy and how that policy is set up. When Franklin was signed by Penn State in January 2014, his total payment that year was $4.551 million, counting base, bowl bonus, retention bonus and car. Two contracts later, that package for 2019-20 was $5.985 million. That’s an increase of 31.5%.

Franklin’s latest contract includes an annual loan of $1 million against a life insurance plan. If he cashes in all or part of that each year, his compensation jumps as well. And if the plan is anything like the one Jim Harbaugh got at Michigan, he may never have to pay it back. Details here

Barbour’s salary compensation was up 82%. In 2014-15, Barbour’s contract was for $800,000 per year: a $700,000 base, plus a $100,000 annual retention bonus. She also could’ve earned up to $100,000 in bonuses based on teams’ graduation rates, postseason appearances and national titles. For 2019-20, her renegotiated contract guaranteed her a base of $1.219 million and $240,000 a year from Penn State for a benefit or tax-favored plan, for a total of $1.459 million. Performance bonuses could also net her another $260,000. (In computing the salary increase, performance bonuses were not included.) 

As noted above, Barbour said last summer — which was part of the 2020-21 financial year — that she was taking a 15% pay cut.