Board of Trustees

Penn State athletics explores borrowing $30 million to get through NCAA sanction years

Penn State’s athletics department is considering borrowing $30 million to ease the financial sting of the NCAA sanctions for the next five years.

The proposal was part of a report on athletics given by Director of Athletics David Joyner, Associate Athletic Director of Finance Rick Kaluza and Corporate Controller Joe Doncsecz on Thursday to the board of trustees finance committee. The athletics department is responsible for paying the $60 million fine imposed on the university by the NCAA, and the university has also lost bowl revenues, appearances and scholarships.

Doncsecz said $5 million to $10 million of the debt, borrowed from outside the university, would fund operating needs to offset upcoming projected deficits, and $20 million to $25 million would fund “critical” short-term capital needs. He called the next five years a “difficult period.”

One of those reasons is a projected dip in attendance at Beaver Stadium.

Kaluza said that, looking ahead at the athletics budget, football attendance is projected at 88 percent of capacity, “to be as conservative as possible.” Five years ago, the university projected that at 94 percent, which he said was still conservative.

“We were doing a little bit more than that,” he said. “Now we ratcheted that down.”

No ticket price increases are planned for the next five years.

Penn State won’t receive its share of bowl game revenue again until 2016-17, a projected total loss of $21.6 million. But the department will see revenue from an upcoming new Big Ten TV deal, and from hockey as the new program joins the inaugural season of Big Ten play this year at Pegula Ice Arena.

Upcoming expenses include the internal debt needed to pay the rest of the $60 million NCAA fine and $10 million for a project to install high-definition scoreboards in Beaver Stadium next year, as well as the unknown implications of the Affordable Care Act on employee salaries and benefits. Penn State has paid $12 million of the fine so far, and another $12 million payment is due by the end of this year.

Budget projections show that the athletic department’s reserve will go into the red next year, bottoming out at a loss of $5.52 million in 2016-17. Officials predict it will tick up after that, with an overall positive reserve balance of $2.79 million in 2017-18.

“We’re keeping our finger very closely on the pulse here,” said David Gray, Penn State’s senior vice president for finance and business. “We’re watching the attendance and the sales game by game.”

Kaluza presented statistics showing how much the football program factors into athletics. In 2012-13, football brought in 40 percent of varsity revenue, $41.7 million of a total $104.5 million.

With football’s portion of TV revenue and other parts of the budget, that pie piece increases to 68 percent, or $72 million.

“So you can see the emphasis that football has on the overall athletics program,” Kaluza said.

Trustee Vice Chairman Paul Silvis asked if officials have considered cutting sports, noting that Penn State has the second-highest number of varsity teams in the Big Ten — 31 to Ohio State’s 36.

But the university is prohibited from doing that during the NCAA sanction period.

“When we come out of this period, it’s not going to be necessary,” Joyner said. “Our philosophy is that non-football sports are very, very important to the educational base. Even if we weren’t in this, we’d do everything to maintain that.”