Yesterday, the NCAA levied what many consider to be unprecedented penalties upon Penn State. Including within the NCAA’s sanctions, was the imposing of a $60 million fine to be paid by Penn State over the next five years. This $60 million figure is clearly large, leading some to believe that while the NCAA did not impose the “death penalty” upon the football program, it nonetheless intended to decimate it.
How though, will the $60 million fine actually impact the operations of Penn State’s football program and the Penn State athletics department? In the grand scheme of Division I athletics, Penn State has posted impressive revenues in recent years. For 2010-11, the most recent year for which Department of Education data is available, Penn State’s athletics department reported total revenues of $116,118,026.00. The athletics department also reported expenses of $84,498,339.00. While many athletics directors will note that the numbers reported to the Department of Education are not inclusive of every cost incurred by an athletics department, these figures at least give some idea as to the type of budget Penn State’s athletics department is operating under.
That being said, it is arguable that at least when considering the Department of Education data, having to shell out on average $12 million per year over the next five years to comply with the NCAA’s sanctions is not going to destroy Penn State athletics. However, the story is not that simple. One has to take into consideration the multitude of budgetary factors Penn State’s athletics department is likely now facing as a result of the NCAA sanctions. Along with losing sponsors like State Farm and facing a possible credit downgrade by Moody’s, Penn State athletics likely now has to rework its budget to determine where the $60 million is going to come from.
Frank Hardymon is the Associate Athletic Director – CFO at Georgia Tech. While he can only explain the budget planning process engaged in at Georgia Tech, he notes, “I would guess our methods of planning and budgeting are similar to those utilized by other institutions.” This planning begins the spring prior to the July 1 start of the fiscal year, when the upcoming year’s budget is completed. “In our case, nearly every dollar which we project receiving is accounted for in the budget,” Hardymon noted.
Likely, a similar circumstance exists at Penn State. While the Department of Education arguably demonstrates that the athletics department is operating with a surplus, many athletics directors are quick to note that is not the case, as not every expense an athletics department incurs is reported to the Department of Education. As such, Penn State is likely looking towards contingency provisions in its budget to gather the money by which to pay the $60 million fine. “We build in as much contingency as we can every year; some years we may have close to $500,000.00 in contingency factors into the budget, other years that amount is quite a bit less,” Hardymon said.
It is unknown whether Penn State’s athletics department had any contingencies built into its budget. If so, it is highly unlikely that the contingency amount would allow for the payment of a $60 million fine. As such, Penn State will likely have to scrape from other areas of its budget to pay the imposed fine. Areas in which Penn State could cut from its budget would likely be from recruiting expenses, travel costs and future coaching salaries. However, the most likely area in which Penn State could draw from is facility improvements. While the department will have to continue paying under the loan terms for already existing improvements, it is unlikely that the athletics department will undertake any new building during the time period in which the fine is being paid. Hardymon noted, “We also maintain a detailed five-year income projection which we update frequently. That analysis factors in projected facility improvements needed during those five years.”
Overall, the financial sanction imposed upon Penn State by the NCAA is indeed a blow to the athletics department. However, given Penn State’s apparent athletics revenue along with proper budgeting moving forward during the next five years, it is likely that the athletics department will be able to continue to function financially.
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