Responses to Faculty Senate Follow up Questions on Athletics

1. Can we get a definition of terms: deficit, debt, accumulated deficit, capital debt – and then allocated #’s to each of those terms?

Deficit refers to the annual operating deficit due to expenditures exceeding revenues. While Athletics has been operating in a deficit for many years, they are on a program to eliminate their annual operating deficit by FY2022. They were making annual improvements until the most recent fiscal year, FY2021. The approved FY2021 budget was for a $5M deficit, however the pandemic significantly impacted their revenues due to no ticket sales and a decline in media revenues since so many televised events were cancelled during the competition seasons. Even with a $7.9M reduction in expenditures, including layoffs, furloughs and reductions from reduced travel and competition expenses.

Debt and capital debt are probably one and the same here, although debt can also refer to the accumulated deficit. For this discussion debt is a formal legal obligation to borrow money for a specific purpose and to agree to repay this obligation, usually with interest. Capital debt for Athletics was incurred by selling bonds to the public and institutional investors to build specific athletics facilities with a legal obligation for WSU to repay this debt. While WSU requires Athletics to make the annual debt service payment, all capital debt is a legal obligation of WSU.

Accumulated deficit is the total operating budget deficit accumulated over multiple fiscal years and is net of any positive year-end balances, so the opposite of an accumulated surplus (or carryforward). The official measurement is at fiscal year-end, or June 30. Accumulated deficit can also be an internal debt when there is an agreement that it will be repaid.

2. Regarding our athletic program: What is the accumulated debt and what is the annual operating deficit?

The accumulated operating deficit was $87M on June 30, 2020 and is officially measured at fiscal year-end. The accumulated deficit for fiscal year end June 30, 2021 is currently estimated to be approximately $128.6M by adding the project FY2021 deficit of $31.6M to the $87M cumulative deficit as of June 30, 2020. The actual amount will be determined after the FY2021 books are officially closed.

3. Wasn’t the ‘anticipation’ of the last media contract what fueled the deficit spending that resulted in the debt they have now?  Is the same thinking is occurring now?

What we have come to understand is that the anticipation was that the revenues from the Pac-12 network were projected to be much greater than actual results. The rest of the media contract is consistent with what was expected. From what I have been told, the expectation was that these larger revenues would be used to cover the debt service for the expansion of Martin Stadium and other athletics projects. Since these greater revenues were not realized AND there was not a significant fundraising campaign prior to building these facilities, this resulted in the need to cover the debt service from the Athletics annual operating budget. Since the annual operating budget deficit has averaged close to $9 to $10M in the past 8 years, that might be the reason for connecting the deficit in the operating budget to the added debt service payment. WSU recently refinanced the Athletics debt and will likely use the savings to cover COVID related revenue losses. The challenge is understanding what might happen next season if the pandemic impacts the ability to have large crowd events (ticket sales) or televise athletic events. These items have a significant impact on athletics revenues.

4. Has the Pac 12 media contract ever yielded expected revenue for WSU?

My understanding is that it has yielded the expected revenue except for the Pac-12 network itself. The network has underperformed expectations and did not result in the increased revenues to cover the new debt. The Pac-12 distribution annual distribution has been approximately $34M per year prior to FY2021, and currently provides approx. 45 percent of their annual operating revenues. Contractual media revenues are scheduled to increase starting in FY2023.

5. Could you speak to additional expenses regarding new facility requests by athletics? Does the administration want to build even newer facilities for athletics?

Athletics is currently fundraising for an indoor practice facility and will be required to raise enough in cash and confirmed pledges before the facility will be presented to the Regents for approval.

6. How much of the federal aid money will end up going to athletic funding through “loss of revenue” during 2020 and 2021?

None of the federal aid (CARES) went to Athletics for FY2020, most of that aid went to housing/dining and other auxiliaries that lost revenue last spring. In addition, the funding was used to purchase chrome books, hotspots and other items so that faculty could teach, and students could access online courses. It was also used for COVID testing and contact tracing expenses.

The federal funding that we received from the CRRSA (Dec 2020) is being used to cover expenses related to COVID and remote learning. We have not yet planned how much may be utilized to cover any of the auxiliary revenue losses, though it appears that these are considered eligible expenses (except for capital). Current losses from housing/dining, student auxiliaries, parking and athletics is well above the aid that we will likely receive. Our priorities are to fund testing and vaccination activities, teaching and learning and whatever is needed to work toward a more normal fall 2021 return to campus. At least half of the latest round of funding (we have not received yet but expected to be approx. $61M) is required to go to student aid. WSU does not plan to use any of the federal emergency aid to cover the athletics deficit.

7. Are big-time collegiate athletics sustainable, in general—that is, do they recoup more than they spend?

That is a good question and likely depends on how one defines sustainability. Very few intercollegiate athletics programs are entirely self-supporting, and many institutions do subsidize their intercollegiate athletics program budgets. Also, many institutions charge student fees directly to support athletics. Other institutions might pay facility costs or fund individual activities like gender equity programs, academic support programs, etc. While this is a question that is getting more attention as colleges and universities struggle with their budgets, many believe that the alumni and donor support and the marketing value of college athletics supports the college experience that many students seek and brings publicity that the University might not otherwise receive. Admittedly, not all the attention is positive, but college athletics remains popular across the country.

For informational purposes, I have attached to graphics to show the entire WSU outstanding debt portfolio by purpose. The second graphic is a breakdown of the annual debt service payment by purpose. Athletics is depicted in yellow and shows how the annual payment adjusts each year. The WSU operating budget pays debt service for academics and research and general university. The others are paid from revenues of those auxiliaries.