- Kristi Dosh, Sports Business
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ESPN.com college football writers and bloggers are writing about escalating facilities costs in college football and ranking school facilities.
As they note, building, renovating and expanding stadiums can cost tens of millions of dollars. So how does all of that get paid for, given how few athletic departments are financially self-sustaining?
The answer is not as exciting as watching De'Anthony Thomas of Oregon score a touchdown. But how costs are covered certainly can be more important to the program in the long run.
The most common way to pay for stadium improvements is the issuance of tax-exempt bonds. A bond isn’t all that different from a loan in the sense that it is, in its most basic form, a contract to repay borrowed money with interest at fixed intervals. Municipalities, counties and state governments generally can issue bonds, which are governed by federal and state law. The purchase of a bond by an investor provides the money needed for a stadium project, with the investor gaining tax-free interest payments in return.
Public and private universities and their various related entities -- sometimes including the athletic department or athletic department foundations -- often issue bonds because it is cheaper to do so than paying higher interest rates on a conventional loan. The National Association of College and University Business Officers estimates the interest savings over a 30-year period can be $415,000 per $1 million borrowed.
Credit rating agencies rate bonds based on an entity’s creditworthiness, which can be affected by the amount of outstanding debt, endowment and other factors. The bond rating directly influences the interest rate for new debt. So a university may reach a point where issuing any new debt would lower its credit rating so much that it no longer makes sense to use bond financing, meaning the athletic department would have to turn to other fundraising methods for new facilities.
The Tiger Athletic Foundation, which supports LSU and its athletic department, uses a couple of financing methods. In 1999, the foundation issued $43.6 million in bonds for renovations and improvements to the east-side upper deck of Tiger Stadium. And the foundation issued $90 million more in bonds in 2004 to finance the renovation of the west-side upper deck.
A provision of the bond agreements for both issuances requires the athletic department to pay rent of a combined $4.5 million per year, which is the second example of athletic facility finance.
Some universities will pay for construction projects, then rent the facilities to the athletic departments. At Ohio State, the athletic department paid more than $2 million to rent the Jerome Schottenstein Center for the 2011-12 school year for men’s and women’s basketball and men’s ice hockey. It paid another $1.2 million for its share of operational expenses for the McCorkle Aquatic Pavilion. In addition, the athletic department paid rent for two buildings used for academic services for athletes: the Younkin Success Center at a cost of $501,338 and the Fawcett Center at $76,613. The athletic department also paid $986,000 for use of the Fawcett Center for athletic offices.
A city, county or other outside entity sometimes also acts as landlord, as is the case with county-owned Raymond James Stadium in Tampa, where South Florida plays its home games. In 2011, the agreement called for $145,000 per game in licensing fees for use of the lower bowl and two club lounges. In addition, an 8 percent surcharge was added to the sale of each ticket and remitted to the stadium authority.
Selling corporate naming rights is also used. Louisville has sold naming rights for its football stadium and basketball arena -- to competitors, no less. KFC Yum!, which owns Pizza Hut, bought the naming rights to the basketball arena for 10 years at $13.5 million. Papa John’s got the naming rights to the football stadium for the bargain price of $5 million through 2040, but the company has donated more $22 million toward the stadium overall.
Fundraising campaigns also can be used to get money from donors. In rare instances, a single donor can fund a building or renovation. Such is the case at Oregon, where Nike founder Phil Knight is expanding the Casanova Center. The university is leasing the land to a company owned by Knight that is constructing the building and will then donate it back to the university as a gift.
Given the various funding options, most athletic departments will use a combination of them.
Lisa Rudd, assistant director of athletics for financial affairs at Virginia Tech, said her department considers a variety of financing options for each project.
“We always look at a variety of options for funding major projects, and they include resources from our internal budget such as cash reserves and current revenue flows, as well as fundraising and debt components,” Rudd said. “How we fund each specific project depends on the cost and cash flow timing of that specific project, whether or not we have resources available internally … whether a fundraising effort would be successful, [what] current debt rates [are], and the university debt load as a whole.”