Athletic Director Kevin Anderson speaks at the press conference announcing Maryland’s entrance into the Big Ten conference. He announced Tuesday that men’s track and field will continue for another two years prior to the university’s move to the Big Ten.
University officials have promised the move to the Big Ten means more revenue to aid the university’s strained athletic budget, but simply leaving the ACC carries a hefty price tag.
The department shoulders more than $80 million in debt and is grappling with fluctuating ticket revenues and depleted reserve funds — and had to cut seven teams in July to prevent a $4.6 million deficit in fiscal year 2011 — all factors making the prospect of a potential $50 million exit fee more daunting.
But the high debt numbers are “misleading,” said Brian Ullmann, assistant university marketing vice president. The debt load is largely composed of loan repayments dating back to 2006 for renovations to Byrd Stadium, including the $50.8 million Tyser Tower featuring 63 luxury suites and flat-screen TVs.
“It’s not like we’re living under this crushing $80 million debt,” Ullmann said. “The athletic department doesn’t have trouble making their payments.”
The university paid $3 million in debt service last year, a figure that counts for about 5 percent of the athletic budget.
The ACC sued the university to ensure it pays the full exit fee, but university President Wallace Loh has said he will likely work to negotiate a lower fee; Ullmann did not comment on how the university would finance the fee because the lawsuit is ongoing.
Even if the department is forced to take on more debt, the expected payoff from TV contracts with the Big Ten and revenue sharing could help chip away at budget shortfalls and loan repayments. In 2011, most Big Ten members made more than $24 million, compared to the university’s $17 million from the ACC.
The move could ultimately help the department turn deficits into profits, bringing in more recruits and providing the university with national exposure.
“Going into the Big Ten, I believe, is the right thing,” said finance professor David Kass. “I think that the stature in Maryland would go up dramatically.”
Even if officials negotiate the fee down, the fine will likely be at least $20 million, said sports lawyer Bradley Shear. And if it’s any higher, it will be the largest exit fee any school has ever paid. West Virginia paid $20 million to leave the Big East for the Big 12, but it allowed them to leave the conference immediately. And a fine that large would be difficult for any school to pay, said Lisa Rudd, Virginia Tech’s financial affairs assistant athletic director.
“I honestly thought that’s enough to keep everybody from leaving because certainly nobody can fund that amount,” she said.
Virginia Tech left the Big East in 2005 for the ACC, but only paid a $1 million exit fee. Rudd said by Virginia state law, the university’s athletic department is required to sit on reserves — and it would dip into that fund, ramp up fundraising efforts or use its current revenue stream to make up-front payments. However, the ACC exit fee is a much steeper expense.
“Even when we fundraise for a project, that takes years to raise,” Rudd said. “I honestly don’t know how we would come up with those resources at one time.”
The university is estimated to make nearly $100 million more than it would have in the ACC by 2020 in the new conference, which would be a welcome boost in the context of the university’s dried up reserve account and recent $1.2 million shortfall.
“There’s good debt and there’s bad debt in any business, as long as the debt that the department is taking on is debt that fits into their long-term goals,” said Dan McIver, associate athletic director at the University of Wisconsin-Green Bay, who manages that department’s finances. “As long as there’s also a financing plan to pay down the debt over time.”
