Major revenue source of Gophers athletics faces an uncertain future

When Mark Coyle finished his first stint at the University of Minnesota, leaving to become associate athletic director at Kentucky in 2005, the Gophers were collecting $10.7 million each year in Big Ten revenue.

That was two years before the Big Ten Network launched, revamping the college sports television landscape. By the time Coyle returned to take the Gophers' AD job last year, Minnesota's share of Big Ten revenue had spiked to $36.3 million.

By next year, that number will skyrocket again, to $51.1 million, according to University of Michigan projections, as reported by the Detroit News.

But after inheriting a budget deficit at Minnesota and making an expensive football coaching change — from Tracy Claeys to P.J. Fleck last winter — Coyle needs the added Big Ten revenue to balance the books.

A former AD at Boise State and Syracuse, Coyle preaches caution, knowing the college sports landscape could shift again, as droves of consumers move away from cable TV.

"I think everyone's mindful of what's happened across the country with cord-cutting," Coyle said. "I think we're foolish if we don't think there will be an impact on us, so how do we prepare for that?"

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The latest Big Ten windfall arrives as the conference begins new media rights deals with Fox and ESPN. Commissioner Jim Delany made a calculated gamble, agreeing to six-year contracts this time around. The SEC and ACC, for comparison, have deals that run through 2033-34 and 2035-36, respectively.

What happens to Big Ten media revenue after 2023 is anybody's guess. ESPN reportedly has lost 12 million subscribers over the past six years, costing $1.2 billion in annual revenue, and recently made high-profile layoffs.

"Eventually, you have to wonder, will this money be coming in to conferences like the Big Ten forever?" said Dave Ridpath, an associate professor at Ohio University and oft-cited expert on college sports business. "Considering what's recently happened at ESPN, I still think there's a bubble, but when that bubble bursts, who knows?"

Adam Gajo, a sports analyst for S&P Global, counters that many cord-cutters are simply turning to live streaming services for their sports fix. Hulu Live, for example, has a 50-channel menu that includes ESPN, Fox Sports and Big Ten Network, for $40 per month.

"Say the cable bundle were to explode or just go away; those [digital streaming] rights still belong to ESPN through the lifetime of the deal," Gajo said. "You can focus on the cable bundle, but you also have these new platforms that are coming out that are showing the premier programming that people are really interested in."

If a pessimist sees a potential day of reckoning coming for college conferences, an optimist might envision increased prosperity. Twitter paid $10 million to stream Thursday night NFL games last year, and Amazon upped the ante to a reported $50 million for those same rights this year.

If Amazon, Twitter, Google or Facebook start bidding wars to air college sports, that's some serious financial muscle.

"Sports are always going to be popular," Ridpath said. "But there are so many content distributors [cable companies, live streaming services, etc.]. … I think one issue is that advertisers, people that are paying for all this, are not going to see the return on their investment. Just because there are so many things we can see and watch, and so many ways we can access these games."

It's hard to imagine continued revenue growth like the Big Ten has seen the past decade. The Gophers' share grew from $10.7 million in 2006 to $18.8 million in 2008, and it kept climbing, reaching $24.6 million by 2012. By next year, that last number will more than double.

Can this continue?

"I think that's hard to predict," Coyle said. "I can tell you we are very fortunate to be part of the Big Ten. We are very fortunate to have Commissioner Delany. I think he and his staff do a phenomenal job of seeing what's ahead."

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Coyle will make the athletics department's annual budget presentation before the University's Board of Regents on Wednesday, outlining where the extra Big Ten money is going, as part of next year's projected $113 million budget.

He took over as AD on May 31, 2016, one month before the end of the 2016 fiscal year, and inherited the projected fiscal 2017 budget from then-interim AD Beth Goetz. That budget severely overestimated how much ticket revenue would come this past year. With football ticket sales sagging beneath those hefty price increases, the result was a $6.3 million shortfall.

The department had set aside $1.45 million for coaching transitions, but it wound up spending $7.08 million to go from Claeys' staff to Fleck's.

Beyond the ticket shortfall and coaching transition, Coyle said the third area the extra Big Ten money will go is to offset additional costs coming in January, when the Gophers open their new nutrition center, a centerpiece of their Athletes Village. The department anticipates $800,000 to $1 million in additional meal costs next year.

As for the Athletes Village construction, the Gophers still have a goal of fundraising the entire $166 million cost. So far, they have officially raised more than $92 million. The department secured a loan and is scheduled to begin debt service payments — $6.25 million annually — in 2019.

The added Big Ten revenue from the conference's new TV contracts soften the impact those payments will have on the budget. While Minnesota, Michigan and other long-standing members top the $50 million mark in conference revenue next year, SEC teams will each get more than $45 million, with the Big 12 at $37.5 million and Pac-12 at $32.5 million, according to the San Jose Mercury News.

Pac-12 Network growth hasn't met expectations, and some schools such as California and Washington State started ambitious facilities upgrades in anticipation of the increased revenue. According to the Mercury News, Washington State's athletics department has a $10.6 million projected deficit this year, and California's is $18 million.

"I feel like we've been very conservative," Coyle said. "The last thing I want to do is to be overaggressive in revenue and underestimate expenses."

Coyle wants the department to be prepared, in case the bubble bursts.