Gophers athletics department juggles mix of debt vs. revenue

With bigger and bigger piles of money pouring in from Big Ten Conference revenue sharing, the Gophers athletics department showed a $9.8 million profit last year, more than a fourfold increase from the previous year.

But a deeper look at the budget explains the department's increasing unease from sagging attendance and hefty debt service payments for their upgraded facilities.

To avoid relying on one major source of revenue from the Big Ten, the Gophers have taken serious steps to revive their deflating ticket revenue in their three revenue-generating sports: football, men's basketball and men's hockey.

This spring, the Gophers slashed some of their season-ticket prices in men's basketball and hockey, while proposing the sale of alcohol to all patrons at Williams Arena and 3M Arena at Mariucci.

The Board of Regents is expected to pass the alcohol measure next week. Several regents spoke in support of alcohol sales at last month's meeting, saying they hoped it would sell tickets and build attendance as well as bring in more than a projected quarter-million dollars of revenue.

University leaders are hopeful these measures will enhance the department's bottom line before the conference cash runs dry.

"Athletics, like all units of the university, is under budget pressure," outgoing University of Minnesota President Eric Kaler said. "But Mark [Coyle, athletic director] has been very strategic and thoughtful about ticket pricing, the discussion of providing alcohol. … He's laser-focused on getting to a balanced budget every year."

The Big Ten re-upped its national TV deals two seasons ago, infusing more than $2.5 billion into the conference through those six-year contracts. So after raking in $23.4 million in Big Ten media rights revenue two years ago, the Gophers saw their critical share grow to $41 million last year.

University CFO Brian Burnett said while the additional revenue is "certainly welcome," the fact the conference distributes it to every school only increases the competition and expectation. Schools can use the funds to start new facilities projects or make coaches' salaries more competitive, for example.

The Gophers have used much of the increase, though, to pay off a combination of football coaching severance payments and the department's debts from building new facilities.

The department received a loan from the university in 2017 for about $6.8 million to assist with the football coaching transition of firing Tracy Claeys to hiring P.J. Fleck with payments to those coaches and their assistants.

The athletic department repaid the loan last year, so that comes off the books. But this happens just in time for the debt service payments — outstanding loans from the university, plus interest — to nearly double.

The Gophers also paid about $6.8 million last year toward the debt service for TCF Bank Stadium and other facilities projects, such as the new scoreboard at 3M Arena at Mariucci. The department will continue to make payments on the football stadium until 2034.

And next year, the department will begin repaying the university $6.1 million a year for the "Nothing Short of Greatness" facilities campaign that includes the athletes village. The full project cost $190 million, and the department has raised $134 million of that total so far.

The department still aims to fundraise that entire total. Meanwhile, of the athletic department's $125 million budget, about 10% goes to paying off debts.

Burnett said the debt service total should peak this year, dropping to $11.9 million next year, $11 million the year after that and so on, as long as the department doesn't incur any more payments. He said Coyle and athletics department CFO Rhonda McFarland are both thoughtful on how much debt the department can reasonably sustain while also looking toward saving for unforeseen future expenditures.

The Big Ten's revenue sharing will cushion the department for at least another four years. But no one is sure what those dollar amounts will be when the deals are up for renegotiation. The rise of cord-cutting, when people forgo cable television for internet-based streaming, could take a chunk out of those future numbers.

"I think everyone's mindful of what's happened across the country with cord-cutting," Coyle said in 2017. "I think we're foolish if we don't think there will be an impact on us. So how do we prepare for that?"

In April, the department reduced prices for some of its cheapest season tickets, starting men's basketball at $340 and men's hockey at $500. That's a more than 20-year low for basketball and a $100 drop from a year ago for hockey.

Expanded alcohol sales at Williams Arena and 3M Arena at Mariucci are also on the horizon. TCF Bank Stadium has sold alcohol stadium-wide since 2012, but the other venues had it only available in premium club seating locations.

"I can't speak for our fans. If you sell beer and wine, will more people come to the games?" Coyle said. "What I do know, it will have an impact on fan experience. Obviously, we're hopeful it will impact attendance. We pay attention to attendance, there's no doubt."

Football coach P.J. Fleck said his goal when he took the job in January of 2017 was to consistently sell out TCF Bank Stadium. But that takes more than a winning product on the field.

"You need a gameday environment that's completely different," Fleck said. "… Give [fans] a reason to come to the game instead of sitting on their couch and watch it, [where they] can watch 14 different games at once."

Gophers attendance for their revenue-generating sports has been dwindling. In a five-year span ending with 2015-16, basketball operated at an average of 80% capacity in Williams Arena, football at 94% in TCF Bank Stadium and men's hockey at 98% in 3M Arena at Mariucci.

For the past three seasons, those percentages declined 5% for basketball and 11% for both football and hockey. That delivered a hit to the Gophers' budget. Annual ticket revenue fell during that span from an average of $24.3 million in those earlier five seasons to about $21 million in the next two.

The full financial impact of last year's sharp attendance decrease from 2017-18 — a 15% drop in football, 10% fall in basketball and 9% in hockey — will be revealed next winter, when the 2019 budget becomes public.

In two must-win Big Ten tournament games this past season, the hockey team drew only an announced 1,835 and 1,911 fans. Coach Bob Motzko said that was "the wake-up call" the program needed.

"There's no question what happened in the playoffs hurt, but it flipped [on] the lights," Motzko said. "… Right now, it's all hands on deck to figure out what we have to do to re-establish that emotional connection to the program."

It's clear reversing those attendance trends would give the department a financial lift. As recently as 2014, the Gophers' ticket revenue totaled $28.5 million. That included a financial bump from a football season-ticket price increase and an outdoor hockey game at TCF Bank Stadium that drew 45,000 fans.

While that year was a one-time outlier, filling all these venues — or at least returning to the average capacities of the early 2010s — would help the department's bottom line. So Coyle is spurring the department to "get creative," and the rest of the university is on board.

"If we increase ticket sales, continue to do better in football, basketball and men's ice hockey," Burnett said, "… we're hopeful that our revenue grows while our debt service plan diminishes in the next five years.

"So that gives some breathing room."