I recently came across a very interesting article that originally appeared in the Chronicle of Higher Education last fall. A significant increase in the construction of new sports facilities occurred at U.S. colleges and universities over the past 10 years. Athletic facilities at top universities tend to be lavish because NCAA regulations prohibit schools from competing for athletes on a price basis, leading schools to compete on a non-price basis, including investing in facilities. On top of this, the last few years featured above average increases on the revenue side, in terms of attendance, media rights revenues, donations, etc., and many athletic administrators believed that the good times would continue far into the future.
The result was a large number of expensive new facilities (the University of Minnesota built a new $289 million football stadium) and renovation projects (the University of Michigan renovated the Big House for $226 million, the University of Illinois renovated Memorial Stadium for $100 million). These large construction projects are paid for by issuing debt. The NCAA doesn’t track capital spending by athletic programs, but anecdotal evidence indicates that a significant amount of new debt was issued all over the U.S.
Now, of course, athletic departments are operating in a different environment. Financial markets are in turmoil and the recession is dragging on. These factors are affecting both the general fund and athletic departments at colleges and universities. And the additional debt taken on during the construction boom is becoming a problem. In some cases, athletic debt is so large that universities are close to their borrowing ceiling, and other non-athletic related construction projects are not being built. Nobody has defaulted yet, but the economic recovery is sputtering and another bad year or two could lead to problems.