Yesterday’s facilities update, and the possibility of taking on debt to finance it, has created some discussion about Virginia Tech’s athletic debt levels and whether they are appropriate.
Virginia Tech Athletic Facility Improvements: A Closer Look – Chris Coleman, April 14, 2016
Rather than try to research athletic debt levels around the country for comparison, we thought it would be informative to paint a historical picture of Virginia Tech’s athletic debt over the last decade. Randy Jones does an excellent financial report for us every year on Virginia Tech Athletics, using records publicly available from the published NCAA reports on the Virginia Auditor of Public Accounts web site.
Randy’s first report for us recapped FY2005 (the 2004-05 academic year), and he’s been doing them annually since then. (Note that all of Randy’s reports are TSL Pass articles, so you’ll need a subscription to access them. Fortunately, we’re running a $20 for six months promotion that’ll get you in at a low cost, if you’re not a subscriber. Try us out; you’ll love it.)
Here’s a historical look at Virginia Tech’s athletic debt levels as a percentage of athletic department revenues, per Randy’s reports.
(dollar figures in millions)
|Fiscal Year||VT Athletics Debt||VT Athletics Rev.||Debt as % of Rev.|
FY2005-FY2014 data from annual financial reports produced for TechSideline.com by Randy Jones.
FY2015 data from the Finance and Audit Committee report to the Virginia Tech Board of Visitors on March 21, 2016
In our article yesterday (linked above), we reported that the projects described in the article may be financed by taking out a loan in the neighborhood of $30 million. That information has been passed on to us by several different sources. The exact figure we have heard is $31 million; we’ll work with the $30 million figure here.
Building off of the FY2015 numbers (the 2014-2015 academic year, the most recent information available), if revenue and debt levels stay the same (they won’t), taking on $30 million in debt would increase Tech’s athletic debt levels to approximately $79 million, which isn’t unprecedented. That’s the same debt level VT had in FY2005, when the West side expansion of Lane Stadium had just been completed, and Tech took on $52.7 million in new debt to finance that project (per this report by Randy Jones).
Of course, looking at the figures, Virginia Tech’s athletic debt at the end of FY2016 (which is June 30th) will probably drop another $3 million or so, reducing it to approximately $46-$47 million. Adding $30 million to that would result in $76-$77 million in debt.
Again, that’s comparable to FY2005 debt, but there are two major differences between then and now:
1.) Virginia Tech’s athletic revenue is now much larger, increasing from $45.7 million in FY2005 to $80.2 million in FY2015. Debt as a percentage of revenue in FY2005 was 174%; total debt of $77 million today would be 96% of revenues of $80 million.
2.) The South end zone and West side expansion projects created significant debt (a total of $75 million in FY2005), but they also generated significant revenue to pay for that debt, with the addition of 11,000 new seats in the SEZ and luxury boxes and club seating throughout. Most of the projects today that would be funded with a new $30 million loan do not generate new revenue, with the exception of the English Field at Union Park upgrades, which will generate new revenue — perhaps significant new revenue, once we find out the totality of Whit Babcock’s plans for the park. (See this interesting post on our Baseball message board for some possibilities.)
You can see that while $30 million in new debt might seem daunting on the surface, there is historical precedent for it, and if there’s one thing Virginia Tech did well under former athletic director Jim Weaver, it was manage debt; if there’s one thing Virginia Tech does well under current athletic director Whit Babcock, it’s generate new revenue.
Taking on new debt shouldn’t be a problem, and these are exciting projects, particularly the Union Park upgrades.