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Global Credit Research - 11 Oct 2013
New York, October 11, 2013 -- As big-time college athletics bring universities ever greater opportunities
for improving their brand recognition and increasing revenue, they
also are heightening risks, says Moody's Investors Service
in a new report. These risks go beyond the financial and include
reputational risks should a program become embroiled in scandal.
Moody's also views the ultimate costs of these programs as uncertain,
given exposure to potential litigation over head injuries as well as possible
movement away from the amateur athlete model.
"Universities pursue high-profile sports programs for the
opportunity to increase brand recognition, student demand,
and donor support," says Moody's Vice President --
Senior Analyst Dennis M. Gephardt, in the report "Eye
on the Ball: Big-Time Sports Pose Growing Risks for Universities,"
which looks at the credit implications of NCAA Division I athletic programs.
"However, as the commercial success of big-time college
sports has grown, so too have the potential risks to universities."
On the one hand, the size of television contracts with the five
major athletic conferences have ballooned, with yearly TV revenues
for each university in them ranging from $17 million to $23
million. On the other hand, the next largest conference payout
is less than $5 million a year and the vast majority of athletic
departments operate at a loss, requiring university subsidies.
These subsidies have increased by a median of 25% from 2008 through
2012, says Moody's.
Specifically, approximately 90% of athletic programs are
not self-sustaining and require the growing subsidies, which
divert funding away from other university operations. Moody's
also notes athletic budgets have been increasing rapidly relative to other
university expenses, a trend likely to continue given the growing
commercial success of Division I sports.
Many universities have also undertaken costly improvements to their athletic
facilities as they join new conferences. Universities that are
unable to generate exceptional fundraising have financed athletic programs
through issuing bonds.
Moody's also views future costs as uncertain. Changing standards
around the treatment of football head injuries could increase the costs
of college football programs. Meanwhile, costs could also
increase if an expansion of the ongoing O'Bannon V. NCAA
case were to incorporate current players as well as broaden claims on
revenues from the media and licensing.
The numerous scandals involving recruitment, players, and
coaching staffs that have rattled the reputations of some universities
underscore the potential reputational risks the spotlight of big-time
college sports can bring. Management of these risks requires strong
oversight and governance, says Moody's.
At the same time, Moody's acknowledges the payoffs from successful
college sports programs can be unmatched, especially in an environment
where college enrollment nationwide is declining. For example,
undergraduate applications increased at Texas Christian University by
60% from fall 2009 to fall 2011 after its remarkable 2009 and 2010
football seasons. The University of Alabama, in turn,
has raised its percentage of first-year students from out of state
to 52% from 35% in just three years during its recent run
of football national championships.
For more information, Moody's research subscribers can access
this report at https://www.moodys.com/research/Eye-on-the-Ball-Big-Time-Sports-Pose-Growing-Risks--PBM_PBM158834.
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Dennis M. Gephardt
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Kendra M. Smith
MD - Public Finance
Public Finance Group
Moody's: Credit risks from big-time sports for universities are growing
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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