June 8 (Bloomberg) -- Rutgers University, which may be asked to join the Big Ten Conference, must decide whether joining one of the most prestigious U.S. athletic associations will put its sports program on the road to solvency or financial ruin.
The Scarlet Knights’ athletic department, which received almost half its $58.5 million in revenue last year from state subsidies and student fees, would probably earn about an extra $13.6 million a year in conference money by leaving the Big East for the Big Ten, based on current distributions.
To compete with schools such as Ohio State University, the University of Michigan and Penn State University, however, the New Brunswick, New Jersey-based school probably will have to increase spending on coaches’ salaries, recruiting and infrastructure, possibly sending it deeper into the red, sports business analysts and former coaches said.
“If you are going to compete and be successful, you better have the facilities, and that’s going to be an arms race,” said former UCLA football coach Terry Donahue, now a college football analyst for Westwood One, Inc.’s radio network. “It’s the number one thing that attracts recruits.”
The Chicago Tribune reported in March that Rutgers was under consideration for an invitation to join the conference.
Jim Delany, commissioner of the Big Ten Conference in Park Ridge, Illinois, and Tim Pernetti, athletic director at Rutgers, declined to be interviewed. The school’s only comment on the matter is a statement Pernetti made in December that said the school was proud to be in the Big East and, “It is not our place to speculate on the expansion plans of any other conference.”
Chicago-based William Blair & Company LLC was hired to evaluate whether adding as many as five schools would generate enough revenue to make it worthwhile, the Chicago Tribune reported in March. The firm evaluated Pittsburgh, Notre Dame, Missouri, Syracuse and Rutgers, according to the newspaper.
The conference has said it plans to make a decision within a year. This weekend, the Pacific-10 Conference gave its commissioner, Larry Scott, the authority to expand. Scott said an expansion decision could come as early as July 27 when the Pac-10 holds a media day in New York. An action by the Pac-10 may force the Big Ten to move more quickly.
Schools in the Big Ten, an association of 11 of the U.S.’s top athletic and academic universities, have played in 69 bowl games in the past decade and Ohio State has played in the national championship game three times in the last eight years. All are members of the Association of American Universities, a nonprofit association of 61 U.S. and two Canadian research institutions, including Rutgers.
It’s a Midwest-rooted conference with schools stretching geographically from the University of Minnesota to Penn State. Rutgers would give the conference and its cable television sports network a toehold in the New York media market, the U.S.’s biggest.
Rutgers’ revenue would be boosted immediately, although its money-losing intercollegiate sports program would be under pressure to spend millions to bring its sports facilities up to Big Ten standards. For example, Rutgers’s 16-year-old football stadium seats 52,454. Three Big Ten stadiums -- Penn State’s, Michigan’s and Ohio State’s -- hold almost twice that amount. The average seats 74,670.
Rutgers’ basketball arena seats 8,085, about 47 percent smaller than the average Big Ten arena’s 15,176 capacity.
The university gave intercollegiate athletics $17.9 million to keep it afloat in the fiscal year ended June 30, 2009, and students were charged $7.8 million in student fees -- fifth highest among the top 51 public schools in college football’s biggest division.
Rutgers eliminated six sports teams to reduce expenses in 2007 and none was profitable in the fiscal year ending in 2009, according to the school. Rutgers carries debt of $95 million, almost twice its athletic department’s annual revenue.
“It’s like the rest of America where we are going into hoc and saying, ‘We’ll find a way to pay this mortgage somehow,’” said Rick Gentile, an instructor in sports management at Seton Hall University in South Orange, New Jersey, and a former executive producer and senior vice president at CBS Sports. “Rutgers is looking at the financial upside to joining the Big Ten and figuring they’ll find the money to make the upgrades to their program somehow.”
The school would already trail in donations: According to financial records obtained through state open records laws, Rutgers athletics received $7.95 million in donations last year. That’s half the Big Ten average of $14.6 million.
Faculty representatives say they wouldn’t want new Big Ten money spent building bigger stadiums when the school’s athletic department is losing money with its current ones.
“If one could guarantee that getting into the Big Ten would actually make Rutgers athletics closer to breaking even, I would think there would be no faculty members that would have any qualms about joining,” said Paul Panayotatos, incoming chairman of the Rutgers University Senate and representative to the Board of Governors.
“If it means we need to hire more well-paid coaches and expand the stadium to twice its size, that might give everyone something else to think about,” said Panayotatos, who teaches electrical engineering.
The athletic department spent $102 million to add 11,500 end zone seats to the football stadium for the 2009-2010 season and could only sell out two games, even though the team finished 9-4 and was invited to its fifth straight bowl game. Average tickets sold were 49,113 for seven home games.
Rutgers will probably have to increase coaches’ salaries to compete for the best coaches in the Big Ten, pay a conference membership fee of between $5 million and $20 million and beef up the athletic department’s investment portfolio, sports analysts and former coaches said.
Rutgers’ athletic endowment fund had a market value of $17.5 million in the year ended June 30, 2009, according to the school. It would have been the second smallest in the Big Ten, slightly ahead of Purdue at $15.3 million.
Big East spokesman John Paquette said if Rutgers moves to the Big Ten, it must also pay a $5 million exit fee and wait 27 months to leave, according to conference rules.
“These issues traditionally transcend balance sheet analysis,” said Rick Horrow, an attorney who helped create the concept of public/private partnerships in stadium construction. “You need to look at spikes in alumni donations, on-campus visits and the overall goodwill of the program,” he said.
Big East Money
Rutgers got $6.3 million from the Big East for the year ending June 30, 2010, according to Rutgers spokesman Jason Baum.
Big Ten schools received $19.9 million for the year ending June 30, 2010, including $14.9 million in television money, of which $6.4 million came from the Big Ten Network, according to University of Michigan Chief Financial Officer Jason Winters.
The Big Ten could pay out even more if it added Rutgers, and could negotiate a higher fee with cable companies in the New York-New Jersey-Philadelphia region, Gentile said.
The network has negotiated fees with cable television carriers of as much as 88 cents per month for each subscriber in the Big Ten market, according to Derek Baine, a senior analyst at Charlottesville, Virginia-based SNL Financial. Outside the market it gets five cents.
New York Revenue
Gentile said that adding the New York market to the Big Ten Network would mean at least an additional $20 million in revenue for the conference.
“Anyway you cut the cake, the Big Ten network makes out like a bandit,” Gentile said.
Rutgers, meanwhile, is feeling a budget pinch like much of the state. New Jersey Governor Chris Christie is faced with a budget shortfall of $10.7 billion. The governor will cut the school’s funding for the fiscal year starting July 1 by 12 percent, or about $37.8 million, according to Department of Treasury spokesman Andy Pratt. Rutgers President Richard L. McCormick declined an interview request.
Sam Rabinowitz, the outgoing University Senate chairman, said the school’s faculty is divided over whether to support the athletic department’s growth.
“Even with the possibility of added athletic revenue, the pullback from state subsidies has been creating havoc,” Rabinowitz said.
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