Inside Michigan athletics' unprecedented budget crisis without football: 'Many unknowns'

Michigan's athletic department began bracing for impact months before the most unprecedented season in college football history was set to begin. The financial fallout of playing a season during the COVID-19 pandemic was expected to be steep and the variables were seemingly endless.

Would fans be able to attend games? And at what capacity could Michigan Stadium be filled? The answer to each question, and several others, would have a corresponding impact on how much money the department bled. At worst, the Wolverines' share of Big Ten Network's media rights deal — a whopping $55 million in 2019 — could help keep the department stable.

So, as Michigan athletic director Warde Manuel presented in June his annual budget to the university's board of regents for the 2021 fiscal year, he did it preparing for something short of the worst: a $26.1 million deficit for the department.

And that was before the Big Ten postponed the cash cow that is college football.

Three months later, Michigan is in fact bracing for the unknown in the wake of the conference's decision to indefinitely delay fall sports because of the novel coronavirus.

"The reality is that our immediate decrease in resources threatens the support we are able to offer our student-athletes for the foreseeable future," Manuel wrote in a letter to season-ticket holders Aug. 6.

A Michigan football operation that generated a $74.8 million surplus during the 2019 fiscal year — the most recent year of NCAA records available — has been dammed by a financial situation shrouded in historic uncertainty. A department-wide revenue stream approaching $200 million is now expected to be slashed in half in what easily could be the most significant financial fallout in the department's history, according to information compiled by USA TODAY Sports in partnership with Syracuse University’s S.I. Newhouse School of Public Communications.

"The impact is upwards of almost half our budget," Manuel estimated recently, during an appearance on Jon Jansen's "Conqu'ring Heroes" podcast. "About $100 million."

And the Wolverines aren't alone. Without college football, the state of Michigan's five FBS athletic departments will swallow millions of dollars — with the two Big Ten programs, Michigan and Michigan State, slated to lose the most.

'A lot of turbulence'

Athletic departments nationwide experienced spikes in football revenue in the years before the pandemic, and Michigan was no exception. The Wolverines topped $100 million during the 2017 fiscal year, and the number jumped to more than $120 million in 2018 and 2019.

To provide a sense of how important football is to the financial health of the department, Michigan generated $122.3 million in total football revenue during the 2019 fiscal year, or nearly 62% of the $197.8 million the athletic department raked in for games played from the fall of 2018 through the spring of 2019. With expenses approaching $191 million, the department operated at a surplus of nearly $6.9 million after the football team played a 12-game regular season and reached the Peach Bowl.

When Manuel presented his budget June 25, he was forced to guess what football might look like in the fall. At the time, the COVID-19 outbreak was stabilizing in Michigan, and there was hope that not only would a season be played, but a reduced number of fans could attend games at Michigan Stadium, the largest college venue in the nation.

Manuel figured the department would lose 50% of ticket sales among all sports, with football delivering the brunt of the hit. He figured the department would also lose $17 million in preferred seat contributions — the donor gifts that go to the department when season tickets are purchased. And he factored in the uncertainty of conference contributions and TV revenue, among other things.

“There is still a lot of turbulence about what is going to happen," Manuel said as he presented his budget. "We don’t really know. We have multiple models, although I am presenting one to you. But we will adjust accordingly and move forward.”

Money to be made

The Big Ten, as of now, isn't expected to play football this fall. But even if it does and the conference implements a 10-game conference-only schedule — as it had planned to do beginning Sept. 5 — there are any number of other factors that could impact the deficit Manuel outlined.

If no games are played this fiscal year, the fallout could be catastrophic. But with college football already being played in other sections of the country — particularly the ACC, Big 12 and SEC — and with the Big Ten's medical subcommittee set to present options for a a safe return this fall, according to ESPN, the better bet is for competition to resume in some capacity.

Which means there's money to be made.

Michigan and Michigan State each earned just north of $34.9 million in media rights for football during the 2019 fiscal year, which covers the 2018 season.

The payout in large part is based on the number of total home games played in the conference in a given year.

While the formula for payouts could be altered based on how TV networks value the addition of a 10th conference game (the Big Ten traditionally has played nine) and the timing of the games in general, it's reasonable to assume most of the media rights money can be salvaged.

In fact, a conservative estimate conducted by USA TODAY Sports and shown to the Chicago-based analytics firm, Navigate, shows the potential for conference schools to earn nearly $30 million in football media rights during a 10-game conference-only schedule this season — a 15% monetary decline that would correspond directly with fewer home games being played this season (70) than in 2018 (82).

"If they play in spring, there are reasons there could be a dip in ratings," Matt Balvanz, Navigate’s Senior Vice President of Analytics, told the Free Press. "But there are reasons to be optimistic for college football after a long layoff.

"We've seen both sides since sports have come back. When NASCAR returned, ratings were initially high, but now they’ve dipped. In the NBA, we've seen the same thing. It’s really a mixed bag."

Neither the NBA, NHL nor Major League Baseball has allowed fans to attend games since resuming competition. And while the NFL season opened Thursday with a limited number of fans (15,895) in Kansas City, the Detroit Lions aren't planning for fans until at least November.

Still, while it's hard to say how much TV advertisers will value a spring Big Ten season, the NFL's fan experiment could be a beta test for Michigan and Michigan State hosting fans whenever Big Ten football finally does kick off.

Michigan raked in $46.3 million in football ticket revenue during a seven-game home slate in the 2019 fiscal year. If Michigan were to fill Michigan Stadium to 20% capacity — as Kansas City did with Arrowhead Stadium on Thursday night — then it's conceivable U-M could recoup $6.6 million or more in ticket sales, assuming ticket prices from the 2019 fiscal year stay relatively the same.

In either case, when considering the uncertainty of TV revenue, ticket sales and other factors, it's easy to understand how Manuel was able to project the first deficit for Michigan in the history of USA Today's financial database, which lists expenses and revenues dating to 2005.

"There remain many unknowns in the event of a canceled 2020-21 athletic season (all sports)," said associate athletic director Kurt Svoboda. "In our last fiscal year, 2020, spectator admissions to athletic events totaled $56.6 million. That figure could theoretically go to zero without our hosting any events.

"That figure could also be more or less, depending on what ticket holders and donors choose to do with their existing tickets and personal seat contributions (we have several options for people to consider)."

Money to be saved

Manuel's deficit accounted for significant losses, but it didn't account for the millions Michigan would spend in COVID-19 testing.

Already, U-M has administered nearly 4,600 tests to athletes and staff members, at a cost of about $75 per test. And the frequency isn't expected to slow down as teams on campus continue working out and eventually return to competition.

In addition, the NCAA has extended the eligibility for fall and spring athletes, meaning those who were unable to compete because of COVID-19-related cancellations can return for another season. The fallout could force Michigan — and Michigan State, for that matter — to shell out significantly more in scholarship dollars in the coming years.

To offset the rising costs, Michigan already has begun looking for ways to save.

Michigan football coach Jim Harbaugh — along with basketball coach Juwan Howard and other head coaches employed by the school — accepted 10% salary reductions through the end of the fiscal year. U-M also announced Sept. 1 that it had laid off 21 employees within the department, and more cost-saving measures are likely to come as the conference determines the fate of the football season.

In addition, Manuel has implored football season-ticket holders to either convert their preferred seat contribution or season-ticket payment to a tax-deductible gift or to roll the payments forward to another year. Michigan is offering benefits to those who donate.

In the letter he sent to season-ticket holders Aug. 6, he said he was budgeting for a $61 million decrease in revenue for 2021 and said the number could double if no sports are played.

"Given the anticipated loss of revenue due to limited or no fans at our games," Manuel wrote, "our department faces an unparalleled level of financial uncertainty.

"Without additional resources, the level of investment in our programs will have to be reduced even further."

More: Jim Harbaugh's Michigan football pay cut restores balance after 10% raise

The road ahead

Michigan is not alone in its budget tightrope.

The fallout is expected to be nearly as significant for Michigan State after its football program generated $80 million in revenue for 2019 — or 57% of all athletic department revenue.

“At this point, we have modeled some fairly severe budget reductions, that probably if we don’t play football, we would not be playing most other, maybe all other, sports,” MSU athletic director Bill Beekman told the Economic Club of the Lansing Regional Chamber of Commerce in August.

Like Michigan, MSU has cut salaries for coaches and athletic department personnel. And so have Mid-American Conference programs such as Central Michigan, Eastern Michigan and Western Michigan.

Those three schools already are dealing with the loss of millions in game guarantee payments — the money schools receive from playing nonconference matchups on the road — after programs around the country shifted to mostly conference-only football schedules or canceled their seasons.

And CMU has cut its track and field programs during the pandemic, a move that forced it to ask the NCAA for a waiver just to remain in the FBS, the highest level of college football.

The fallout likely won't stop there.

It could continue into the winter months.

And for Manuel and Michigan, what happens during that time period will determine just how steep the deficit actually will be.

USA TODAY Sports' Steve Berkowitz and Craig Lyons contributed to this report.

Contact Orion Sang: osang@freepress.com. Follow him on Twitter @orion_sang. Read more on the Michigan Wolverines and sign up for our Wolverines newsletter.

This article originally appeared on Detroit Free Press: Michigan athletics, other universities headed for unprecedented shortfalls