Posted: 11:17 p.m. Wednesday, Aug. 14, 2013
Last fall I briefly touched on Maryland's defection to the Big Ten and the ways it could go horribly wrong:
Maryland's departure from the ACC isn't based on any disagreement in policy or imagined slight, like that which drove South Carolina out in 1970. No, the Terps' athletic department needed money, plain and simple. Debbie Yow's tenure left them in tremendous debt, to the tune of nine non-revenue sports being cancelled. The Big Ten is their way out; standing in their way is the newly-instituted $50 million dollar exit fee.
Now Maryland Chancellor Loh appears convinced that won't be the cost to leave the ACC. John Swofford has every motivation to make sure the Terps pay full price, however, to ensure Florida State stays in the fold. So do the math. The Big Ten paid out $24 million per school versus $16 million from the ACC. If that trend holds, it will take six to seven years for this move to pay off. Will the televised sports money bubble burst in the next seven years? Ask yourself what the newspaper business looked like in 2005 versus now. The Terps could be the Countrywide mortgage of college football. If nothing else, the coming negotiations look to be... difficult, to say the least.
Nine months later and that math is looking pretty good. The University of Maryland released a report today announcing that the athletic department ran a deficit in excess of 21 million dollars, in part because the ACC withheld 15 million dollars in payout. The conference did so as a down payment on the 52 million they hope to collect as Maryland's exit fee, a sum the Terrapins hope not to pay. In the interim, the athletic department is borrowing from the university's auxiliary funds — read that as non-taxpayer dollars —and expects to do so again next year if the ACC holds firm. The intentions that the athletic department will pay back the loans beginning in 2018 when the program is expected to turn a profit, at which point the university will collect 50% of the department's net revenue.
Of course, even without the ACC playing hardball the Terps would be running a six million dollar deficit, and the university's report is just full of bad news. To wit:
Maryland hopes to accomplish much of this with spending in the next fiscal year, as it needs to compete as soon as it sets foot in the Big Ten. They want to build practice fields, an indoor practice facility and a varsity team house, all through fundraising capital and not Big Ten revenues, despite a fan base that is sorely annoyed at the financial mismanagement and debt levels. And then there's this sentence:
To facilitate UMD's transition to the Big Ten, the conference distribution is front-loaded and pegged to approximate UMD's projected ACC revenue stream. In year seven and beyond, revenue is set to start to build.
Because revenue is staggered in this way, the workgroup used the standard, most appropriate means of evaluating ICA financial health - what accountants call the "accrual" method. The idea is to reflect predictable income even before it has been received. This creates a more accurate financial snapshot unobstructed by the vagaries of cash flow. In this case, the accounting averages the income evenly over a 12-year period.
I'd love better explanation for this, but my impression is that Maryland won't begin to see revenues greater than what they would have in the ACC until seven years from now? And the report averages twelve years of revenue to make the department's fiscal health look slightly less anemic? Seven years from now the television landscape will be unrecognizable, and I have no idea if revenues will be rising or falling. Maryland is overleveraged at exactly the worst time. Earlier today when asked I said the Terps would never regret leaving the ACC, but that doesn't mean it was the right move. Or that the athletic department would survive the transition. This is not a program I'd want to be a fan of in the coming years.