Milking the cash cow
Virginia Tech’s football program has been a cash cow for more than a decade. The football Hokies generated almost $40 million for the 2010-11 fiscal year and have sold out every home game since 1998.
Not surprisingly, Tech’s two largest athletic department projects from the past decade centered on the football program. Tech added 11,000 seats to Lane Stadium’s south end zone ahead of the 2002 season and expanded the stadium’s west side in 2006.
Between the two projects, Tech took out about $79 million in loans. Rudd, the assistant athletic director, said they would be repaid using contributions pledged over the loans’ first five years as well as club seat sales, suite fees and general ticket revenue.
Both payment plans were frontloaded to coincide with the early pledged donations. In the four years after the south end zone project began, Tech made yearly debt service payments of $3 million on the expansion. Now the yearly payments are down to $1.4 million.
The west end zone payment structure followed a similar model, with $6 million payments for the first few years after the section opened. The normal payment on the project is about $3.2 million.
Rudd said safeguards were put in place to prevent a Maryland-style collapse.
The debt repayment model assumed only 67 percent capacity in club seats and luxury suites. This season, Rudd said, the suites have sold out, and club seats are almost gone.
But just in case ticket sales go south, Virginia Tech is required to hold a certain amount back to cover debt service.
“We have to have three times the debt payment in our reserve,” she said.
‘It’s no fun to go watch a losing team’
Expansions to Scott Stadium and the new John Paul Jones Arena have the Cavalier athletic department in $130 million of debt to be paid off by 2025, said executive associate athletic director Jon Oliver.
Oliver said the projects were warranted.
“You look at capacity and demand from the fans,” Oliver said. “And you build a building to handle your fan support and your fan base.”
At clam-shaped University Hall, where the Cavaliers played basketball until John Paul Jones opened, there was a waiting list for tickets some years, Oliver said.
That hasn’t been a problem at John Paul Jones. Ticket revenue has dropped steadily from the opening season up to the 2010-11 season. According to NCAA data, the 2012 average attendance for UVA home basketball games was 10,522. That’s 22 percent lower than five seasons ago.
Football attendance has also dropped. Last season, the Cavaliers drew 47,940 fans per game to their 61,500-seat stadium, after drawing more than 60,000 fans in 2005. For the 2010 season, ticket sales were just over $8 million, $2.8 million less than the program’s peak in 2008.
Those sales left UVA football with a profit of $36,283 for 2010, the lowest take since 2007, when the team lost almost $3 million.
Virginia football has never pulled in the mega-profits Virginia Tech football has, at least not since 2000. Over that span, the best fiscal year for UVA football was 1999-2000, when the program hauled in a $4.75 million profit, around one-third of Tech’s haul in 2010-2011.
Keith VanDerbeek, associate athletic director for business operations, attributed the lost revenue to a slow economy and a subpar product.
“It’s no fun to go watch a losing team, frankly,” VanDerbeek said.
In an effort to right the ship, UVA in 2009 fired men’s basketball head coach Dave Leitao, who was at the helm for just three years after the school fired the previous coach, Pete Gillen. Also in 2009, the university fired football head coach Al Groh.
But Groh and Leitao’s departures cost the school millions in severance. In 2010-11, Groh and Leitao received a combined $2.1 million, even as the school paid replacement coaches Mike London and Tony Bennett another $3.8 million.
London and Bennett also took over losing teams that play in buildings that are far from paid for. Compounding the problem, fundraising to pay debt service on John Paul Jones has dropped off.
In 2010-11, the UVA athletic department received about $34.5 million in athletics contributions from the Virginia Athletic Foundation, the athletic department’s independent fundraising arm. Of that, $8.7 million was tapped for capital expenses and debt service for John Paul Jones Arena.
Two years earlier, the Virginia Athletic Foundation contributed more than $10 million to pay down the John Paul Jones debt, and in 2007-08 the foundation gave almost $20 million for stadium debt service and capital expenditures.
VanDerbeek said most foundation money came in 10-year pledges, which began in fiscal 2005-06. Unlike Virginia Tech, UVA’s debt payments were not front-loaded. When the pledges expire, VanDerbeek said suite sales will carry the bulk of the debt payments for Scott Stadium and John Paul Jones Arena, but the school will draw from a variety of sources, including conference revenue, ticket sales and student fees.