Cal athletics: Update on Memorial Stadium financing

[RSSBot]

Jon Wilner

The university has released a progress report on the effort to finance the Memorial Stadium and high-performance training center projects, and the situation is – to boil an incredibly complicated issue down to one word — encouraging. Vice chancellor/finance and… Continue Reading →


Originally posted by College Hotline
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[absinthe]

CU fans would benefit from reading this seeing some pitfalls and where we are approaching things differently under RG to protect ourselves.

 

[Darth Snow]

moved to football forum for further discussion.

 

[skibum]

Aside from the seat licensing part, which was large and ridiculously optimistic in so many ways, it seems to me that what Cal essentially did was take advantage of the fact that the school (government) can borrow at lower rates and for longer time periods than others. Their apparent goal is to use revenue to pay service on the debt, and invest all proceeds from fundraising efforts into equities long term, using the guaranteed (virtually) returns that come with very long term equity investment to repay the principal portion of the bonds when they come due.

Well executed, it's a pretty shrewd idea, as long as near term fundraising is successful, and they pull the money out as soon as there's enough there to make the principal payments (I.e. have the discipline to not "let it ride" if/when the account hits the magic number a few years early). It's a debt leverage strategy that no private party would undertake, but the only reason is because it's a move no private party actually could undertake.

 

[sackman]

I don't think Cal is out of the woods just yet. There's a lot that can still go wrong in this. However, one thing that Wilner didn't bring up, and probably could have, is the fact that future revenues from TV, playoffs, etc. will undoubtedly increase. The amount of money flowing into the Pac 12's member institutions isn't going down. If they're able to service the debt now, they should be able to service the debt in future years.

 

[skibum]

I don't think Cal is out of the woods just yet. There's a lot that can still go wrong in this. However, one thing that Wilner didn't bring up, and probably could have, is the fact that future revenues from TV, playoffs, etc. will undoubtedly increase. The amount of money flowing into the Pac 12's member institutions isn't going down. If they're able to service the debt now, they should be able to service the debt in future years.

I think they're probably ok with the debt service. I mean they issued those bonds when interest rates of gov. bonds was negative in real terms. The plan for principal repayment is innovative, it has interesting but probably manageable risks.

OTOH, the real problem is that while they will be fine with the debt service, the fact is that they will have to use the cash flow to service debt, whereas other P12 ADs will be able to use that cash flow for operations.

 

[Colorado Track Fan]

Aside from the seat licensing part, which was large and ridiculously optimistic in so many ways, it seems to me that what Cal essentially did was take advantage of the fact that the school (government) can borrow at lower rates and for longer time periods than others. Their apparent goal is to use revenue to pay service on the debt, and invest all proceeds from fundraising efforts into equities long term, using the guaranteed (virtually) returns that come with very long term equity investment to repay the principal portion of the bonds when they come due.

Well executed, it's a pretty shrewd idea, as long as near term fundraising is successful, and they pull the money out as soon as there's enough there to make the principal payments (I.e. have the discipline to not "let it ride" if/when the account hits the magic number a few years early). It's a debt leverage strategy that no private party would undertake, but the only reason is because it's a move no private party actually could undertake.

That's the kind of strategy that bankrupts institutions, companies, governments, & people. It all sounds good and smart on paper but so many unforeseen variables and risks are typically not accounted for in the theory. "It was a smart idea and it would have worked if not for...."

 

[GoBeers]

I think they're probably ok with the debt service. I mean they issued those bonds when interest rates of gov. bonds was negative in real terms. The plan for principal repayment is innovative, it has interesting but probably manageable risks.

OTOH, the real problem is that while they will be fine with the debt service, the fact is that they will have to use the cash flow to service debt, whereas other P12 ADs will be able to use that cash flow for operations.

The bonds have a ridiculously low interest rate. The problem with the implementation is that it was devised before the 2008 crash, and hoped for something like $150-200 million in funds before ground breaking or shortly after opening. At that level, the interest rate difference would have basically made the payments 'free' every year just on returns + some yearly revenue from extra donations/TV. But people had far less saved up to donate and the future was very unclear in 2008, so that same fund has like $60 million in it now. The question was whether it was good luck or bad luck that the tree sitters delayed the project? Probably a little of both. If Cal had sold seats, say, in 2007, they would have been left holding the bag when the market crashed. And would have sold their assets (seats) already. IMO, people would have freaked way harder about mismanagement if that happened. And the returns seen from 2008-2014 in the market would not be used to service the debt so much to grow the endowment fund back to it's original level. The good luck is that TV money turned out to be far greater than predicted taking a lot of pressure of yearly operations shortfalls. If the Pac 12 can negotiate another 10 year TV deal that still can take advantage of the 'cable bubble', things will be a lot more certain for Cal. The SEC and Texas have 20 year deals, so it's not unprecedented to have guaranteed money that far in the future.


Still it's a 40 year commitment to football basically. The big risk that has come to the forefront is not just whether Cal can collect $$$ every year for the next 40 to cover the debt, but whether football (and to a lesser extent, all sports) will actually exist in it's current form for 40 years. The Ed Obannon case over likeness rights pay, the Northwestern case over unionization and whether CFB players are actually employees, the concussion issue and possibility high schools will slowly drop football due to liability, etc etc. No guarantee that FB will be profitable in 20 year, let alone 40. That is the big difference between Cal's financing and a lot of other CFB schools that are funding major facilities upgrades with TV money increases - the length of commitment. I believe CU is funding the facilities with some TV revenue and to a degree far more than the $2.5 million/yr Cal is funneling from the CFB playoff. But the CU payback commitment is only 12 years? 15 years? Not 40. At least the ESPN/Fox money is guaranteed through 2023.

While schools like Stanford and Northwestern can consider dropping football out of principle if certain rulings come to be that call players employees and not students, Cal is hitched to the system for 40 years.

 

[skibum]

Better hope the stadium can be used for soccer.

I'm only half joking. 100 years ago pro wrestling and boxing were THE sports pastimes. 50 years ago baseball was the undisputed king, but boxing was still second (and declining), football was third (or lower) but growing.

The reasons for boxing's decline should sound familiar: player safety concerns, participants being unable to function after a career, violence [strike]off the field[/strike] outside the ring, parents not allowing their kids to participate (organized or neighborhood pick up).

Today football is the leader, baseball is declining, and somewhere in the lower echelons of sports entertainment soccer is growing...

Just saying that my 50 year plan would include the possibility of soccer being a major revenue sport.

(Of course all of this ignores the player pay issues, which are a whole separate risk.)

 

[SuperiorBuff]

Lacrosse will pass soccer before soccer gets to the top.

 

[sackman]

Soccer as a college sport won't ever become a true revenue sport. Like baseball, the pathway to the professional leagues does not go through the college ranks.

 

[96 Buff]

RSSBot is a ****ing ****.