The Changing Financial Field at Tennessee

While you were away doing the usual summer break things such as frantically worrying about Tennessee's offensive and defensive lines, talking yourself into a nine-win season for Butch Jones and co., and getting into it with 5-30% of the Missouri fanbase, the NCAA and those around it were busy doing what they do best: acquiring and divvying up incredible sums of money. Even by the insane cash grab standards of the last half-decade, the offseason was especially notable, if only because this is the first time the NCAA is in danger of actually paying more money out to the guys-and gals-who make it for them.

That affects Tennessee in direct and indirect ways, so let's take stock of this before the season really gets going.

WHAT'S TENNESSEE'S FINANCIAL SITUATION NOW? Glad you asked. Per Tennessee's official finances, they made about three grad assistants' salaries worth of surplus last fiscal year (just skip to page 30), but are projecting a balanced revenue/expense line of $97,500,000 for this fiscal year.

WAIT, THAT'S NOT EVEN CLOSE TO WHAT THEY'VE DONE IN THE PAST. Yeah, I'm not sure how much I trust those numbers on either revenues or expenses. For one, there's more long-term excitement around Tennessee than anytime since 2007, which you'd think would show up more in merchandise sales. More importantly, there's also a third jersey to sell now.

Of course, there's also the SEC Network haul, which-conservatively, mind-appears to be able to bring in about $6,000,000 more per year than the current deal. That would seem to point to a reduction of $18,000,000 in the "other" category, which seems off; in simpler terms, it seems weird to project a $12,000,000 reduction in revenue when we know there's a likely $6,000,000 uptick in a revenue source.

On the expense side, we know they've cut grants to the academic program, which is $4,000,000 a year that comes out of the expense pool. (Whether it should be reduced is a different matter, and that's a fine debate to have outside this column.) However, debt service payments continue to rise, and I could easily envision a scenario where Tennessee takes athletic revenue surplus and both pays down existing debt service and/or increases cash reserves before funding academics again.

Upshot: take those numbers with a grain of salt, although I'm not sure I'd expect the athletic department to project themselves rolling in cash.

BUT WHAT ABOUT ALL THE CHANGES AT THE NCAA AND THE TRIALS AND SUCH? For one, none of the major changes will take effect this year. For two, that is loaded as all get-out, so let's break this down by major category: the Power 5 vote and lawsuits.

WAIT. WHAT ARE THE POWER 5? They're the BCS conferences save Big East-turned-AAC (except for the part that's actually the Big East in basketball, but they're FCS in football and let's just move on, this is confusing). This includes the SEC, ACC, Pac-12, Big 12, and Big 10, the last two of which still have problems counting.

WHY DOES THIS MATTER NOW? Well, the Power 5 can now operate under a different ruleset if they want to, with the rest of Division I (i.e., the rest of FBS and what I'm assuming is the FCS divisions although I haven't seen anything explicitly calling them out) having the option to assume the same ruleset if they want to. If this sounds like a great idea for these conferences, that's fair. f that sounds like an outright money grab, well, you're not wrong. Bring on the Cats has a great summary of the other side of this decision.

SURE, BUT WHAT CAN THEY DO? All kinds of stuff: mandatory four-year scholarships, changing agent contacts, adjusting scholarships to cover full cost of attendance, or even stipends. Do any of those have a direct financial impact on Tennessee athletics? Full cost of attendance and/or stipends would be the obvious ones, but my hunch is both of those can be handled via adjusting the debt service payments via adjusting loan payments.

WHAT ABOUT TITLE IX? First: if you're about to make an argument that spending more money due to Title IX means cutting sports at Tennessee, I see you, rabble-rouser. Does it add complexity? Sure. Does that complexity mean Tennessee's going to cut women's sports after crying poor? Doubtful, and if they do shame on them; the money's there to support all programs.

Also, you know Pat Summitt is coming after you if you keep asking questions like this, right? Tennessee has one of maybe five profitable women's basketball programs. Knock it off. The money's there, and the history is too. This won't be a problem or issue at Tennessee.

FINE. WHAT ARE THE POWER 5 LIKELY TO DO? At the outset, not a ton short of consolidating power. I don't know enough about the details and motivations, but since it's a large-scale money and power grab, they're going to do what they can do maintain that power and maximize financial gains. That's good for Tennessee, not good for non-Power 5 schools, and they're not going to implement anything their member schools can't afford.

That means things like four-year scholarships and full cost of attendance scholarships are fairly likely. Also likely, at least from my standpoint: adjusting agent contact rules, but that's probably open to discussion. Some longer-term angles: player stipends, transfer adjustments, and allowing players to profit off their likeness outside of games. (Just kidding! They're not doing that until they're mandated to. I was just seeing if you were paying attention.)

I WAS WONDERING WHEN YOU WERE GOING TO TALK ABOUT THE LAWSUITS. Patience; I was getting there. There are a host of lawsuits and potential lawsuits around the NCAA right now, but there are three big ones: the O'Bannon lawsuit, the CAPA/Northwestern case, and the Kessler lawsuit. Let's talk about CAPA first.

WHAT'S CAPA, AND WILL IT AFFECT TENNESSEE? This is the Northwestern unionization ruling, will likely be appealed, and-for now-applies to private institutions only. In essence, Northwestern athletes were allowed to unionize, thus creating the College Athletes Players Association (CAPA). For now, it applies to private schools only, and that will likely be the case for a while yet.

If and/or when unionization comes to Tennessee, it would allow the players to collectively bargain for such items as expanded medical coverage, better testing for things like concussions, and increased graduation rates. Yes, there's a financial impact here, but there are also revenue sources currently available for it. If the Power 5 were smart they'd get out ahead here, but ...yeah, we'll see.

I HEARD THE O'BANNON LAWSUIT WAS TERRIBLE FOR THE NCAA. The short answer: kind of. Yes, Judge Wilken came down hard on the NCAA, but she didn't come down as hard on them as she could've, most notably in setting a limit of $5,000 on player stipends. Of course, this is ignoring two key points:

- The NCAA needed to get publicly embarrassed to allow for 24-hour meal service for athletes, which also means....

- ...the NCAA isn't settling for anything less than absolute victory, which means appeals processes ahoy. There's a decent chance this case makes it all the way to the top.

In theory that number can be adjusted upwards later via either more lawsuits or collective bargaining.

Anecdotally, $5,000 plus full cost of attendance should cover most everything an athlete's going to run across on campus, although there's an awkward on-campus housing/off-campus housing question I don't know the answer to (basically, does full cost of attendance cover off-campus housing?).

Again, appeals processes matter here at least as far as timing goes, and since revenue streams aren't going down as long as interest in college sports is going up, the money's there.

WHAT ABOUT KESSLER? Similar to O'Bannon's case with the exception of allowing players to set market values for their rates. I don't think this is structured like free agency is at professional levels, but I also confess to not knowing the details here. What I do know: Kessler isn't seeking a financial settlement, and this case will be appealed to the end of time if it goes the same way for the NCAA that the O'Bannon case did. Stay informed with this, but realistically it'll be a while.

SO YOU KIND OF STOPPED TALKING ABOUT TENNESSEE FOR A WHILE THERE. I did, you're right. Let's tie this back to Tennessee: Tennessee has the financial means to handle even significant changes to athlete compensation, largely through restructuring debt service payments. There won't be significant changes to anything the next couple of years, which-if revenue sources do what they're supposed to do-means Tennessee can at worst get out ahead of their debt service payments a bit or replenish their badly-depleted cash reserve fund.

The presence of the SEC Network will at worst be an increase in cash intake from TV revenue alone; any changes in payments made out from either Power 5 or lawsuit arrangements should be more than handled by increases in revenue.

Longer-term, increased expenses may slow down the athletic department arms race, but any increased athlete expenses will at worst apply to the Power 5 conferences equally, meaning everyone slows down. Whether you like that or not is probably a matter of personal preference, and I'm assuming the only revenue source that will increase in the next few years is from TV revenue. That's likely not the case, though.

WHAT ABOUT OTHER REVENUE SOURCES? Well, there's an easy way to increase revenue: field a better football team. No, seriously; this is basically Alabama's athletic department model, and it works; they had a $27,000,000 profit last year. Not that you need another reason to want Tennessee to do well in football, but winning goes a long way towards generating more revenue, which can do the useful stuff like we've been talking about above.

Who knows: maybe if the football team even wins enough they can actually start helping the academic side out again.

SO EVERYTHING IS BETTER IF THE FOOTBALL TEAM IS BETTER? Well, duh. Winning solves everything.

Go Vols.