Future of Division III

[Kuiper]

Great article from Jim Abbott, a consultant for small college athletics.

Small college athletic leaders should be contemplating this scenario now. What would happen if the funding from the NCAA stopped or was dramatically reduced when the NCAA's current television agreement expires in 2032? For Division 2 and 3 schools this would likely require an increase in the amount of conference dues paid (or a decrease in services provided for the conference) and additional budget dollars available for post-season travel. In short, the cost of doing business would increase significantly for schools that are already facing enrollment drops and budget cuts. For the most successful schools, post-season travel alone could become a $500,000 or more annual expense.



Many small college athletic departments are already underfunded. It's not uncommon for a coach to face the reality of having to raise funds (in some cases 50%-60%) just to cover the operating costs of their program. Even the best funded programs face the challenge of maintaining their current operating levels while trying to figure out how to recruit student-athletes in the "pay for play" era. Something has to give.



Imagine sitting at the table for your annual budget committee meeting and telling the CFO (who has already asked you to cut 8% from your budget) that you need an increase of $10,000-$20,000 for conference and national dues and $300,000 for post-season travel. You'll find out very quickly how much importance your institution places on competitive success because the reality is that virtually none of our institutions is prepared or even able to fork over that kind of money.

Whether there is a precipitous drop in the NCAA funding model or not there is no denying that significant changes are on the horizon for small college athletics. The question is, should you wait until your circumstances force you to address this or should you be planning for this eventuality now?

As we look to determine the future of small college athletics, the only certainty is that there will continue to be changes. Much like we have continued to see again this year, colleges and universities will continue to close, enrollment is predicted to continue to drop, and the financial pressures will continue to mount. The future for those schools that survive and the ones that thrive most likely will have very little to do with athletics. Here's hoping that small college leaders come together now with some of their peers in Division 1 to start envisioning a strategy that helps as many schools navigate the coming storm as safely and proactively as possible.

[Ron Boerger]

While this was not the point of the post:

According to that audit, Averett's endowment was worth $24.7 million. Of that, $24 million was restricted to certain purposes based on the instructions of donors, while just $637,000 did not have such restrictions.


I know most of the money in all endowments is restricted, but I've seen like 75% to 80%, not 97%. That seems like a big time failure of the philanthropy people to generate gifts for the general fund.

Agreed; however, equally (possibly more) likely is that they already spent all the unrestricted money because they could do so.

[jknezek]

While this was not the point of the post:

According to that audit, Averett's endowment was worth $24.7 million. Of that, $24 million was restricted to certain purposes based on the instructions of donors, while just $637,000 did not have such restrictions.


I know most of the money in all endowments is restricted, but I've seen like 75% to 80%, not 97%. That seems like a big time failure of the philanthropy people to generate gifts for the general fund.

Agreed; however, equally (possibly more) likely is that they already spent all the unrestricted money because they could do so.

This has got to be the most likely case. Every year W&L, and every other D3 school my family has undergrad or grad degrees from, calls looking for money from alumni. Those donations are always for the general fund.

You can't tell me that Averett essentially raises nothing every year and always has. They must have spent it. Likely the crux of the legal filing.

[y_jack_lok]

ODAC has some problem children between Averett and Guilford. There are a few others that I would look real closely at before writing a check for my kid.

It was this past fall, I think, that there were some posts on the ODAC boards about financial issues and personnel discontent at Lynchburg. Are you thinking of any others?

[jknezek]

ODAC has some problem children between Averett and Guilford. There are a few others that I would look real closely at before writing a check for my kid.

It was this past fall, I think, that there were some posts on the ODAC boards about financial issues and personnel discontent at Lynchburg. Are you thinking of any others?

I think Lynchburg will be ok. Thinking more of Sweet Briar or EMU. Schools very dependent on tuition and relatively small endowments.

[Hawks88]

Great article from Jim Abbott, a consultant for small college athletics.

Good article. That name is familiar so with a little googling I see that this Jim Abbott is the one I know. He's a Huntingdon graduate and was a baseball teammate of mine in the '80's. He was a long-time AD at Oklahoma City University before retiring several years ago.

[CNU85]

ODAC has some problem children between Averett and Guilford. There are a few others that I would look real closely at before writing a check for my kid.

It was this past fall, I think, that there were some posts on the ODAC boards about financial issues and personnel discontent at Lynchburg. Are you thinking of any others?

I think Lynchburg will be ok. Thinking more of Sweet Briar or EMU. Schools very dependent on tuition and relatively small endowments.

I found some info on EMU. In this report is a graph that provides a Financial Strength Score from the Council of Independent Colleges. Based on that one metric, they seem to be stable.

EMU President's Report 2024

[jknezek]

ODAC has some problem children between Averett and Guilford. There are a few others that I would look real closely at before writing a check for my kid.

It was this past fall, I think, that there were some posts on the ODAC boards about financial issues and personnel discontent at Lynchburg. Are you thinking of any others?

I think Lynchburg will be ok. Thinking more of Sweet Briar or EMU. Schools very dependent on tuition and relatively small endowments.

I found some info on EMU. In this report is a graph that provides a Financial Strength Score from the Council of Independent Colleges. Based on that one metric, they seem to be stable.

EMU President's Report 2024

I wasn't able to look at the link, but I think EMU more due to the type of school. Smaller religious schools seem most at risk right now. While EMU is not strictly Menonite, or even a majority Menonite, it does have strong ties. It's a small school, under 1000 undergrads, possibly as low as 800, charges almost 50K a year on the sticker (I suspect the real cost is closer to 20K per year), and has a 40MM endowment. The school, as far as I can tell, has limited national reputation.

It's exactly the business model that I think will come under the greatest pressure, with the lone exception that there are about 200-300 graduate students on campus.

[Ron Boerger]

Propublica has EMU's financials.  Lost $1.7M in the last tax year (expenses $56.4M, revenues $54.7M) but liabilities are only $16.9M with assets of $101M.  About 40% of those assets are plant and property.   Cleared $2.5M in 2022 on revenue of $58.5, $4.7M in 2021 on revenues of $55.4M, $2.3M in 2020 on revenues of $51.8M.  Likely some of those 2020-2023 revs came from the COVID relief funding provided by the government which has since expired. 

The 2024 audit shows that investment assets increased from $43.5M to $47.9M, total assets increased from $101M to $105M, but liabilities also increased from $16.9M to $21.2M.  It also shows a discount rate of 53.9% in 2024, up from 51.7% in 2023.  In those two years, net assets decreased from $40.3M at the beginning of the 2023 tax year to $32.3M at the end of the 2024 tax year.

While they are faring better than many small colleges in similar positions, the glide path over the last two years is not sustainable in the long run.  They have averaged about $2M annually the last two years in contributions, pledges, and grants receivable, the majority of which is expected to be collected in 1-5 years, but both years saw a writeoff of about 5% in uncollectable amounts. 

The bulk of their $46.2M endowment is restricted ($43.7M), which will limit their flexibility using those assets and/or their earnings.  They have a stated policy of spending no more than 5% of "a forty quarter moving average of the market value of the endowment corpus" annually.

EMU enrollment in Fall 2023 was 863 undergrad, 462 graduate.  Fall 2024 saw undergrad enrollment drop to 797, 395 graduate.   That's a 9% drop in overall enrollment in a single year and according to their fact book represents the largest year-over-year loss, in both absolute numbers aand percentage, since at least 2017-18.

[CNU85]

Thanks for the additional info, Ron.

I'd like to see their cash situation. If the loss is only $1.7 Million with approx $40 Million in plant and property, there's a good chance that depreciation may exceed the $1.7 Million loss. So, while the books may show a loss according to GAAP, they very well could be in a positive cash flow situation. However, like your post suggests, this situation is not tenable long term. I think it was a Sweet Briar president who said something like...."go get students and money".

[Gray Fox]

Thanks for the additional info, Ron.

I'd like to see their cash situation. If the loss is only $1.7 Million with approx $40 Million in plant and property, there's a good chance that depreciation may exceed the $1.7 Million loss. So, while the books may show a loss according to GAAP, they very well could be in a positive cash flow situation. However, like your post suggests, this situation is not tenable long term. I think it was a Sweet Briar president who said something like...."go get students and money".

Non profits don't use depreciation in their accounting.

[CNU85]

Unless I'm missing the boat completely, I've seen depreciation recorded in non-profit statements.

Also..

FASB 93

Dole out the Depreciation

[Ron Boerger]

Depreciation is definitely carried on the 990s - see Part X, Balance Sheet: line 10a (gross basis) less line 10b (accumulated depreciation) gives net value.  Depreciation is also factored into the cash flows in the audit, and the value of plant, property, and equipment uses the same calculation. 

[Kuiper]

Hopkins will survive, but $1 billion is . . . a lot of money

Johns Hopkins Pauses Pay Increases, Freezes Hiring Amid Federal Cuts

The Johns Hopkins University is pausing pay increases for higher-income employees and freezing staff hiring due to a steady stream of cuts to research grants and other federal policy proposals expected to hurt its bottom line, according to a university email.

Pay increases for employees usually effective July 1 will instead be paused for those earning more than $80,000 per year. The hiring freeze will be imposed across the university for new jobs, as well as filling open positions.

The Baltimore-based university will also slow capital construction and renovation plans by as much as 20%. Discretionary spending on travel, food, supplies and professional services will also be reduced.

The university did not say how much savings the cost-reducing measures are expected to yield.

[IC798891]

Giving Hopkins credit, the pausing of raises only for those making over 80K is a great move.

One thing that absolutely breeds resentment at a time like this is some VP or Department head making several hundred thousand a year telling the $40,000 rank-and-file workers that we're all in this together