Pac-12 financial projections: Move into Big 12 will lower, not eliminate campus subsidies for Four Corners schools

The penultimate year in the Pac-12 was not a profitable one for the Four Corners schools.

Arizona, Arizona State, Colorado and Utah combined to book a $34.1 million operating shortfall in 2023, according to financial reports submitted to the NCAA earlier this year.

In reality, the collective deficit was considerably higher.

The NCAA allows schools to count direct campus support as revenue — support that comes in the form of cash transfers to athletics and student fees allocated to athletics.

In total, the Four Corners schools received $74.5 million in direct support. Remove that amount from the countable revenue, and that substantial operating shortfall of $34.1 million becomes a $108.6 million crater.

Add the $31.6 million loan Arizona’s athletic department received from central campus and the all-too-real shortfall zooms to $140.2 million — or more than half of the Pac-12’s total for the 2023 fiscal year.

The situation might not improve markedly in 2024 with approximately $10 million in Pac-12 distributions withheld from each campus to account for the Comcast overpayment scandal and the settlement with Washington State and Oregon State.

But what about the 2024-25 fiscal year?

Will the finances improve when the Four Corners schools enter the Big 12?

Could any of them possibly produce an operating surplus without campus support?

We’re skeptical. The situation should improve in the Big 12, but not enough — not nearly enough — to fully close the shortfall.

In our attempt to gain clarity on the situation, the Hotline did some back-of-the-envelope math and made two necessary assumptions:

1. None of the Four Corners schools will undertake substantial downsizing of their athletic departments upon entering their new home. No layoffs on a significant scale. No furloughs. No elimination of sports programs.

2. There will be modest increases in revenue from ticket sales and donations for the 2024-25 competition year. After all, Arizona and Colorado experienced upturns in football attendance last season, which is not reflected in the shortfalls stated above but seems like a sustainable trajectory in the short term.

Ticket sales and contributions from donors are two key revenue buckets for any major college athletic department. The third is conference distributions, which will take three forms for the Big 12:

— Media contacts with ESPN and Fox for regular-season games and conference championship events.

— The football postseason, particularly the College Football Playoff and New Year’s Six contracts with ESPN.

— NCAA Tournament units, which are funded by media deals with CBS and Turner.

So we ask: Will the Big 12 generate enough revenue from those sources for the Four Corners schools to narrow, or eliminate, their operating shortfalls?

Could they possibly become self-sufficient, free of the need for campus subsidies?

To create a basis for comparison, the Hotline averaged the Pac-12 distributions in 2023 to each of the four schools, as reported on their statements of revenues and expenses submitted to the NCAA. (The amounts vary slightly by campus, so an average seemed like the best baseline.)

The average distribution: $34.6 million.

Any difference between that figure and the Big 12 distributions in 2025 will boost revenue for the Four Corners schools and, potentially, ease their reliance on campus support.

To a certain degree, our assessment is guesswork.

The Pac-12 and Big 12 have different bowl contracts, for example, with the former tied to the Rose and the latter to the Sugar.

Also, we don’t have access to the revenue distribution agreements the Big 12 made with each of the four schools that began competition this year at reduced revenue shares: Brigham Young, Cincinnati, Houston and UCF.

The Four Corners schools will enter the league this summer as full-share members. But do they have access to the pool of cash created by the four reduced shares? Or is that amount set aside for the eight continuing members?

Our hunch: The latter.

(And that hunch provides an additional benefit in allowing the Hotline to estimate on the conservative side. With financial projections, being a tad low is better than landing too high.)

So admittedly, our estimates are rough. But we can offer a best-guess scenario on the three revenue buckets:

— NCAA Tournament units

Each game played equals one unit for that team’s conference, except for the championship. The units are carried forward by the conference and paid out over six years at increasing valuations.

Texas and Oklahoma won’t take their units with them into the SEC; nor will the Four Corners schools bring the units earned in the Pac-12 with them into the Big 12.

Using $350,000 as the approximate unit value for next spring, the Big 12’s total should equal about $27 million, or $1.8 million per full-share member if tweaked slightly to account for reduced amounts for BYU, Cincinnati, UCF and Houston.

— College football postseason

The Big 12’s tax filings for the 2022 fiscal year showed $141 million in revenue from the football postseason. But here again, there’s an unknown: Whether the payout amount is fixed through the 2023-26 fiscal years — the final seasons under ESPN’s contract cycle with the New Year’s bowls.

If we use $141 million as the baseline, then add a five percent annual escalator, assume 75 percent shares for UCF, Cincinnati, BYU and Houston and account for the amount due each school under the CFP payout formula, each of the Four Corner schools would receive roughly $16 million.

— The Big 12’s media rights deal

The Big 12’s agreement reached in the fall of 2022 with Fox and ESPN was an extension of the existing deal and doesn’t kick in until the 2025-26 fiscal year.

The current deal, signed in the early 2010s, averaged $200 million annually. Because media contracts often have escalator clauses, the final-year payout on lengthy agreements is usually far above the average amount.

The Hotline has access to the term sheet signed by the Pac-12 in 2011, when it agreed to a 12-year deal with Fox and ESPN — a deal that paid each school roughly the same amount over time as the Big 12’s contract with the same network partners.

Applying the same escalator to the Big 12’s agreement, we can estimate the amount due to the Four Corners schools next year in their new home as $27 million.

Combine the three revenue buckets, and our distribution total for the Four Corners schools next year in the Big 12 stands at $45 million — or about $10 million more than they received last year in the Pac-12.

Even if the estimate is low by a few million dollars per school, it won’t fully offset the need for campus support next year.

Without that support, the operating shortfalls for Arizona, ASU and Colorado were in excess of $35 million in 2023, while Utah’s deficit was $14.4 million.

In theory, the Utes will get close to break-even with their Big 12 distributions in 2025.

The other three athletic departments probably won’t.

That said, any upward adjustments made to revenues generated on campus, through ticket sales and donations, will provide additional help. (As would any substantive reductions in expenditures.)

From our vantage point, the outlook is fairly clear and somewhat bleak: Arizona, ASU and Colorado will continue to rely heavily on university subsidies in their new home.

*** Previously in this series:

Pac-12 schools required more than $150 million in subsidies last year. What’s the big deal?

Dan Hurley was right: Arizona State doesn’t support his brother

Does Arizona really have a financial crisis?

Washington hopes to refinance stadium debt ahead of Big Ten move

Cha-ching!: Utah did Utah things once again in 2023

Oregon stands alone as the Pac-12’s only self-funded operation

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