Tennessee financial woes mostly due to Neyland Stadium renovations

Tennessee’s athletic department is over $200 million in debt, according to a report this week from Street & Smith’s SportsBusiness Journal. The report notes the department “spends a startling $21 million a year on debt payments, $13.5 million of which comes from the school’s stressed $99.5 million athletic budget and the rest from donations.” Most of the debt is attributable to costly renovations made to Neyland Stadium in the past decade:

Built in three phases between 2006 and 2010, those changes cost more than $130 million. The athletic department continues to investigate ways to upgrade Neyland, whether it’s more premium spaces or more chair-back seats, measures aimed at improving the fan experience and driving more revenue, while reducing capacity. Tennessee also brought in IMG Learfield Ticket Solutions to help with sales beginning in 2011.

Tennessee athletic director Dave Hart, who came to the job 18 months ago, insisted that the solution was simply to “get football healthy” and winning again under new coach Butch Jones. Hart also expects upwards of $10 million annually when the SEC renegotiates its television contracts with ESPN and CBS.

Tennessee’s woes mirror that of Maryland, where costly stadium renovations—followed by a nosedive in the football team’s performance–drove the athletic department to cut non-revenue sports before ultimately receiving a bailout in the form of an invitation to the Big Ten. Changing conferences won’t help Tennessee, of course, but it’s not clear that even additional television money will improve the school’s long-term fiscal stability.

While it’s easy to say this in hindsight, Tennessee shot itself in the foot with the Neyland Stadium renovations. It’s a classic example of malinvestment during an economic boom fueled by easy access to credit, not to mention the inability of Hart’s predecessors to assess their economic reality. Tying long-term capital improvements to the football team’s win-loss record is a shaky proposition at best. Every school has a down period (Let’s not forget, even the vaunted Alabama is less than seven years removed from Mike Shula). And when you struggle as Tennessee has to maintain a top management team—Jones is the school’s fourth head coach in six years—there’s little reason for fans or donors to expect a drastic turnaround in on-field performance.

The bigger problem is that renovations to facilities like Neyland Stadium are based on a false perception of the overall economy. College and professional teams have spent the past two decades attempting to, in effect, replace their loyal customers with a more affluent group that will spend a premium for the “stadium experience.” But to the extent such a group ever existed, its disposable income for entertainment has eroded with the economic collapse. This is a problem that doesn’t just confront struggling football programs like Tennessee. We’ve already seen its impact on bowl attendance and even non-conference SEC games against second-rate opponents.

People still love football and want to watch it. Even Tennessee fans remain highly enthusiastic. They’re just not willing to spend as much money and time to actually attend games. A couple of good seasons under Butch Jones may temporarily mask the symptoms but not the underlying disease. As long as people can watch high-quality game broadcasts at home, they have less and less incentive to go out to the stadium. Tennessee’s “fiscal cliff” should serve as a warning to other SEC and major college programs that the era of easy-credit-fueled stadium expansion and renovation should be coming to an end. There’s no sense shackling your program to chase a premium customer that will become scarcer and scarcer as the economy continues to be an issue for so many fans.