The Texas Tech athletic department has refinanced and restructured debt, cutting $9.425 million from its annual operating budget for fiscal year 2021 that starts in September.
Tech’s sports teams also have been asked to reduce their operating budgets for the upcoming school year — some by as little as 3% percent, others by as much as 15% to 20%, depending on how easily each can make concessions.
The moves comprise the latest round of belt tightening as Tech, like many other universities across the country, tries to limit expenses to match declining revenue streams during the COVID-19 pandemic.
Tech athletics makes annual debt-service payments related to sports facilities on a schedule that runs through 2036 with the total remaining scheduled to be down to $61 million by the end of August.
Tech senior associate athletics director Jonathan Botros said in a move finalized Thursday that Tech did a tuition revenue bond to refinance debt at a blended interest rate of 2.53%.
“When you can get money that cheap, it has to be something that you look at at times like this,” said Botros, Tech athletics’ chief financial officer. “And so I think between that refinance, we’re going to save probably in the neighborhood of $3 million just in our last payment for fiscal year ’20 and our payment for fiscal year ’21.”
With the latest adjustments, Tech’s annual operating budget for sports could go from the originally projected $93.64 million for the current fiscal year to about $78 million for the one upcoming. Tech athletics director Kirby Hocutt in late April detailed how $6.7 million of that reduction will come about.
Now Tech is removing the $9.425 million obligation from next year’s annual athletics operating budget. In addition to about $1.9 million in savings from the refinancing, Botros said the department will tap reserves for the first time in several years to cover the other $7.5 million.
Tech has been paying off debt at the rate of $11.4 million annually in recent fiscal years. The amortization schedule called for debt reduction of $9.425 million for fiscal year 2021 and annual reductions of about $7.4 million each of the four years after that.
The new schedule after refinancing was not immediately available, but Botros said more of the debt is being shifted to later years, considering the obligations were scheduled to be less than $1 million a year for fiscal years 2032 through 2036. The ending date, August 2036, remains the same.
“Some of those final years, 2030 to 2036, the payment gets really, really low,” Botros said, “so we’ve kind of extended that amortization of the current debt when we refinanced, because it’s at such a low rate. So those payments are going to go up, but we’ve tried not to extend the full length of our longest loans.”
Botros said the department can balance the budget at $78 million if football teams can play the 2020 season with stadiums at 50 percent capacity. Gov. Greg Abbott recently told athletic directors of the state’s universities to not expect better than that.
“After that, that’s where adjustments to the budget would have to continue to be incremental,” Botros said. “Those would be very, very substantial the further football and even basketball gets impacted. So we have not adjusted the budget much further, just because at this point, it’s a little too early to tell.”
Botros detailed the adjustments Friday afternoon, before the Pac-12 Conference announced plans to cancel all non-conference competition this fall. That costs Tech a Sept. 19 home football game against Arizona. In a normal year, Tech would project $2 million to $2.3 million from such a game.
Tech has been in a hiring freeze, but has not had to lay off employees in the athletic department.
In trimming individual sport budgets, Botros said the athletic administration went over each team’s schedule and planned modes of transportation with its coach and came up with a dollar amount to reduce.
“Then we said, ’You’re the CEO of your own program, here’s the amount we need you to turn back,’ and we let them make those decisions,” Botros said. “Because our focus was trying to maintain the best possible student-athlete experience, and (the coaches) are in a much better position to understand how to least impact that experience than we are as administrators.
“So I think that looked a little different in each sport.”
He said the football program’s recruiting budget was protected.
In late March, Botros said he projected Tech to lose $3.4 million from the early end to the spring sports season. Now Tech can offset some of that with money saved through the refinancing and a lack of usual costs in recruiting this time of year. With the NCAA extending the dead period for recruiting, Tech hasn’t incurred the usual expenses for bringing in recruits or coaches traveling to see prospects.
“That’s a substantial amount of money that we’ll save there,” Botros said. “So I believe right now the savings that we’ve seen from this will outweigh the loss of revenue from fiscal year 2020.”
In outlining the $6.7 million budget reduction in late April, Hocutt said he and Tech coaches would forgo bonuses for the upcoming school year. That’s a potential savings of close to $2 million, and another $2 million was going to come from the regularly scheduled debt-payment reduction. Not taking $700,000 from a fund for small capital projects is another cut.
To break even this fiscal year, Tech needs to take in about $7 million by Aug. 31.
“This is a critical time,” Botros said. “The last month and a half of the fiscal year is when we will receive the vast majority of the seat contributions, the philanthropic donations to our Red Raider Club Excellence Fund, the suite payments for our premium seating and our club seating.
“If all of that revenue comes in in the next month and a half, I think we’re going to end the fiscal year in a pretty strong position, because of the amount of money we have saved from the pandemic this fiscal year.
“Now, that’s a big if. Clearly, there’s a shift in thinking in regards to conference-only (schedules) or adjustments to the football season that could impact how we finish this year.
“But I do feel pretty strongly that we will be able to balance fiscal year ’20’s budget regardless of how the next month and a half goes.”