Why we can’t afford the Beaver Stadium renovation proposed by Penn State Board of Trustee leadership.

$700 million is a tax on all Penn State athletic fans.

Penn State Board of Trustee leadership is going to present a $700 million Beaver Stadium renovation plan next week which the full Board will be asked to approve. The project includes major upgrades to the west sideline structure, conversion of current seating to luxury suites and boxes, and concession and restroom upgrades. These improvements will affect 30% of the stadium.

This very important meeting of the Finance, Business, and Capital Planning Committee will be held Tuesday, May 21st 2024 at 10:30 am EDT. I urge you to watch live via Zoom; click here for the link.

One of my important duties as a trustee is to reject proposals that would place the University in unsustainable financial situations, including project proposals from the Department of Intercollegiate Athletics (ICA).  Unwise ICA financial decisions not only hamstring athletics operations but every dollar of debt incurred is underwritten by general tuition dollars, not by ICA. In a worst case scenario, that debt would be passed to the taxpayers of Pennsylvania. The University of California-Berkeley fell into this trap and I don’t want the same thing happen to Penn State.

As currently proposed, the $700 million Beaver Stadium renovation will be, by far, the largest capital expenditure in our athletics history and one of the largest (if not the largest) athletics capital projects in the history of college athletics. I have researched this proposal at length and done the math. We can’t afford it.

Intercollegiate athletics at Penn State are supposed to be self-supporting, meaning no tuition money is used to fund the 29 intercollegiate athletic programs. Penn State athletics currently has $250 million of debt* which is financed by the University and backed by tuition revenue. In 2022-23 it reported $202 million in revenue which gives it a debt:revenue ratio of 122%. That is higher than 11 of our 15 public university peers in the Big10, and higher than the average for all Power Five programs (98% of annual revenues), but not grossly beyond the norm.

If the $700 million project is approved, that debt would jump to $877 million or 434% of annual revenue, surpassing University of California-Berkeley, whose current debt is $439 million (348% of their annual revenue, accrued under their former Athletic Director Sandy Barbour**). Penn State Athletics’ debt would not only become the highest in the nation and double Cal’s, it would be the highest in college sports history.

How did we get to this point?

In May 2023, Board leadership proposed a $70 million expenditure to provide funding necessary to winterize Beaver Stadium and pay for a study of Beaver Stadium renovation options. I questioned the costs, which by even exaggerated estimates should not have reached that price tag. 

I voted NO because I was concerned by the lack of transparency between Board leadership and its members. I also had suspicions, based on the fact that I was refused access to basic information, that the $700 million project was already a ‘done deal’. I now feel my suspicions have been vindicated.

From my public comments last May:

“Whether or not this $70 million expenditure is our tacit commitment to future formal approval of a $700 million renovation, it is far too impactful a decision to make without first exercising rigorous fiduciary scrutiny. And so I will vote nay.”

Since then, Board leadership has continuously claimed that no preconceived project plan was determined and that the full Board would fully and thoroughly consider all options. I raised the issue at the November 2023 meeting where, once again, Board leadership insisted that no determination had been made behind the scenes and without Board approval. Concurrent media reporting contradicted these statements, with Penn State administrators being quoted as saying that as far as they were concerned, the $700 million project was moving forward.

When I pointed this out, Finance and Business Committee Chairman Rob Fenza replied: “Sometimes, you know, there are things that get into the paper that maybe aren’t ready for prime time.”

Matt Schuyler, Chair of the Penn State Board of Trustees added, “Yeah, I think… the news is ahead of the facts and not grounded.”

In January 2024 the $700 million project, which had still never been deliberated on nor voted on by the Board, was put out for bid.  Most parts of the contract have now been awarded and I repeat, this project has not been approved. (Note: a search of the Office of Physical Plant website shows most documents related to the Beaver Stadium construction project have recently been removed but are still indexed, resulting in 404 errors).

In recent weeks arguments have been put forward by administration and board leadership as to why we must push forward with this proposal but, contrary to repeated public assurances, no other renovation options have been offered for deliberation. I have repeatedly requested basic information regarding the $700 million proposal from Board leadership, ICA leadership, and Finance administration and have either not received a reply or been flatly denied access.

Why we can’t afford it.

Based on the information I have been able to review, there are five reasons I do not believe the Board should approve this project:

1. We don’t have the cash. As background, the last time Beaver Stadium was upgraded was 2001 and that debt was paid off in 2011, fully from revenue. Since that time the surplus revenue was supposed to have been saved towards the next renovation, but instead the athletic department has only a minimum cash balance. They must request the University borrow money for relatively minor projects that our competitors routinely pay with cash from reserves.

2. We don’t have the philanthropic support. Quite frankly, since 2011 donations to Penn State athletics have fallen off a cliff. In 2022 Penn State athletics was able to gather only $14.2 million in donations while Ohio State netted $55 million and the University of Alabama $115 million. 

3. We won’t have the revenue. Over the last 10 years, athletic department operating expenses have increased by 6.5% on average. In order for them to not be significantly in the red after the approval of the $700 million project, operating expenses would have to increase by less than 2.5% per year for the next 30 years. If 6.5%/year increases continue, the athletic department will be in the red to the tune of approximately $1 billion in 10 years. Even if operating expenses grow by only 4%/year, a very optimistic projection, that hole is $250 million in 10 years and $1 billion in 20 years.

   

4. There is no bang for the buck.  Whereas the 2001 renovation added 12,000 seats to the stadium, as far as I can tell the $700 million project will add none. Instead it will focus on increasing revenues with premium amenities, but my own research suggests that these projections are overly optimistic. Even if true, these highly speculative estimates would be insufficient to prevent ICA falling deeper into debt.

5. We have other obligations besides Beaver Stadium. The Athletic Department is still on the hook for over $50 million of approved but not yet funded athletics projects, with others in the advanced planning stages (like the Natatorium). These will add millions of dollars more to the University’s debt.

Finally, while it’s not part of my fiduciary duty I feel strongly that seats and season tickets should be affordable for middle-class Pennsylvania residents. Fans in the ‘cheap seats’ should not be asked to subsidize building luxury accommodations for a few when the game day experience could be improved for everyone at a fraction of the cost. 

$700 million is a tax on all Penn State athletic fans. 

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*Approximately 75% of that debt has been accumulated in the last few years and includes the $70 million approved for the first phase of Beaver Stadium renovations May, 2023.  

**As many who follow college sports and higher education know, Cal’s athletic program is essentially bankrupt. Like Penn State, those debts are guaranteed by Cal’s entire revenue stream, so they have been forced to take funds from their general budget to pay the debt service. They will be paying off that debt for the next 90 years. During Sandy Barbour’s AD tenure at Cal, many experts outside of Cal’s administrative leadership raised red flags, warning that the project was a disaster in the making and that Cal’s athletic leadership projections were nothing more than fairy tales. The Cal Board of Regents ignored the warnings.

Link to my Debt Ratio tracking spreadsheet, last updated May, 2024

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As a member of the Penn State Board of Trustees, I will from time to time be made aware of certain confidential information.  I will also engage with Trustees and administrators in private, off-the-record conversations, with the expectation of privacy on both parties. I take these expectations seriously, as they are required in order to catalyze important discussions.As a fiduciary, it is also important that I engage in conversations with all stakeholders of the University. Stakeholders like you.  Discussions will involve publicly available information and issues before the Board, as well as my personal thoughts, concerns, and ideas. I also will continue to solicit your thoughts, concerns, and ideas, and plan to engage in meaningful conversations with you on those topics. I hope that you will continue to share your concerns and ideas with me.

You can contact me via my website, barryfenchak.com.