Moody's sees bad times coming. So what's next? Federal bailouts? Conference realignment?

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With that shameless publicity ask out of the way, let’s take a look at the latest updates.

Moody’s thinks bad times are coming for higher education

I have tried to be very clear with my audience about what I am. I’m a writer. I’m not an economist, or a lawyer, or an athletic director, or a historian, or a financial analyst.

But I do try to pay attention to what those folks have to say about what’s going on. And the financial analysts, or at least, financial analysts at Moody's Investors Service, are not predicting fair winds and calm seas for American higher education in the near future.

Via EducationDive:

How much instability constitutes “widespread”, you might ask?

That’s pretty bleak.

There are a few reasons for some pessimism about the near-term financial prospects of a lot of schools. Many universities in this country rely on tuition, room and board fees to balance the books. Schools may be refunding room and board right now, on account of schools being closed and not offering room and board, and with so much economic instability, trying to predict how many students are actually going to show up in the fall of 2020 (if we even have a Fall of 2020 semester) is impossible. It’s even more impossible when schools can’t host prospective students on campus, or hit the road on recruiting visits.

You know how your coaching staff does this for talented high school football players? The rest of your alma mater runs a somewhat similar operation, trying to find high school students to enroll.

Add that instability to the fact that recruiting and retaining international students, which was already becoming more competitive and difficult, is likely to become a LOT more difficult, makes any revenue that depends on enrollment very difficult to project. I think it’s safe to assume that for a lot of schools, that revenue is going to go down. State support, in a recession where tax receipts decline, could also drop, cutting colleges off somewhere else.

As Dr. Karen Weaver notes here for Forbes, that could be a catastrophe for smaller colleges, and subsequently, their athletic departments:

• 180 schools x 18 sports = 3,240 sports programs lost;

• 180 schools x 500 athletes per school = 90,o00 athletic opportunities lost;

• 180 schools x 25 employees = 4,500 jobs lost.

Of course, those school closures and lost jobs won’t all be at the D1 level. My guess is that the lower divisions of college sports, from DII, to DIII, to the NAIA, will be hit the hardest.

Right now, the specific financial situation probably isn’t clear for most schools. Their administrations are trying to deal with the myriad problems impacting their athletes right here, right now. But as we start to get a better idea of how long, exactly, we need to remain homebound, and how drastic this recession could be, expect the language and urgency from university presidents and potentially athletic directors to become a bit more dire.

Some schools have endowments the size of a Caribbean island GDP. There are some schools that can enjoy Scrooge McDuck level opulence. But there are many, many schools across all levels of college sports that are simply not built to withstand this kind of economic shock.

One possible remedy? A federal bailout

I’ve talked a little bit about an NCAA “bailout”, which maybe isn’t the exact correct term to use. Essentially, I’ve floated the idea that the NCAA could borrow money, perhaps against future earnings, to help offset cash flow issues for some member institutions. That way, the string from a canceled NCAA Tournament this year might not be quite so bad.

But that would just help the athletic department. What happens if the financial situation from the entire school is at risk?

You could try the same thing everybody else seems to be doing, from the cruise industry to the airlines. You could ask for a federal bailout.

From the Boston Globe:

Will they get the money? Well, anything is possible in the dark arts of political sausage-making, but it’s hard for me to imagine too many issues less likely to garner sympathy from Trump and current Republican leadership than a crisis that probably disproportionately damages small, private colleges in New England and the Midwest. The idea of sticking it to Antioch College or something would probably play well with the GOP base.

Would it be a good idea? I think I’d probably need to learn more before I developed a really strong opinion, but my personal general principle is that I would prefer to see cash payouts or “bailouts” directed to consumers before similar privileges were extended to any industry, be that higher education, hospitality, gaming or what have you.

But if casinos or cruise ships or companies that spent billions on stock buybacks can ask for federal money without any shame, why shouldn’t a liberal arts college?

My best guess is that large government assistance programs, be that from the feds, or a state would make it less likely we see a ton of schools drop athletic programs, or worse, close entirely.

One FBS AD: “Every conference in our industry needs to ask, are we aligned the way we should be.”

Right now, I think it’s already reasonable to look at COVID-19 as a monumental event in college athletics history, one up there with World War II in its ability to disrupt and force change. I suspect whenever things get back to “normal”, “normal” is going to look very different than it did in 2018. Everybody is going to have less money, and consumer habits may very well change.

UMass athletic director Ryan Bamford, in an interview with MassLive, insinuated that maybe schools, conferences and the whole NCAA ought to take this time to ask themselves some big questions.

The way I read this quote, I think ‘alignment’ could mean a lot of different things. It could very well mean alignment in values and on policy. Are all schools in a particular league in agreement on NIL policy? In budget? In athletic goals? In the institutional mission? Right now, I can think of several leagues where that isn’t the case, and often, these are the leagues that are more commonly associated with instability. It’s hard to paper over huge differences forever. In an era where financial solvency is a more pressing issue, sure, I think figuring out exactly where everybody stands could be a priority.

I don’t think it’s crazy that it could also mean literal realignment. One of my most popular newsletters ever was a missive on the changing baseline assumptions of conference realignment. Last June, I thought we could see a world where smaller leagues decided to realign to more geographically and institutionally homogenous conferences, as ways to save on costs. I didn’t write that thinking a massive financial upheaval was in the near future, but that could certainly expedite that timeline.

Of course, would an administrator at UMass be a smidgeon self-interested in calling for conference realignment? Yeah, probably. But that doesn’t mean that he’s wrong.

Even if things go back to “normal”, or whatever that means, in time for us to have a regularly scheduled fall school year and athletic season, the economic disruption is going to be large enough to potentially force some difficult decisions and significant changes.

And if we miss football season?

Then I think just about everything is on the table. For a lot of schools.

But if we miss football season, I suspect we’re all going to have many, many bigger problems to worry about.

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