The bowl ban handed down by the NCAA on Monday may hurt UNC’s athletic department for more than one season and cost it far more than a $50,000 fine.
Contracts with two major sponsors — Nike and Learfield Sports — contain bowl ban clauses that allow the companies to pay UNC less, which could cut the department’s revenue enough to put its budget in the red for the better part of a decade.
The two companies are unlikely to cut their funding to UNC, but the clauses represent an additional liability for the University created by the football scandal.
Nike and UNC signed a deal in 2009 worth $37.7 million. The company provides more than $3 million worth of gear each year to all of UNC’s varsity athletic programs and must pay the University $250,000 each year for the exposure Tar Heel athletes provide.
The contract states as much: “One of the principal inducements for Nike’s entrance into this agreement is the prominent brand exposure Nike receives through the placement of the Nike logo … on footwear and authentic competition apparel,” it reads.
The next sentence, however, outlines Nike’s right to reduce the quarter million dollars it must pay UNC in the event of a postseason ban in one of four sports: men’s basketball, women’s basketball, women’s soccer and football.
The NCAA’s punishment for the football program’s nine major rules violations includes 15 scholarship reductions spread over three years, probation for three years, a $50,000 fine and a ban on postseason play in the 2012-13 football season.
The bowl ban gives Nike the opportunity to reduce its payment to UNC by 35 percent, a possible loss of $87,500.
A postseason ban in basketball would allow a 60 percent reduction.
Representatives from Nike declined to comment on what action the company would take.
The athletic department regularly brings in tens of millions of dollars in revenue, but its expenses are often just as high. The most recent budget accounts for a small profit of only $200,000, creating a vulnerability to sharp drops in funding.
“$87,000 is a lot of money,” athletic director Bubba Cunningham said. “Can you make it up elsewhere becomes the question.”
The loss of money from Nike pales in comparison to what could come from Learfield Sports, a marketing company that handles media rights for weekly coaches’ shows, venue advertising and events like Late Night with Roy, among other things.
Through the sale of those media rights, Learfield Sports — through its local unit Tar Heel Sports Properties — must pay the University at least $6.7 million to $7.5 million in royalties through 2021.
The Learfield Sports contract also has a bowl-ban provision, which allows the company to pay UNC less money over the life of the contract if an NCAA punishment decreases revenues to football or men’s basketball by more than 5 percent over three years.
Unlike the Nike contract, however, the reduction amount for Learfield Sports is negotiable. A 3 percent reduction would be $200,000 at the least, which would be enough to wipe out the athletic department’s surplus, regardless of whether Nike pursues its reduction option.
A Tar Heel Sports Properties representative offered no comment on whether the company would seek a reduction.
Cunningham said he doesn’t know what the company’s plans are.
“We don’t know and we haven’t had that conversation with Learfield,” he said.
If UNC were to lose these two sources of funding, it may have trouble raising the difference elsewhere. The department struggled earlier this year with a $1.2 million funding gap, which came partly from the General Assembly‘s decision to eliminate tuition waivers for out-of-state student-athletes.
The athletic department proposed a $90 athletic fee increase to help pay for scholarships and support non-revenue sports. It was quickly met with sharp criticism and the department dropped the proposed increase to $45. A referendum for raising the fee was put before students and failed.
Cunningham said he wasn’t sure what path the University would take if the two companies decided to pay UNC less money.
“We’d look at both revenue and expense, but I don’t want to get into hypothetical guessing of which one we would use,” he said.
Deborah Stroman, who studies sports marketing in UNC’s exercise and sports science department, said there is a slim chance either company will exercise its right to save money because of the school’s scandal.
“The history and the reputation of this University still make us a very attractive contract,” she said.
Both have incentives to stand by the University during the bowl ban. The clauses are supposed to protect the companies from losing money if a public relations hit causes a drop in revenue.
But eroding support for the athletic department in the short term could have long-term consequences.
When Nike dropped its contract with Michigan in 2007 following years of athletic disappointment, Adidas stepped in and signed an eight-year deal worth $60 million.
“To walk away from UNC during a tough time is very dangerous,” said.
Additionally, a Nike swoosh seen on a picture of former UNC player Marvin Austin’s jersey or a radio show with boosted ratings because of the recent punishments still count as exposure.
“Even if it’s through a negative situation, it’s another reason for people to look at their brand,” she said.
Rick Steinbacher, associate athletic director for marketing and promotions, was optimistic about UNC’s chances of holding onto its compensation from Learfield Sports and Nike.
He said neither company has spoken to the University about reducing their obligatory payments.
“We haven’t had any conversations like that,” he said, adding that he doesn’t anticipate having any.
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