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The University of Arkansas System Board of Trustees voted Tuesday to borrow $19.1 million to make 2020 and 2021 payments on UA Department of Athletics debt.
The department is projecting a $20 million shortfall in fiscal year 2021 revenue due to the COVID-19 pandemic, according to Hunter Yurachek, vice chancellor and director of athletics at the system’s flagship university in Fayetteville. It had originally projected revenue of $124.6 million.
“As you know, the global pandemic has really affected all aspects of what we’re doing here and, one of them — it seems like a long, long time ago — but back in March, college athletics essentially shut down,” UA Chancellor Joe Steinmetz told the trustees during a special meeting held via teleconference.
Steinmetz described COVID-19’s financial impact as “tremendous” and said the loan is part of a larger cost-cutting package.
Clayton Hamilton, the athletic department’s CFO, said interest rates on loans are “very favorable” right now. The approved resolution states that the interest rate on the new loan shall not exceed 2%, and the default rate shall not exceed 4%. The maturity date will be on or before Sept. 15, 2028, and the loan will come from Regions Bank.
Hamilton said the loan will be interest-only for three years and be paid back over five years.
“The payback will coincide with forecasts for additional revenue to the Southeastern Conference,” he said. “…[T]he loan will not increase the total debt for the athletic department or extend the number of years for outstanding debt beyond what is currently 17 years.”
In a letter to trustees, University of Arkansas System President Donald Bobbitt wrote that the financing is expected to be finalized by Sept. 11.
In 2016, the board approved $120 million in bonds to increase capacity at Donald W. Reynolds Razorback Stadium from about 72,000 to 76,000 and replace the Frank Broyles Athletic Center. The project, then estimated to cost $160 million, was completed in 2018.
Two trustees — David Pryor of Little Rock and C.C. “Cliff” Gibson III of Monticello — voted against the expansion. Pryor, a former U.S. Senator and Arkansas governor, questioned how the university might repay the bonds should the Razorbacks football team lose games and fans stop attending.
Since then, the university has fired two head football coaches, Bret Bielema and Chad Morris, and the athletic director who championed the expansion, Jeff Long. COVID-19 added another wrinkle to what was going to be a challenging year for the athletics program and its football team, now led by Sam Pittman.
The pandemic necessitated shortened sports schedules and limited capacity at sports venues. Yuracheck said Tuesday that, because of the pandemic, more games could be canceled and capacity could be further constrained.
In response to COVID-19, Yuracheck said the athletics department has tightened its budget, cutting operating, travel, recruiting and event operations expenses, and implemented a plan to reduce salaries and benefits. Its voluntary retirement program has been extended and a hiring freeze is in place. Ten positions are vacant, and there are no immediate plans to fill them.
Yurachek said the department has “absolutely no plans to eliminate any of our 19 team sports programs.”