MSHSL weighing options as coronavirus-related cancellations eat into budget

The Minnesota State High School League was on pace to operate well into the black — to the tune of about $600,000 — during the 2020-21 school year, the league noted during the Monday, June 1, virtual MSHSL Board of Directors meeting.

“Things were really looking good,” assistant director Rich Matter said. “COVID-19, obviously, has changed that.”

To the point where the league is now taking preliminary looks at cost-cutting measures in preparation for what could be a monetary nightmare. The League, a nonprofit organization, typically operates with about a $9 million annual budget, MSHSL executive director Erich Martens laid out Monday. That budget covers everything from services to tournaments to insurance.

A massive chunk of that yearly revenue — more than $7 million — comes from tournaments, in the form of ticket sales, broadcast contracts and sponsorships. Matter said ticket revenue alone accounts for 60 percent of the League’s yearly revenue. Tournaments only cost the league about $3.5 million to run, leaving $3.5 million to help fund the rest of the league’s expenditures.

Now what happens if some of those tournaments cannot take place because of coronavirus concerns? Looking at the fall season, Matter called football, soccer and volleyball some of the League’s “large-revenue-producing activities.” Those sports generate about $1.1 million in “net-positive revenue.”

“Trying to project that positive $600,000 … if we had a normal year,” Matter said, “could reverse itself quite quickly to be more than a $1 million deficit.”

If the MSHSL has no state tournament revenue, it is left with less than $2 million to work with, which largely stems from school registration fees.

The numbers get worse if the MSHSL is able holds state tournaments without fans. At that point, the MSHSL incurs many of the same usual tournaments costs — facilities, officials, awards — but little of the revenue.

“Good for our student-athletes, and I know that’s why we’re here,” Matter said, “but potentially difficult at the gate.”

Without the League’s primary source of revenue, how would it begin to cover its roughly $5.5 million in annual non-tournament related expenses?

“You can understand that, with that, that provides a significant challenge for us as we try to identify what will things look like,” Martens said.

The MSHSL will come in about where it expected to for the 2019-20 school year — about a $400,000 deficit — even with losing the final two days of the girls basketball state tournament, all of the boys basketball state tournament and the entire spring sports season. The spring sports state tournaments actually operate at a financial loss, and the League received $790,000 through the Paycheck Protection Program, up to $580,000 of that in the form of a grant. That helped offset what Martens called “a significant portion” of the salaries of benefits of league employees through June 10.

“And yet as we move forward, it becomes much murkier as we try to identify what will happen,” Martens said.

Martens said the board has been “really proactive” in taking actions to reduce the budget’s reliance on tournaments, sponsorships and contracts, but the League certainly wasn’t prepared for what may lie ahead in worst-case scenarios.

It did lay out a few possibilities to recoup funds.

Traditionally, state tournament ticket sales tax dollars that would go to the state instead are transferred to the MSHSL Foundation, a separate nonprofit charitable foundation that makes grants to fund, assist, recognize or promote student participation in high school extracurricular activities.

The League, with the support of the Foundation board, is asking for a one-time exemption to have those dollars funneled back to the MSHSL this year. The League also is working with its streaming partner, School Space Media, on generating revenue from tournament streams. Currently, tournaments are streamed for free.

“We still need to have tournaments streamed in order for that to provide revenue,” Martens noted. “We anticipate we’re probably going to get some feedback on that, but we also think that there will be an appetite and an interest to be able to view and be a part of those tournaments at whatever level might exist.”

The League could also nix some state tournament consolation and third-place games that often operate at a loss — boys hockey is the only one that annually operates well into the black, because it is included in annual season-ticket packages — as well as potentially shifting facilities. That’s a case where the League could have contingency plans in place. There are high school facilities capable of holding state tournaments if need be.

The hope for the League is that the opening of youth sports “goes well” this summer and there are no setbacks there.

With so many unknowns still in play, the League added an extra Board of Directors meeting in July, and isn’t sure if it will even have a clearer financial picture then, depending on the available information.

“I think it is a bit too early to make any big decisions, but I would say that there’s lots on the table in regards to how this is all wrapped together,” Martens said. “It’s not a strict dollars-and-cents conversation, but the dollars and cents are what provides the opportunities for our students and communities.”