Thrown for a loss, Minnesota State High School League faces largest deficit ever

There are about 400,000 reasons the Minnesota State High School League is taking a hard look at how it runs its business.

A projected deficit of $407,000 for the current fiscal year, which would be an unprecedented shortfall, comes as the league recently approved expanding classes in three sports, meaning more section and state tournament competitions.

Options the league's board of directors already have discussed include charging admission at more championship events, including some tournaments that have free admission.

The league also has considered generating more revenue through sponsorships and increasing fees to member schools to offset the costs of catastrophic and concussion insurance for all student participants.

League Executive Director Erich Martens said the issue has his "complete attention." Beginning this week he is soliciting ideas from school activities directors for dealing with the projected shortfall from school activities directors at the league's fall area meetings around the state.

"The MSHSL is reviewing all aspects of expenses and seeking cost containment in all areas," Martens wrote in an e-mail. "We are seeking efficiencies in management of tournaments, while maintaining the quality experience for all student participants."

The league, with nearly 500 member schools, operates on an annual budget of about $9 million — much of it focused on state tournaments — and receives no funding from the Legislature.

Revenue dollars from sponsorships decreased about $200,000 from the 2018-19 school year. Tournament tickets sales — the league's top revenue source — dropped 13.3 percent from a record 2016-17 school year. Revenue from 507,889 tickets sold could not make up the difference despite a price hike of $2 for adults and $1 for students across the board to help offset the rising costs of tournament venues.

"There probably is a limit to what our attendance can do," Martens said.

The league is seeking relief in other ways. Beginning this school year, each member school's current annual $100 league membership fee increases to $110 and goes up $10 per school year for five years. In addition, the fee that schools pay the league per activity increases from $90 to $110 this year, and then rises $10 per school year for the next four years. Overall revenue from fees will increase from $1 million to $1,657,500 by the fifth year.

But state tournament expenses will rise. The league approved additional classes for cross-country, soccer and volleyball beginning with the 2021-22 school year.

"When we do add classes, there is a bump in attendance for a short period of time," Martens said. "And then they typically return to a common level where they've been. So, we don't look at adding classes as ways to increase revenue; it's really about opportunities for kids."

According to the league's 2016-17 annual report, only 10 of its 35 sponsored state championships' income exceeded expenses. Boys' hockey led the way ($1,108,030) followed by football ($1,052,004) and boys' basketball ($319,514). Martens said the league is doing a cost/benefit analysis of whether to charge admission at all events.

"Trying to manage the taking and selling of tickets may actually be cost prohibitive," Martens said. "We may not see enough revenue for that to offset the cost of having ticket booths and people checking tickets. And when we charge at tournaments where we aren't charging for currently, the venues might come with additional facilities fees that are a part of any ticket sold. If we don't charge, there aren't any facility fees."

When the league has an excess, schools are reimbursed to help offset state tournament expenses. The league did not provide schools with state tournament reimbursement the past two years. The league ran a year-end deficit of $37,285 in 2017-18 and projected a deficit of $66,583 in 2018-19.

As for sponsorship revenue, eight sponsors are projected to supply the league with approximately $455,000 in 2019-2020. Martens said "a significant effort" will take place to "increase the number of sponsors" as well as "increasing the revenue from current sponsors."

The $407,000 projected deficit also owes to more conservative revenue projections. The 2016-17 and 2017-18 school years were "the highest amount of attendance that we've had," Martens said. "Our projections were built with those years in mind. So, when our attendances drops, that impacts revenue and makes us have to re-evaluate what's the expected attendance and how do we use that to do effective budgeting.