Butler called lone exception to ‘Field of Dreams’ approach

The "Field of Dreams" approach to saving small college and universities is far from a sure thing.

In fact, building or investing in sports facilities in order to turn around a financially troubled school is nearly always a losing play, according to financial experts who spoke at last week’s High Yield Municipal Bond Conference hosted by Smith’s Research and Grading in Greenwich, Connecticut.

Outside of NCAA Division I men’s football and basketball programs in the top five conferences, college sports typically lose money, said Jonathan Chirunga, portfolio manager at Pioneer Investments.

"Unless you’re Stanford, unless you’re Duke, unless you’re USC, it’s quite hard to enter into that sphere and win," Chirunga said, speaking at a panel titled, "Small Colleges Under Fire."

Chirunga added that the only exception to the rule he could name was Butler University, a small Midwestern school whose men’s basketball program made it to the final game of the NCAA tournament two years in a row, in 2010 and 2011. Though the Indianapolis-based private college lost the title game in each year—to Duke and University of Connecticut, respectively—the national recognition boosted enrollment and endowment gifts, Chirunga said.

"They were able to do it, but you have to understand that I’m only saying Butler University, I’m not saying tens or hundreds of school," Chirunga said.

Even Butler wasn't an overnight success story. The groundwork was laid decades ago, starting with former president Geoffrey Bannister in the late 1980s.

Priority shift

Many small, private schools are facing financial headwinds as would-be students are becoming more price-sensitive to escalating tuition rates. The announcement earlier this year of Virginia-based Sweet Briar College’s possible closing proved to be a bitter reminder that schools with low credit ratings and declining enrollment don’t always have a secure future ahead of them.

Investors are now encouraging schools to think "outside of the box" to repair broken balance sheets, but building new stadiums isn’t usually the way, said Sean Gumbs, senior managing director of corporate finance and restructuring at FTI Consulting.

"There are lots of build-it-and-they-will-come stories for these schools, and that strikes me because generally speaking, people go to college to learn," said Gumbs.

Often, when schools become overly focused on building up athletic facilities to attract students and increase enrollment, academic improvement takes a backseat, Gumbs said. That shift in priority can begin a dangerous cycle for struggling schools, and downgrades can become inevitable, making a turnaround ever further away than it was originally, said Gumbs.

"That cycle I’m afraid we’re going to see more and more of," Gumbs predicted.