The University Record, September 25, 2000

Athletics deficit less than expected

From the Department of Intercollegiate Athletics

The Department of Athletics’ operating deficit will be more than $1 million lower than expected for the 1999–2000 fiscal year, according to audited financial statements released Sept. 20.

The operating deficit for FY2000 was $1.45 million, down substantially from the $2.6 million forecast earlier this summer, and the $2.8 million deficit recorded in 1988–99. The operating budget includes the full costs of debt service and excludes capital expenditures, depreciation and investment gains from endowment funds.

The deficit resulted from non-recurring charges associated with a terminated radio contract, continued declines in licensing royalties and less-than-expected annual donations to the department, said Jason Winters, chief financial officer for the Athletic Department. However, once these problems surfaced, the department took several measures that allowed it to reduce the deficit by nearly one-half.

“When we recognized the shortfalls associated with licensing and the radio default, we reduced discretionary spending, did not immediately fill open positions and deferred what we could reasonably put off into later periods,” Winters said. Expenditures decreased 2.1 percent from the budget and 2.6 percent from the prior fiscal year.

In July, Athletic Director William C. Martin presented the fiscal year 2001 budget, projecting an operating deficit of $2.05 million. At the same time, he presented the Board of Regents with a long-term plan for returning the department to operating surpluses within three years.

“At Michigan, we have built a longstanding tradition of excellence while paying or own way,” Martin said. “Unlike many of our competitors, we have received no appropriated funds from the state or the University in support of our programs. The Athletic Department pays all costs incurred in educating our student-athletes, which means our mission of competitive excellence presents a significant challenge,” he added.

“Despite this challenge, fundamentally we are financially healthy. I have placed a number of ideas on the table for increasing our revenues over the long run, and we will be generating even more ideas over the next few months. We have recognized that we have a structural deficit, and I believe with some careful planning we can reverse the deficits we have experienced recently.”

Winters reported that licensing royalties continue to be disappointing and that college apparel market conditions have yet to improve. The Athletic Department ended the year with less than $3 million in royalties, down $800,000 (20 percent) from the prior year, and down $2.7 million (90 percent) from fiscal year 1998.

“To the extent that Michigan athletics has avoided acute financial difficulties in the last decade, it has reflected good fortune on non-recurring events such as licensing revenues,” Martin noted. “It is not because we are somehow exempt from the more general economic pressures facing other programs.”

Increased conference distributions, primarily associated with the long-term CBS-TV/NCAA basketball tournament contract, helped offset the shortfall in licensing revenues.

“On a balance sheet, we are in great shape,” Winters added. “Debt levels are modest ($15 million), and we have almost $40 million in endowment funds, including $10 million of unrestricted reserves.”

The unrestricted reserves are the result of athletic scholarship donations in prior years that were not expected because of operating surpluses during those periods. “We have to thank our predecessors for being cautious and wisely investing prior surpluses in the University endowment funds,” Winters said.

The Athletic Department will release the report data required for the Equity in Athletics Disclosure Act (EADA) in mid-October. Approximately 700 student-athletes competed on the University’s 23 varsity athletic teams. The department spent $8.5 million for financial aid to approximately 425 student-athletes in the 2000 fiscal year, which represented approximately 308 full scholarship equivalents.

Michigan Athletic Department
Financial Results-Internal Reporting Basis

(in thousands)

FY98/99 Actual

FY99/00 BudgetFY99/00 Actual
Revenues
Spectator admissions$16,851.$19,070.$19,305.
Conference distributions6,460.6,740.7,253.
Corporate sponsorship3,546.4,600.4,648.
Licensing royalties3,750.3,450.2,970.
Athletic scholarship and
other gifts
2,649.3,290.2,933.
Other7,440. 7,084.5,952.
Total Revenues40,696.44,204.43,061.
Expenditures
Salaries, wages
and benefits
14,789.15,308.15,398.
Financial aid8,265.8,520.8,504.
Team & game expenses7,918.7,623.7,705.
Facilities expenses3,604.3,556.3,261.
Other operating and
administrative
6,404.5,944.5,548.
Debt service1,854.1,898.1,727.
Post season, net590.475.253.
Total Expenditures43,524.43,324.42,396.
Cumulative Total(2,828.)880.665.
Bad debt &
other non-recurring charges
----------(2,113.)
Operating surplus (deficit)(2,828.)880.(1,448.)

Source: U-M Athletic Department