|Development of a comprehensive capital plan addressing physical plant renovation and repair in a timely manner, with money for projects a line-item in annual budgets, is one of four recommendations contained in the Interim Report of the Athletic Department Financial Advisory Committee. The [current] absence of regular budget revenues dedicated to major maintenance and repair leads to episodic and uneven attention to the rehabilitation of the facilities, the report states. Crisler Arena file photo from Photo Services|
In February, Bollinger asked Robert Kasdin, executive vice president and chief financial officer, to head the ad hoc committee in the wake of extensive media coverage of the cost of a television production studio in Crisler Arena, an expensive Internet project, and a controversial $8 increase in season football ticket prices ($27 to $35) that subsequently was reduced to $4.
The advisory committees report was released June 23, the same day Athletic Director Tom Goss announced that the departments fiscal 199899 budget is $2 million in the red. The department will tap its reserve fund to cover the deficit, and is expected to take steps to present to the Regents at their July meeting a balanced fiscal year 199900 budget that will take into account the committees recommendations.
The bulk of the shortfall results from a $1.35 million decrease in licensing royalties for items bearing U-M logos. The remaining $650,000 is attributed to a $400,000 drop in mens basketball ticket sales (a $200,000 decrease was budgeted); the $500,000 cost of the departments Internet project, mgoblue.com ($350,000 more than was projected); and unrealized income from the unsuccessful M-Vision project (selling seats in Crisler Arena for viewing of away football games on large screens).
The report notes that athletic departments nationwide are under increasing financial pressure, reflecting the expense of adding new sports, few of which produce enough income to cover expenses, with the revenue-generating sports bearing an increasingly large financial burden. Even for the revenue sports, the future is uncertain, the report states, citing the move toward a national championship football game, affecting potential revenue generated by bowl games. The revenue impact . . . cannot be predicted and therefore adds even more uncertainty and risk.
The broadly held perception that we are insulated from the national trends, that the Athletic Department is a money machine, and that any financial challenges simply reflect unfortunate specific decisions is not the case, the report states. Rather the departments avoidance of financial problems has been due to luck, increased licensing royalties in years when U-M teams won national championships, and the periodic addition of an extra football game.
|A greater-than-anticipated decrease in sales of items bearing U-M logos accounts for about $1.35 million of the Athletic Departments $2 million deficit this year. Photo by Bob Kalmbach|
Despite years of concern about expense trends, insufficient action has been taken over time, the report states. That hesitation to grapple with unfavorable long-term trends in expenses is understandable in light of continuing surpluses. In fiscal year 1999, the music has stopped. We therefore take this opportunity to present you [Bollinger] with a series of recommendations designed to reinforce the financial health of the department.
The [current] absence of regular budget revenues dedicated to major maintenance and repair leads to episodic and uneven attention to the rehabilitation of the facilities, the report states.
. . . the creation of a balanced budget each year (including FY 2000) and over time will be a prerequisite to the departments maintenance of its excellence. The Athletic Department must accelerate its move toward more aggressive management of expenses in the course of the year. Reliance on non-recurring windfalls, such as licensing royalties resulting from a Rose Bowl win, is imprudent, the report states.
Within this recommendation, the committee members indicate that the department must prioritize needs and see to it that the priorities are followed, and that the units decision-makers must include prioritization and resource allocations as part of their charge. Incentives, such as allowing a unit to carry forward some of its balance rather than forcing it to use it or lose it, could be offered to encourage control of expenses.
In addition, the departments leadership must develop greater financial flexibility to address needs and shortfalls during the course of the year in a way that ensures no losses from operations at year-end, the report states. This might include holding the allocation of some funds until mid-year. Currently, the only means of making adjustments is cutting costs of spring programs. This seems unfair and unwise, the report states.
While action to address the $2 million deficit needs to be taken promptly, it must also be seen as part of a sustained effort to adjust to emerging financial conditions, committee members say in the report. We urge that the budget proposed for fiscal year 2000 anticipate enough of a surplus so that the chance that operations in the course of the year result in a balanced budget is a virtual certainty.
The committee notes that creating and funding a long-term capital plan cannot be done in a single year, and advises the department to develop one over the next two or three years that will impose the necessary discipline to ensure that the rehabilitation of facilities is not subordinated to the urgent programmatic need of the moment.
An emphasis on analytical rigor and financial discipline will serve the department well in the future. And while the transition period may be difficult, we urge that the most prudent path focuses on expense controls and treats the growth of revenue as a fortunate outcome rather than an important bedrock of financial stability, the committee members conclude.
In addition to Kasdin, who chairs the group, members of the Athletic Department Financial Advisory Committee are Elizabeth M. Barry, associate vice president and deputy general counsel; Percy Bates, professor of education and member, Board in Control of Intercollegiate Athletics; and alumnus Bill Martin.
The report on governance of the Athletic Department is forthcoming.