We are presented with many challenges in running an athletic department successful in all 25 varsity programs, Interim Athletic Director Bill Martin told the Regents July 13. Expenses have escalated faster than revenue as a result of adding sports, infrastructure maintenance and inflation. To meet our financial challenge, we are exploring new revenue streams to meet our expenses, which are consistent with our peer institutions.
Martin noted that the departments efforts to achieve financial stability follow from recommendations made a year ago by an advisory committee that he served on.
These included development of a comprehensive capital plan that allows for rehabilitation of the physical plant with funding set aside in an annual operating budget; balancing the budget by controlling expenses and placing less dependence on nonrecurring revenues; using University systems to track financial activities; and energizing development efforts.
An FY 199900 budget that initially anticipated an $880,000 surplus made quite a swing to a projected $2.6 million deficit, Martin noted, caused by a default on a radio contract ($2 million), decreased license royalties ($650,000) and a drop in annual contributions ($300,000).
Martin noted that total expenses for FY 199900 are within 1 percent of budget.
On the revenue side, the FY 200001 budget anticipates a continuing decline (reflecting a national trend) in licensing royalties and additional income from an increase in the cost of basketball tickets. It also assumes that there will not be a new apparel/shoe contract.
While football and hockey ticket prices wont change this year, basketball ticket prices, which have not changed since the 199293 season, will go up $3 for blue (from $13 to $16) and $2 for gold (from $10 to $12) seating.
The U-M is currently at the bottom of the list among Big 10 schools in basketball tickets, with the cost for the highest price tickets ranging from $25 at Minnesota to $12 at Penn State and Northwestern. Ohio State, Purdue and Wisconsin will be increasing prices this year.
FY 200001 expenses will increase in several areas:
Martin noted that in the short term, an increase in football pricing is the number one source of additional revenues. He emphasized that the process that will be used to evaluate possible new pricing plans is as important as the price. We need to go out to the entire Michigan family and build the case. Its compelling, he added. Im not worried.
A $100-per-seat licensing fee would generate an additional $6.6 million, Martin explained. Other elements of football ticket prices that will be explored include premium pricing for specific games, which is done by several schools; compelling donations for the right to purchase a ticket; and taking a hard look at corporate tickets and individuals who hold large numbers of tickets, as many as 8090 tickets in some cases.
A plan to add a balcony seating area in Yost Ice Arena, with a minimum donation required for those seats, would eventually provide budget relief of $500,000$600,000. (See Regents Roundup for a report on this project.)
Other possibilities, initially touched on by Martin at the June Regents meeting, include adding seats to Michigan Stadium, which would require construction of a new press box, and creating such new revenue sources as facility rental and advertising.
Martin also will work to develop and implement five-year operating and capital financial plans. Its difficult to budget on a one-year basis, he noted, since one year, for example, may have a higher level of post-season activities than another. He also wants to see the department move away from a budgeting process that places dependence on non-recurring or difficult-to-project income, such as licensing royalties.
The Athletic Department will use reserves to fund the operating deficit for FY 199900 and FY 200001.