ScottyBuff

I wanted to re-post this article I had written on BleacherReport on December 15, 2009...


University endowments nationwide have plunged an average of 23 percent since last July, the worst drop since the 1970s, according to the National Association of College and University Business Officers.

State subsidies for higher education are being slashed drastically as many states have severe budget deficits.

The State of California has a $23 billion shortfall, while nearly every other state is trimming budgets, with the big-ticket item of university subsidies being near the top of their lists.
Tuition rates are being increased all over the country. The University of California (Cal-Berkeley and UCLA being the two largest campuses) regents recently passed a revolting 23 percent increase in tuition in response to the above budget cuts.

According to Time magazine: "From 2002 to 2006, the share of educational costs represented by student tuition rose from just over one-third to nearly one-half at public four-year institutions across the country."

How will this affect college football? Well, each athletic department has to "pay" for the scholarships of its athletes. Increases in tuition mean an increase in expenses for the athletic department, and we are talking millions of dollars at each university.
Donations to universities have dropped as many Americans have tightened their belts. This impacts the growth of their endowments, their operating budgets, capital construction projects, and athletic departments alike.

So what does all of this mean for collegiate athletics and the prime cash cows of football and basketball?

It means that one of their main expenses (scholarships) is going to increase significantly, while simultaneously, the revenues (in the form of donations, tickets, etc.) will decrease significantly.

Specifically looking at the Pac-10 Conference, the average published cost of academic scholarships for the athletic departments is $6.4 million (USC and Stanford do not report their figures publicly) per school. An increase of 20 percent on just that one line item would cost the athletic department $1.28 million annually.

It would require an endowment of approximately $25 million in assets to generate that $1.28 million on an annual basis, during normal economic times. The conference would need to generate an additional $15 to $20 million in revenues or reduce other costs to offset that amount.

Recent news out of Stanford University and the University of Washington shows that those athletic departments are already facing large budget cuts. Stanford is cutting $3.1 million in 2010 from its athletic department budget and $4.5 million in 2011. Washington ended its men's and women's swimming programs to save $1.2 million and still have that much more to cut.

Oregon State recently reported a drop in donations to their athletic department of $1 million. Washington State regularly receives between $2 and $3 million a year from their school's general funds.

"We're looking at multimillion-dollar deficits. The old adage of 'just make more money' through better development and fundraising won't help. The problems are too big to just be able to fix on the revenue side," University of Arizona AD Jim Livengood stated. "What's going to happen in 2012 when all the stimulus money is gone? That's when the rubber hits the road. It's scary."

In order to pay for that increased cost, they would have to either raise ticket prices, solicit more in donations, liquidate endowment funds that would harm the long-term future of the department, or cut programs. Many universities across the country are doing some combination of all those actions, but few are successfully able to do these in the current economic climate.

While there are certainly wasteful expenses in every athletic department that can be eliminated, taking too many drastic cuts or making the wrong financial decisions can only lead to long-term problems for many of the athletic directors and the programs.
Increasing revenue from traditional sources is nearly impossible in an environment where ticket sales are dropping, boosters are scaling back donations, and corporate sponsors' advertiser budgets are also shrinking. It will be difficult enough to maintain even the "status quo" by solely focusing on these sources of revenue.

The Pac-10 needs to explore non-traditional sources of revenue in order to make it through the new economic climate, and other major conferences have paved the way for them to do this.

The critical components in this strategy should be to:
1. Add two teams
2. Stage a conference championship game
3. Secure a new television broadcasting contract
4. Possibly form their own television network

Adding two teams to the current alignment doesn't bring in any new money in and of itself. In fact, there is a good chance that it might increase costs (beyond the obvious "retooling" costs of the conference) due to travel costs and an expected one-twelfth sharing of conference revenues as opposed to a one-tenth sharing formula.

The benefits would have to be realized in increased marketability (public relations), potential ticket sales, improved positioning in television contract negotiations, and in securing guaranteed bowl game contracts in football. It is proven that a 12-team conference stands a much greater chance of landing a coveted second "BCS" team and the subsequent $4.5 million payout.

Choosing the schools to invite to the conference is always the tricky part. For the Pac-10, the choices are fairly limited. The schools need to be top-flight academic research institutions with substantial assets, prestige, and national marketability. In regards to the benefits to gain in TV revenues, the largest media markets would need to be considered front-runners.

New Pac-10 Commissioner, Larry Scott, was hired specifically to address the TV revenue issue. He has no previous college administration experience, no "apprenticeship" as an associate commissioner for any conference in college sports, and his background in college football is "just a fan" as he tells it. But he has been successful at negotiating media rights contracts for WTA Tour (that's Women's Tennis Association).

When asked about expansion, Scott had this to say; "First and foremost, the presidents look at it from an academic perspective. ... There's a certain prestige and status about the conference that's of utmost importance to our presidents and chancellors. Then, from a sporting perspective, a commercial perspective, there's all sorts of considerations, TV and all of that."