These minutes reflect
discussion and debate at a meeting of a committee of the
Minutes
Present: Charles Speaks
(chair), Prince Amattoe, Brittny McCarthy Barnes, Jean Bauer, Stanley Bonnema,
Charles Campbell, David Chapman, Daniel Feeney, Stephen Gudeman, Gary Jahn,
Wendell Johnson, Michael Korth, Elo Charity Oju, Richard Pfutzenreuter, Rose
Samuel, Michael Volna, Susan Carlson Weinberg
[Mr. Amattoe and Professor Korth were to be connected by teleconference
but the equipment malfunctioned.]
Absent: Eric Kruse,
Terry Roe, J. Peter Zetterberg
Guests: Vice President Tonya Moten Brown;
Liz Eull (Office of Budget and Finance); Gail Klatt (Audits); Laurie McLaughlin
(Office of the Vice President for Administration and Chief of Staff);
Professors Arthur Erdman, Marvin Marshak, Joseph Massey (Faculty Consultative
Committee)
Other: Cathy Gillaspy (Regents' Office)
[In
these minutes: (1) classroom technology upgrades, flat tuition; (2)
intercollegiate athletics financial situation; (3) the economic outlook]
1. Committee Business
Professor Speaks convened the
meeting at
-- The nominations of Professors Ken
Heller and Jim Perry to the Classroom Advisory Committee were approved
unanimously.
-- The Committee last year adopted a
resolution concerning classroom technology upgrades; this year Vice Provost
Swan and Mr. Fitzgerald appeared before the Senate Committee on Educational
Policy and the Senate Consultative Committee and made a presentation. Does this Committee also wish to hear about
classroom upgrades? Mr. Fitzgerald
thought it would be a good idea, but that a presentation later in Spring
Semester would be better. Ms. Weinberg
said she would like to see data concerning classroom utilization. Professor Speaks asked that the Committee
give him the license to fit in a presentation sometime later in the spring at
an appropriate time during the budget preparation cycle. The Committee concurred.
-- Professor Speaks asked that Committee
members identify nominees for the Capital Projects Subcommittee in order that
the names can be approved at the next meeting.
-- There is a proposal moving through the
University requiring students to obtain permission to enroll for fewer than 13
credits in a semester. There is an
alternative proposal which would impose a flat-rate tuition schedule (with
allowances for per-credit tuition for truly part-time students). Does the Committee wish to ask Mr.
Pfutzenreuter if he will prepare models of how such a tuition schedule might
work? The Committee indicated it wished
to see the information.
-- It was agreed that the Committee would
hold an additional meeting on December 4 to consider the information that it
was about to receive from Vice President Brown concerning the financial status
of intercollegiate athletics.
Professor Speaks accepted a motion
to close the remainder of the meeting, subject to the following
understanding: (1) there will be minutes
from the presentation by Vice President Brown, but they will be embargoed until
after Dr. Brown makes the same presentation to the Board of Regents on December
14, (2) the contents of the discussion will be confidential until after the
December 14 Regents' meeting, and (3) the discussion with Associate Vice
President Pfutzenreuter will be entirely off the record. The Committee voted unanimously in favor of
the motion.
2. The Financial Status of Intercollegiate Athletics
With the motion adopted, Professor
Speaks now welcomed Vice President Brown and her colleagues to make a
presentation concerning the financial status of intercollegiate athletics.
Vice President Brown began by noting
that she has responsibility for the oversight of intercollegiate athletics,
following a change in the administrative structure in December, 1999. At that time she was made responsible for
athletics while academic counseling reporting was changed to the Executive Vice
President and Provost and athletic rules compliance reporting was changed to
the Office of the General Counsel. Dr.
Brown said she sees her responsibility consisting of three elements: ensuring that intercollegiate athletics are
aligned with University priorities and that there is fiscal accountability.
This report is intended to detail
the current financial status of athletics, project future financial challenges and
obligations, and identify major policy issues that must be addressed in order
to develop long-term reform of athletic finances. The reason for this report now is to provide
a financial reality check and because there are persistent financial problems in
athletics and a need to restore financial viability. In addition, the University is faced with
increased accountability for budget decisions and a decreased level of state
support, other institutions are also focusing on the problem of escalating
athletic expenses, the Regents have stated their expectation that the
administration increase efficiency across all levels of the University and
identify programs that are at risk financially, and the policy implications of
current and future challenges facing athletics must be viewed in the context of
the larger financial challenges facing the University as a whole.
In addition to the change in
reporting lines, an Athletics Financial Group has been created, consisting of
representatives from the Budget Office, the Vice President for Administration,
fiscal managers from men's and women's athletics, directors of Athletic
Facilities and Trademarks and Licensing, and senior administrators from men's
and women's athletics. The purpose of
this group is to look at athletics financing from a wider perspective than one
department. Dr. Brown noted that once
she started asking question about athletic finances she could find no evidence
that there had been a comprehensive review of them in recent years. She also pointed out that while her office
has combined and manages the athletic revenue streams, the spending decisions
have remained in the two athletic departments.
A short summary of the findings of
the report are these:
-- revenues
generated by athletics are not sufficient to cover current and future expenses
-- the University subsidizes almost
$10 million of athletics expenses annually, 23% of athletic operating expenses
-- athletics has not met revenue
projections for the last two years nor is it expected to do so this year
-- projections indicate that the
minimum cumulative increases in athletics expenses over the next five years
will exceed $33 million (including the $10 million annual institutional
support)
-- intercollegiate athletics has not
reserves to meet current or future financial needs.
The report Dr. Brown presented
included a number of graphs and tables making various comparisons and reporting
data over time. They included the
following.
A comparison of Big Ten athletic
departments by teams, athletes, and budget (1999-2000):
# athletes # teams total budget
Big
10 Avg 724 24 $40,286,445
(For
2000-01 and later,
Total expenses for intercollegiate
athletics in 2000-01 were $44.9 million, which includes direct athletic
expenses as well as approximately $2 million in indirect institutional support
(academic counseling, athletic rules compliance, athletic oversight, facilities management, Office of the Registrar, financial
aid support, and central debt payments).
For the current fiscal year, total expenses budgeted for athletics total
$47.1 million (including those funded by University support).
Of the expenses, 55% are related
directly to the sports (including athletic financial aid); the remainder is indirect
program support (e.g., media relations), debt, facilities, administrative
overhead, indirect institutional expenses, and other.
One graph plotted for 1991 to 2000
the growth of budgeted expenses in athletics on the Twin Cities campus, the
average Big Ten growth, and the growth of the University's overall budget. Big Ten athletic budgets increased 98% over
the 10 years, the Twin Cities athletic budget increased 109%, and the
institutional budget increased 55%. The
Twin Cities athletics budgets 1991-2002 increased from $19.6 million to $47.1
million, an increase of 141%. This
growth follows the same trajectory as at peer Big Ten schools, which is twice
the growth rate of the institutional budget (excluding auxiliary units).
The University's program falls
short, however, when compared to other Big Ten schools in terms of revenues
GENERATED BY ATHLETICS; it generates $8 million less than the average of the
other schools.
Big Ten Avg U of M Difference Rank
Total
Revenue $40,475,601 $40,053,229 ($422,372) 5/11
(including all
institutional support)
Revenue
Generated $39,082,600 $30,944,369 ($8,138,231) 8/11
by
Athletics
It
is only because of significant institutional support that the University's
programs appear consistent with the Big Ten average. (The numbers 9, 10, and 11 in terms of
athletically-generated revenue are
Revenues that support athletics come
from a variety of sources; for 2000-01, ticket sales, radio and TV contracts,
and distributions from the NCAA and Big Ten account for 47% of revenues. University support makes up 23%; foundation
funds make up 16%, with the remainder coming from
novelties/concessions/royalties and other sources. Football, basketball, and men's hockey
generated 72% of the $34.2 million in revenue generated by athletics (all
revenues except the central support).
Revenue- and non-revenue sport
comparisons, 2000-01:
Sport Expense Fin. Aid Total Revenue Profit/(Loss)
Basketball 2,671,800 89,000 2,760,800 9,059,500 6,298,700
Ice
Hockey 1,217,600 194,900 1,412,400 5,457,500 4,045,100
Football 6,223,200 1,052,600 7,275,800 10,253,000 2,977,200
Subtotal 10,112,600 1,336,500 11,449,000 24,770,000 13,321,000
All
other
sports 7,821,300 3,773,600 11,594,900 850,600 (10,744,300)
Only men's basketball, hockey, and
football are considered "revenue-producing" because they are the only
ones that generate revenues in excess of their direct costs plus financial
aid. The two most "profitable"
sports at
Institutional support of
intercollegiate athletics has increased over the last 10 years from 17.6 of
athletic revenues to 23%. Up until
1995-96 there was a State Special appropriation for women's intercollegiate
athletics; it was folded into the University's general appropriation after
that. In 1990-91 institutional support
for athletics totalled $3.4 million (of which $2.7 million came from the State
Special); in 2000-01 that support had increased to $10.1 million. The latter figure includes calculation of
costs outside of athletics (e.g., in the General Counsel's office, Dr. Brown's
office, etc.) that would not be incurred but for the presence of athletics;
these indirect costs are $1.4 million of the $10.1 million institutional
subsidy. Dr. Brown related that she
could not accurately identify these indirect costs before 1999-2000.
The institutional support for
athletics (2000-01) breaks down this way:
Direct
support:
Women's
athletics 7,108,965
Athletic
Facilities 1,008,428
Subtotal 8,117,393
Indirect
support:
Academic
counseling 371,298
Registrar's
office 48,529
Financial
aid office 56,364
Athletic
compliance 227,082
Chief
of Staff office 323,592
Capital
debt 370,443
Facilities
management 637,000
Subtotal 2,034,308
Total 10,151,701
Dr.
Brown estimated that the total will rise to $10.6 million for 2001-02.
The
projected level of institutional support, assuming it stays at the current
level and that only additional debt obligations on athletic projects would be
added, would be as follows (that is, no additional O&M funds would be added
for direct or indirect support of athletics):
2002-03 10,791,911
2003-04 11,287,065
2004-05 11,285,947
2005-06 11,256,924
2006-07 11,224,246
Total 55,846,093
Dr. Brown explained that
understanding how the University came to be in the position of subsidizing
athletics to the extent it does requires an understanding of two factors: (1) institutional policy decisions and
guiding principles on the institutional view of athletics, and (2) four key
areas in athletics that are out of alignment with peer institutions. The University has long recognized the value
that athletics adds to the institution; in supporting excellence in athletics,
the University has been committed to the following principles (which can be
found in policy documents adopted over the years):
-- striving for the highest levels of
academic and competitive excellence in all athletics programs
-- meeting the requirements of Title IX while aspiring to
higher levels of gender equity (which means doing the right thing, more than
just what is required by Title IX, in order that women have a quality experience
in athletics)
-- developing and maintaining competitive excellence in
Division IA revenue sports
-- maintaining existing levels of competition (which means not
cutting sports)
-- preserving separate athletic departments for men's and
women's athletics.
The bottom line is that athletics
has been unable to meet the increasing financial obligations necessary to
support all of these principles; as a result, the University has had to
substantially increase its subsidy of athletics in order to bridge the gap
between upholding all these principles and the resources available within
athletics to meet the costs.
The prevailing assumption has been
that the University subsidy is simply a reflection of the cost of maintaining a
high-quality women's athletic program.
That is incorrect; the combination of all athletic revenues into one
central account has rendered that a distinction without substance. The University's investment is not just about
a commitment to women's athletics, it is about fulfilling its commitment to all
of the five principles. Other Big Ten
schools, moreover, have managed to fund women's athletic programs without the
level of institutional support provided at
The University's escalating subsidy
to athletics can be attributed to efforts to compensate for the fact that
athletics is out of alignment with its peers in four areas: excessive expenses in administrative support
(I) and in debt service (II) and inadequate revenue generation in fund-raising
(III) and in football (IV).
Professor Speaks asked if the
guiding principles are different at institutions that do not have a
subsidy. They do not, Dr. Brown
said. It is only the separate
departments that are unique to
I.
Administrative support: in general
comparisons with the Big Ten schools, the numbers are as follows:
Big
Ten Avg UM Difference UM Rank
Total
Sport Budgets 20,966,935 19,939,012 (1,027,923) 7/11
Total
Admin Support 16,288,471 15,096,297 (1,192,174) 5/11
Debt
Service 2,402,047 4,148,966 1,746,919 3/11
Capital
Expense 894,092 99,115 (794,977) 11/11
Total
Budget 40,266,445 40,943,332 656,887 5/11
This
is somewhat misleading, however, because although it appears the University
spends somewhat less on administrative support than other schools,
Big
Ten Avg UM Difference UM Rank
Similar
Schools
Total
Sport Budgets 20,276,466 19,939,012 (337,454) 5/8
Total
Admin Support 13,269,182 15,096,297 1,827,115 3/8
Debt
Service 1,916,453 4,148,966 2,232,513 2/8
Capital
Expense 613,968 99,115 (514,853) 8/8
Total
Budget 35,944,122 40,943,332 4,999,210 3/8
Dr. Brown said that administrative
costs are a function of the number and composition of athletic teams, so this
is the more relevant comparison.
Professor Speaks inquired if Dr.
Brown could attach a dollar figure to the cost of maintaining two separate
departments. Dr. Brown said she has been
asked that question and suggests that the University work with the
II.
Debt Service: Dr. Brown presented
a graph and table illustrating capital debt service levels through 2006-07, the
nature of the facilities being paid for (men's, women's, or joint use), and the
source of funds to pay the debt service.
A condensed version of the table follows (dollars in millions):
From From
Athletics O&M Total
1999-00 3.81 .33 4.15
2000-01 3.87 .37 4.23
2001-02 4.56 .76 5.32
2002-03 5.07 .95 6.01
2003-04 4.73 1.44 6.18
2004-05 4.67 1.44 6.12
2005-06 4.69 1.41 6.10
2006-07 4.70 1.38 6.07
Over the last 10 years, $49 million
has been invested in new and renovated athletic facilities; there remained as
well $35 million in remaining debt on athletic facility projects initiated
before 1990. There is a myth that the
debt service has to do with women's athletics, Dr. Brown commented; in fact,
the vast majority of the capital expenses are for joint-use facilities.
By comparison with other Big Ten
schools,
Big
Ten Avg 6.0 2.43
Penn
State 5.9 2.66
Northw'n .27 1.1
Purdue 0 0
By comparison, debt service as a
percent of total revenues for the University as a whole is 1.5%, significantly
below the 11% carried by athletics.
There is the argument that the athletic programs must make these capital
improvements in order to keep up with their peers, but other schools do not
have this level of debt because they do not have central support for debt
payments, Dr. Brown concluded.
III. Fund-raising has been as follows for
1998-2001 (both departments):
Total raised
(4 years) Percent of total
Annual
fund 5,166,252 21.4
Capital
gifts 13,500,100 56.1
New
Endow
Funds 3,334,576 13.8
Endowment
Income 2,081,421 8.7
While
56% of the funds raised are for capital projects, the two types of funds that
have the most impact on annual operating expenses are income from endowments
(for athletic financial aid) and the annual fund. The University does not have comparable data
from Big Ten schools on fund-raising but it does for endowments. For 1999-2000:
Total
Endowment Funds
(Athletic)
Penn
State 23,500,000
Big
Ten Average 20,600,000
Purdue 20,000,000
Northwestern 14,500,000
In terms
of use of the endowment income, the data look like this:
1999-00 2000-01 2001-02 (projected)
Financial
aid expense 4.7 million 5.1 million 5.5 million
Endowment
principal 10.6 11.0 n/a
Endowment
income .548 .608 n/a
Percent
of financial aid
covered by endowment
income 12.5 11.9 10.7 estimated
In
order to cover 12.5% of financial aid expense in 2001-02, the endowment
principal would have to be $13.8 million, assuming a pay-out of 5%.
Because of the slowing economy, Dr.
Brown pointed out, endowment principal donations and interest income have
decreased, but financial aid expenses have increased, creating an inverse
relationship between expenses and the revenue to cover them. About $830,000 per year is raised for the
endowments (only $425,000 in 2000-01).
If that annual average of $830,000 is what is raised during the current
year, only 10.7% of financial aid expenses will be covered by endowment
funds. Projecting further out, the
endowment would have to rise to $23 million by 2006-07 to cover the same 12.5%
of financial aid expenses covered in 1999-2000.
So, Dr. Brown said, the endowment must double in the next five years in
order to stay even, which will require raising money twice as fast as in the
last few years.
IV. Football: because men's basketball and hockey are sold
out, efforts to raise revenues have been directed at football, which is seen as
having the most growth potential. Dr.
Brown recalled that there was a blue-ribbon football panel commissioned by
President Hasselmo in 1994; its report, in 1995, became the basis for an
aggressive campaign to revitalize
In 1996
In the last year that Jim Wacker was head coach
(1996-97), the expense budget for football was $3.5 million. Beginning in 1997-98, the expenses for
football have been $5.44 million, $5.57 million, $6.17 million, and $7.28
million in the current year--a 104% increase in five years; the cumulative new
investment in football has totalled over $9 million. During the same time period, 1997-2001, $7.98
million has been spent on capital projects for football. Of those expenses, 58% were paid from
gifts/donations, 37% from central debt, and 5% from athletic debt. The total investment in football in the last
five years has thus been nearly $17 million (9 plus 7.98).
The results, Dr. Brown said, have been mixed. On the competitive side, the three losing
seasons have been somewhat balanced by two winning seasons that culminated in
bowl appearances and increased pride in the football team. On the financial side, however, the goal of
increasing revenues to benefit athletics as a whole has not been met.
There has been an increase in gross football
revenues, but the growth has not offset increased expenses so the net revenues
to the athletics programs are down. The
cumulative revenue growth from 1997-2001 was $2.8 million, but $1.25 million of
that, in 2001, is attributable to the Big Ten television contract. The financial investment in football has not
increased revenues in any significant way since 1997, Dr. Brown told the
Committee. There was an increase in
ticket revenue over the five years, from $2.6 million to nearly $5 million, but
that was a result of increased ticket prices, not increased attendance (which
increased only 5%). Offsetting the
increased income was a decrease in other income by $1.8 million. "Net profits" from football
declined from $4.5 million in 1996-97 to $2.9 million in 2000-01.
Comparisons with
other Big Ten football programs is enlightening. In terms of the
"profit margin" (revenues minus expenses) produced by Big Ten teams
in 1999-2000,
Football
"Profit" (millions)
Penn
State 17.1
Purdue 7.5
Northwestern 3.6
Is four years an appropriate time
period in which to expect football to show a positive return on the investment
made in it, Dr. Brown asked? Despite a
cumulative new investment of nearly $17 million since 1997, cumulative new
revenues total only $2.8 million. The
answer to the question is not clear, but it seemed an appropriate time to take
a snapshot of the situation and ask whether the University was comfortable with
the trajectory. These data do raise a question
about whether football can make more money, Dr. Brown said.
In terms of average attendance at
football games, the numbers have increased only nominally in the last five
years:
1996 40,851
1997 44,898
1998 43,796
1999 45,551
2000 47,352
Between
1997 and 2000, attendance increased by an average of only 5%, despite two bowl
games.
Dr. Brown also explained the
intricacies of counting attendance at football games. There are four methods:
hand count: fans
who actually attend (they are the ones who buy the hotdogs)
paid attendance: tickets
purchased
paid plus complimentary: tickets
purchased plus free passes
reported attendance: includes
everyone in the stadium--teams, band, concessions staff, etc.
It
is the last measure that most schools, including
Dr. Brown next reported attendance
records for the past 50 years.
1950 50,497
1960 57,033
1970 45,093
1980 44,184
1990 40,585
2000 47,352
Average attendance for 51 years was 47,925, slightly
higher than last year's attendance of 47,352.
Since 1968, there have been only five seasons with average attendance in
excess of 50,000; there were seventeen seasons with an average above 50,000
before 1968, and the last year average attendance exceeded 50,000 was in 1987
under Coach John Gutekunst.
The population of the metropolitan area
in 1950 was 1.2 million; in 2000 it was 2.6 million; it is from this area that
the football program draws most of its fans.
Average attendance at
The future financial challenge is
that athletic expenses will continue to escalate because fixed costs (salaries,
fringe benefits, utilities) will continue to increase, increases in financial
aid (tuition, room and board) will also increase, and athletics--like any other
auxiliary at the University--is expected to cover increases in fixed costs and
other program needs by increasing its revenues, cutting its expenses, or some
combination of the two.
For 1997-98 to 2000-01, average
annual expenses in athletics have increased $2,600,000; average annual revenue
has increased $604,000. There is a
shortfall of nearly $2 million per year.
If the size of the program remains constant, a conservative projection
suggests that annual expenses in athletics will increase by $10.3 million in
2006-07. Projected fixed cost increases
are as follows:
2002-03 3.40 million
2003-04 4.66
2004-05 6.45
2005-06 8.43
2006-07 10.32
The
cumulative total is $33 million.
For the last two years (1999-2000
and 2000-01), the revenue shortfalls have been $950,000 and $1,700,000. For the current year, current projections
indicate a revenue shortfall in football alone ranging from $300,000 to
$600,000, which almost certainly guarantees that athletics will again not meet
its revenue projections for the year.
The shortfalls the last two years have met that athletics drew on its
foundation funds to a greater degree than expected in order to cover operating
expenses. Unlike many academic units,
athletics has no reserves to cover current or future financial problems.
Even after drawing on foundation
funds, Professor Speaks asked, was there still a debt? There was, Dr. Brown said, and the programs
cut $550,000 from their budgets.
In terms of projected revenues and
expenses for the next five years, the picture is bleak. Assuming the institutional subsidy and other
athletic revenues are flat, the projected gaps between revenue and expenses are
as follows:
2002-03 3.34 million
2003-04 4.52
2004-05 6.09
2005-06 7.75
2006-07 9.70
The
cumulative shortfall is $31.4 million.
Without institutional support, projected at $11.2 million, the gap
between revenues and expenses in 2006-07 would be $20.9 million.
The financial situation in athletics
is simply no longer sustainable given the level of resources to meet future
needs, Dr. Brown told the Committee. The
ongoing financial challenges in athletics are occurring at the same time the
University faces a new financial paradigm, brought on by increased public
scrutiny of funding choices, increased accountability for budget decisions, a
decreasing proportion of the budget funded by the state, and increased reliance
on tuition. Athletics needs to fit into
this new paradigm, Dr. Brown said. As an
auxiliary unit, athletics should be fully self-supporting.--but the viability
of the principle of self-support should perhaps be considered.
The inability of athletics to
generate new revenues sufficient to meet their fixed cost increases and desired
program growth mandates an immediate solution.
There are two possibilities:
increase revenues or reduce expenses.
There are four areas to which one
could look to increase revenues: (I)
non-revenue sports, (II) men's basketball and hockey, (III) football, and (IV)
fund-raising. Increasing revenue has
been the preferred strategy to address escalating expenses, Dr. Brown
said. She pointed out that none of the
information she is presenting includes mention of a new football stadium. A decision about a stadium will not be a
department decision, it will be a University decision, and no stadium would be
built in time to help athletics in the next five years. Professor Speaks said that Men's Athletic
Director Tom Moe contends that a new stadium would increase winning and thus
generate more revenue. Dr. Brown
acknowledged that Mr. Moe holds that view but said it was unrealistic to think
any stadium could help fix problems in the next five years.
I.
There is a reason non-revenue sports are called non-revenue, Dr. Brown
observed. She provided a table of data
on the expenses and revenue for all of the sports besides men's basketball,
football, and hockey. The costs of the
program range from $1.27 million (women's basketball) to $242,153 (women's
golf). The sport that generates the
highest amount of revenue is wrestling, which covers 20% of its expenses. The deficits in the non-revenue sports range
from $1.2 million in women's basketball, $772,796 in women's volleyball, to
$307,870 for men's golf and $237,089 in women's golf. Overall, the non-revenue sports cost $10.6 million, generate $728,000 in revenue, so have a deficit of
$9.8 million. None of these sports break
even, nor are they expected to.
There are only limited opportunities
to increase revenues in the non-revenue sports.
Of the eight that do generate a modest amount of revenue (over $5,000),
II. Men's basketball and hockey have only
limited growth potential. They are
already the most profitable in the Big Ten, but they are also sold out. Season ticket prices have increased
significantly since 1996, so it is unlikely the market will bear continued
increases of that magnitude. New sources
of revenue include constructing "barnlofts"
in Williams Arena and suites in Mariucci Arena; until the construction debt is
paid off, however, there will not be additional revenues available--and any
additional revenues may have to cover the debt on the new hockey/tennis
facility being built.
Professor Marshak asked if there had
been consideration given to playing games at
III. Football continues to be viewed as the
sport with the potential for the most revenue growth. Previous efforts to increase attendance and
revenues have been unsuccessful. With a
stadium capacity of 67,000, there is room to increase ticket sales revenue; the
most commonly-cited explanation for the inability of the football team to fill
the stadium is the lack of an on-campus stadium which would allow new sources
of revenue from premium seating, suites, concessions, etc. But increasing ticket revenues may be a more
significant challenge at
If football attendance were at
capacity, how much more money will it generate, Professor Speaks asked? About an additional $3 million per year, Dr.
Brown said. So that still does not solve
the problem, when one considers both the revenue shortfall and the
institutional subsidy, Professor Speaks said.
Dr. Brown concurred.
The University does have the lowest
profit in football in the Big Ten; if it had maintained the $4-million level in
1996, the program would be better off.
If one looks at the huge variation in football profits in the Big Ten,
the chief variable is attendance. For
athletics to be self-supporting it must cover both the $10 million
institutional subsidy and the $2.6 million shortfall; only four schools in the
Big Ten do so. One would need a lot of
data before one could concluded that a stadium would
be salvation of the program. Attendance
is key, Dr. Brown said; if the numbers increase, revenue would increase more in
a University stadium (e.g., concessions income would also belong to athletics),
but even if the University had its own stadium and profits increased $1-2
million above the $3 million increase that would come with capacity attendance,
one has to ask if that would be worth the investment that would be required (in
a new stadium) in order to generate the money.
A stand-alone new stadium would not improve the net profit, Mr.
Pfutzenreuter said; the debt service would eat up any profit. The athletic program assumes the cost of the
stadium would be shifted to the University or the state, Dr. Brown commented.
Is there unmet demand for football,
Professor Chapman asked? They need to
win, Dr. Brown said.
IV. Athletics raises about $833,000 per
year in private funds. It would need to
increase that to $2.2 million annually to stay even in terms of the percentage
of athletic financial aid funded by the endowment. Intercollegiate athletics would like to start
a new fund-raising campaign, Dr. Brown reported; it has not been discussed, but
one can ask if it would be feasible; it would need three times its current
endowment to stay even. If the endowment
were increased by $12 million, needed to stay even, the additional income would
be about $600,000 per year, compared to the projected revenue shortfall of
about $9.5 million in 2006-07.
The funds raised tend to be for capital projects,
Mr. Pfutzenreuter pointed out; Dr. Brown added that they would like to use the
funds for capital projects for non-revenue sports, but that would add facility
operating costs for sports that do not generate funds.
In terms of the annual fund,
athletics raises about $1.3 million per year.
To have a significant effect on the projected increase in operating
expenses, the amount being raised would have to be increased
significantly. Dr. Brown suggested that
a feasibility study be conducted to determine the amount of endowment and
annual fund dollars that could reasonably be raised in order to offset the
annual increases in expenses over the next five years.
The other option for reducing the
gap between revenues and expenses is to cut expenses. Revenues are not growing at a rate necessary
to maintain the current size of the program; without increased subsidization
from the University, athletics will have a multi-million dollar annual
deficit. In accord with University
policy, deficit spending is not allowed.
Since revenue growth does not appear to be a realistic option,
significantly reducing expenses may be the only viable option. The cost reductions available to athletics,
however, such as salary freezes or reductions in financial aid, would not be
enough to meet the financial challenge.
Therefore, Dr. Brown said, only institutional policy decisions made
outside the purview of athletics will have the necessary impact on improving
the financial situation of intercollegiate athletics.
The big question is "what does
the University want intercollegiate athletics to become?" Answering that requires returning to the principles
set out earlier. Intercollegiate
athletics plays an important role in the mission of the University, which has
long recognized the significant value that athletics adds to the institution. Benefits of a strong athletics program
include opportunities for students to attain the highest level of competitive
performance in amateur sport, opportunities for educational and emotional
growth for athletes, opportunities for some students to attend college who
might not be able to do so otherwise, and it provides the citizens of Minnesota
spectator entertainment, a sense of pride, and promotes goodwill and support
for the University. Specifically, the
University has been unequivocal in its support of and commitment to the five
guiding principles for athletics (see the bulleted items on page 6 of the MS
Word version of the minutes).
Because athletics has not had the
money to support all of these principles, the University has increased its
subsidy over the years in order to bridge the gap. If nothing is done, however, there will be a
need for additional programs cuts so there will be 23 anemic, mediocre teams;
the University will continue to honor its commitment to gender equity. The cost of these principles outpaces the
ability of athletics to raise money.
She will not prescribe what should
be done, Dr. Brown concluded; that will be up to the administration and the
Board of Regents.
Professor Speaks noted that the
Committee will hold a special meeting next week to discuss the materials that
have been presented today. It appears
that the only realistic way to close the financial gap is to cut expenses, and
that will mean cutting sports. If
non-revenue sports are eliminated, that would take away the intercollegiate
athletic experience from a group of students most likely to graduate on time
and who are a less likely cause of scandal. Dr. Brown disagreed, saying that athletes in
non-revenue sports do not perform academically any better than athletes in the
revenue sports.
What struck him, something he has
never heard before, Professor Marshak commented, is that there are a lot of
non-reciprocity students in athletics, which could be high cost (tuition)
students for the athletics programs.
That raises the question of for whom the University is providing
athletic opportunities. Most students at
the University are from
It would be possible to break down
the athletes by Minnesota/reciprocity versus non-reciprocity origins, Dr. Brown
said. The golf team, for example, cannot
get good domestic players so it recruits overseas. One can look at athletes by team, but the
reason non-reciprocity students are recruited is for competitive purposes, she
agreed.
Are
Professor Gudeman said that the $4.9
million debt service sticks out; is it possible to look at the components of
that debt and see if any of it can be cut?
If golf were eliminated, for example, it might be possible to sell the
golf course and use the money to pay down the existing capital debt.
There are a number of universities
with a high academic reputation but without major sports programs, Professor
Chapman said; would it be possible to strip down the program to the bare
minimum? The minimum number of teams the
University must have to remain a member of the Big Ten and NCAA Division I-A is
14, Dr. Brown said; among those are football and basketball, which bring in a
lot of money. Suppose they do not bring
in enough, Professor Chapman said; could the University go to lesser level of
competition? What would the analysis
look like if the University assumed the costs for a lower level of competition? Dr. Brown said she was not sure; there are a
lot of ways to structure athletics. Some
schools have programs that are self-supporting.
Are there values in amateur competition which make it worthy of public
support? Is a hybrid possible? The University does not want to cut off its
nose to spite its face, she observed; if it were to move to Division III, it
would have to cover all the costs of the programs. The question is what does one want to
accomplish; given that, what structure and principles are needed? What plan can be developed that would meet the
goals? In athletics, she pointed out,
the arguments are not all based on reason; there are politics, perceptions, and
tradition to contend with as well.
Professor Speaks said that if the average non-revenue sport budget is $500,000, and nine sports were cut, that would save $4.5 million. Presumably such a cut would also mean reduced administrative costs, so the actual savings could