Red Ink for athletics

3/20/2010: Bellotti has now resigned – giving UO 2 weeks notice to find a replacement. He and Kilkenny left the athletic department over budget and with no financial reserves. There will be an easy $20 million per year in new expenses coming on line – arena bonds, new basketball coach, new high salaries for all the assistants, etc. Knight is committed to $20 million per year in donations for the next 5 years, but other donors are apparently not coming through as planned. Good time to split, I guess. And according to Ron Bellamy of the RG, President Lariviere has agreed to pay Bellotti another $2.3 million after he steps down, apparently on the basis of verbal promises made by Frohnmayer and Kilkenny.

Ken Goe of the Oregonian writes:

So, who is running the show? Knight? University President Richard Lariviere? Former interim athletic director Pat Kilkenny, a wealthy, retired insurance executive and still an athletic department adviser? General Counsel Melinda Grier?

Grier seems to have her fingerprints on any number of controversial decisions, including that $2.3 million gift Bellotti will take with him as he walks away. 

3/7/2010: Greg Bolt of the RG has a story on the athletic deficit today. Bolt’s story avoids the logical followup questions. For example, when Bellotti says:

At this point we’re doing OK,” he said. “Are we out of the woods? No, simply because of the economy. And we had some tuition increases, and all those things affect our bottom line.” The athletic department pays the UO the value of scholarships the athletic department awards, so when tuition goes up, that increases the department’s costs.

The logical followup would be “Yes, those economists really screwed you over – not to mention all those people who lost their jobs – with that recession thing.  But tuition costs went up by $820,000, $230,000 of which was covered by a one time increase in what you are given from state lottery funds. Your overall spending, however, is up by $3.2 million. How much did coaches salaries increase? How much will they increase in the current budget? Can I see your current budget? Do you have one?”

Similarly, when OUS Finance VP Jay Kenton says:

“This is not indicative of a problem, and in no way, shape or form is this a major issue,” he said. “It’s kind of a minor timing issue.”

It might be good to remember that Kenton is not going to say he screwed up and let the athletic department break the rules. Contrast Kenton’s statement with what the State Treasurer’s report on the Arena (prepared by Bill McGee of the DAS) says:

“The scenario leaves the Department with a annual cash balance of less than one percent of projected expenditures through 2031, which is low for a department that is expected to be self- sustaining. By comparison, Board of Higher Education policy sets a goal of five to fifteen percent for total institutional cash balances.”

Emphasis added – because actually the balance is now negative 1% before they have started paying any of the arena bonds. The State is saying the athletic department would need to set aside ~$6 million in cash reserves to meet the standard the OUS Board uses.

Bolt’s overall conclusion seems pretty reasonable though – with the $20 million per year in Knight donations, athletics can cover this deficit and its other new costs, but barely. Their plan seems pretty transparent and perfectly normal – spend every penny they can bring in on higher salaries for themselves. They just went a bit too far this year is all. Next year they’ll be replacing Kent. This is going to be just fine, I’m sure. Just like those economists told us about the housing bubble.

None of these stories have reported on whether or not the athletic department has actually been setting aside the $1 per ticket surcharge for Arena repayments that Frohnmayer told the legislature he would institute. Does anyone know about that?

3/4/2010: From Bill Graves at the Oregonian:

Despite winning football seasons in recent years, sports finances for Oregon State University and the University of Oregon both fell in the red by the end of the last fiscal year, according to a report the State Board of Higher Education’s finance committee will review Friday.

Oregon State intercollegiate athletics’ ending balance, what the board calls working capital, was $5.9 million in the hole as of June 30, 2009, and the University of Oregon’s sports programs posted a $642,000 deficit.

State Board policy requires universities to keep their ending balances positive. The board probably will ask administrators from each university to come up with a plan to bring working capital, current assets minus liabilities, into the black. …

The university attributes its negative ending balance last year to the recession and, as with Oregon State, problems collecting on $2.2 million in pledged donations. One factor in the Ducks’ favor in the next budget period — appearing in last season’s lucrative Rose Bowl, which was played on Jan. 1.

Oregon’s athletic department officials did not respond to requests for comment on Wednesday. But in the report to the State Board of Higher Education university officials wrote, “Due to the weakened economy, the cash for all of the pledges had not been received prior to year end.”

The deficit is old news but there are many odd things here. This report ends in June 2009. At that point UO’s athletic department had increased its spending $5 million compared to the previous year. So some but not all new spending – e.g big raises for the coaches – is in the budget. This $5 million in new spending – not $ 2 million in missing pledges – is the obvious cause of the deficit, not “the weakened economy”. More of a problem, there’s lots of new spending coming that is not in this report: like the Arena bond repayments, at $15 million a year and Kelly’s new contract. There’s some revenue too of course, from the Rose Bowl. Meanwhile, why haven’t Knight’s “Athletic Endowment” funds been tapped? Are they here yet? The AD plan for dealing with this deficit – which will be a public record – might be pretty revealing. Meanwhile some info is available in the OUS Board meeting agenda – see p 93, here, highlights below:

Summary

The UO Athletics working capital, as of June 30, 2009, was a negative $642,000, a decrease of $1.4 million from prior year. The UO Athletics ended FY 2009 with negative working capital and is not in compliance with the Board’s directives relating to deficits. The deficit reflects a cash flow issue. The UO Athletics is addressing this issue and ensures compliance with Board policy. The UO Athletics continues to operate without any direct institutional support.

The UO Athletics departmental debt burden for FY 2009 is 5 percent. Although this ratio is typically used on an institution-wide basis, a higher debt service ratio indicates that an entity has less flexibility to manage the remaining portion of the budget and to fund other strategic initiatives. The UO’s 5 percent debt burden ratio for FY 2009 is lower than the generally accepted threshold of 7 percent for an institution, as a whole. It is noted when the arena project full debt payment begins in FY 2012, the debt burden ratio will be approximately 25 percent.

UO ATHLETICS RESPONSE TO FY 2009 WORKING CAPITAL DEFICIT

As with nearly all sectors of private and public industry, the UO Athletics was negatively affected by the recent and ongoing downturn in the national economy. The Net Operating Loss shown on these financial statements is reflective of that. At June 30, 2009, nearly $2.2 million in pledges made to the Duck Athletic Fund, a component of the UO Foundation, remained outstanding. In prior years, these pledges were realized in a timelier manner and the cash transferred to UO Athletics prior to year-end. Due to the weakened economy, the cash for all of the pledges had not been received prior to year end, but was in-hand at the UO Foundation prior to August 31, 2009, and was transferred to UO Athletics in October 2009. This timing difference related to pledge fulfillment was both unprecedented and unanticipated. It also reflects a misunderstanding between UO and OUS about how pledges to be paid to the UO Foundation could be reflected on the UO Athletics books.

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