A soaring deficit has placed Cal’s athletics program in the university’s cross hairs and prompted the creation of a task force to determine whether the department, which is losing approximately $20 million per year, is sustainable in its current form.
The 30-sport behemoth is caught between the rising costs of major college athletics and the massive debt service it owes on the Memorial Stadium renovation project.
Although the books for the 2016 fiscal year have not been audited, the Bears are projecting a single-year loss of $21.76 million, according to documents obtained by this newspaper.
That’s approximately 15 percent of the universitywide budget deficit of $150 million.
And the projections for 2017 are nearly as dire for the Bears: An $18.8 million deficit.
“The situation on campus is very tense,” said Bob Jacobsen, dean of undergraduate studies and the faculty’s representative on athletic matters.
Enter the Task Force on Intercollegiate Athletics, created by Chancellor Nicholas Dirks this summer. Its charge: Review athletic department finances and recommend the appropriate “scale and scope … including the number of programs and roster sizes.”
Many members of Cal’s athletic community take those marching orders to mean the university plans to downsize — that it intends to eliminate sports, with the task force serving as the means to that end.
The Bears ventured down that road six years ago, when a fiscal crisis placed five sports (baseball, men’s and women’s gymnastics, men’s rugby and women’s lacrosse) on the chopping block — only to have them reinstated thanks, in part, to aggressive fundraising efforts.
This time, a source familiar with campus discussions said recently, “The sense is that they are going to cut sports.”
The task force, which meets every two weeks, is in the early stages of its review and hopes to present its recommendation to campus leadership in early January. There have been no discussions thus far about potentially eliminating sports, according to university spokesman Dan Mogulof.
“Not a single decision has been made, and not a single recommendation has been formed or offered,” Mogulof said in an email sent on behalf of task force co-chairs Robert Powell and Robert G. O’Donnell. “At the same time, all options for increasing the department’s revenues and/or restraining its costs remain on the table … .
“The work of the task force will be guided by its members’ shared belief that the University greatly benefits from a strong, financially sustainable Intercollegiate Athletics program.”
Athletic director Michael Williams, who serves on the task force, met with the Bears’ head coaches and shared the charge letter.
“I made sure to stress that we are at the very beginning of this process and no decisions have been made,” Williams said via email. “I was also clear that the task force is going to review all options recognizing the financial challenges we currently face.”
Sources believe there are three potential outcomes:
♦ The university could recommit to its current model but with long-term, sport-specific endowments to fund operations and with an additional $10 million (or more) in annual support from central campus. Currently, the Bears receive a subsidy of $5 million per year.
♦ The university could return to the 2010 approach and eliminate a handful of teams — this time for good.
♦ Or Cal could choose to make drastic cuts, downsizing all the way to a model of just 16 or 17 sports. (The NCAA minimum is 14.)
“I would never want to eliminate opportunities for students to participate in athletics,” said Williams, a former Cal wrestler. “That being said, we know that our entire campus … has a $150 million structural deficit and recognize the need to review all options.”
Also unclear is who would execute the task force’s recommendations.Dirks is a lame duck who’s stepping down when a successor is found, and the executive vice chancellor and provost, Carol Christ, is serving in an interim capacity.
The university is in the process of cutting $40 million off the budget deficit. But eliminating sports teams is an emotionally and politically charged issue of a different order.
“People believe the university is in no position to make any decisions,” said an athletic department source. “There are interims all over the place.”
In his charge letter, Dirks asked the task force to base its recommendations on athletic programs at peer schools, specifically UCLA, Washington, Colorado, Arizona and Oregon.
That math is easy: The Bears support more intercollegiate sports (30) than any school in the Pac-12 conference except Stanford, a private school, and the gap is substantial: Cal has five more teams than UCLA, eight more than Washington and 13 more than Colorado.
“If you want a broad program, and you want a strong program, and you have limited dollars, something has to give,” said Jacobsen, who is not a member of the task force and emphasized that he was speaking only for himself.
The Bears aren’t the only school in the conference with money problems. Washington reportedly projected a deficit of $14.8 million for the 2016 fiscal year and, like Cal, has been squeezed by the debt service from a stadium upgrade.
But the Bears spent approximately $175 million more than Washington when they renovated Memorial Stadium and built the Simpson training center. (Total cost: $464 million, half of which was used for seismic upgrades required by the UC Regents.) Then they compounded the problem by implementing an unsustainable plan to service the debt that was based on the long-term sale of high-priced season tickets.
For the next 16 years, the athletic department will make interest-only payments of approximately $18 million. But starting in 2032, the principal kicks in and annual payments soar — first to $30 million and eventually to almost $40 million.
It’s death by debt service.
“These are problems without easy answers,” said Michael O’Hare, a professor of public policy at the university.
“The faculty is divided in the sense that there are some big sports fans. But some of us are becoming impatient (with the deficit).”
The situation has grown more dire in the past 15 months. The Bears finished the 2015 fiscal year with a deficit of $8.4 million — not encouraging but not apocalyptic.
Revenues dipped slightly in 2016, in part because of poor ticket sales during an uninspiring home football schedule last fall. (The newly-signed apparel and multimedia deals will generate approximately $7 million in new revenue but don’t kick in until the 2018 fiscal year.)
The larger issue, by far, was an escalation in expenses, which jumped from $79.8 million in 2015 to $88.8 million in 2016.
The increase can be attributed to a litany of factors, including:
♦ The combination of NCAA legislation requiring schools to pay for the full cost of attendance and a jump in tuition for out-of-state students — when tuition rises, so does the cost of scholarships — added $1.5 million to Cal’s expenses.
♦ The amount the Bears return to central campus as part of the university’s internal taxation system increased by almost $1 million. (The total amount sent back to campus, $4.63 million, largely offsets the subsidy the Bears receive.)
♦ The largest jump in expenses — $6 million, or two-thirds of the overall increase — came in the form of compensation and benefits.
During the 2016 fiscal year, according to documents, the Bears paid a lump-sum amount to basketball coach Cuonzo Martin (per his contract), gave football coach Sonny Dykes a raise and filled a handful of senior-level positions that had been vacant for several years.
Additionally, changes in university policy contributed to a seven-figure jump in the costs of benefits.
Is there bloat, as some university sources have suggested? Williams disagreed.
“Our spending is not out of control,” he said. “In fact, we are one of the most efficient schools in the country with respect to our cost-per-student-athlete average.”
The good news for the Bears is that expenses are projected to level off in the current fiscal year while revenues should tick up, allowing athletics to come within a whisker of breaking even from an operations standpoint.
But that’s before they cut the $18 million check for the debt service.
“There’s not going to be a magic refi of the stadium,” Jacobsen said. “The debt is there. The issue is how you structure the program to live with it.”
[IMAGE: Dan Honda/Bay Area News Group]