A&M lent athletics $16 million
By MATTHEW WATKINS
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Four years ago, Texas A&M University president Robert Gates and athletics director Bill Byrne agreed that Aggie athletics needed an infusion of cash to improve its competitiveness.
They struck a deal for the athletics department to receive a $16 million line of credit from university funds. The athletics department would have access to that credit for four years and then would have 10 years to repay the money without interest.
“Basically, it was provided to the athletic department to address some deficiencies we had, to bring it so that we thought we could be competitive,” said Terry Pankratz, chief financial officer and vice president for finance at A&M.
That included money to pay for coaches’ salaries and new facilities, school officials said. The money came from the school’s investment earnings — not from tax or tuition money, officials said.
The upcoming fiscal year will be the first in which the athletics department must begin paying back the loan, but the improvements the athletics department made over the course of the loan — both financially and competitively — are unclear.
The line of credit had not been previously disclosed in the media, but was revealed Thursday in a self-critique of current A&M President Elsa Murano that was obtained by The Eagle through an open records request.
“The athletics department has been operating in a deficit situation for several years,” Murano wrote, adding that no effort to improve that department’s finances had been included as a provision in the $16 million loan agreement between Gates and Byrne.
“It is imperative that a business plan now be developed and implemented by athletics, to ensure that expenditures are kept in check and that strict adherence to the budget is realized,” she wrote.
An athletics department losing money is hardly unique. According to the latest report by the NCAA, the 2006 median net revenue for athletics programs whose football teams compete in the Football Bowl Subdivision was about negative $7.3 million.
Dan Fulks, an accounting professor at Transylvania University who prepares reports on athletics department revenue for the National Collegiate Athletics Association, said only 19 schools earned a profit in athletics from 2004 to 2006. He is compiling a report for 2008 and said that 20 to 25 schools showed a profit last year.
Numbers for A&M were not immediately available late last week, but Pankratz said the university had run about even over the past three years with the revenue from the loan.
Byrne was traveling late last week and was unavailable for an interview. In an e-mail responding to the comments in Murano’s self-evaluation, he noted that the athletics department had increased revenue with an apparel contract with Adidas and a media contract with Learfield Sports.
“But even with those increases in revenue, we have worked together with the university in the area of cost containment and the university’s help was still needed,” he wrote. “It is not uncommon for universities to provide assistance to their athletics programs, and many other institutions provide direct support.”
Fulks said that he was aware of other NCAA schools spending money on athletics but that loans were less common. “This is, as far as I know, very unusual,” he said. “I think I might understand why they do it because they would rather call it a loan than a subsidy. We have a lot of people feeling like institutions are not doing very well and we shouldn’t be spending a lot of money on athletics. I understand why they might be doing it.”
Athletics arms race
Byrne said in his e-mail that the loan was designed to cover anticipated deficits from the 2004-05 to 2008-09 fiscal years, which means it was first used the year after Dennis Franchione’s 4-8 debut as the A&M football coach.
Since then, major department expenditures have included a $300,000-a-year raise for Franchione after he led the team to the Cotton Bowl and a $4.4 million buyout when he was fired three years later.
The department hired current coach Mike Sherman under a seven-year contract worth $1.8 million a year after the 2007 season. His assistants were hired at a combined $2 million a year — the second-highest amount in the Big 12 conference.
In basketball, men’s head coach Mark Turgeon, hired in 2007, is signed to an eight-year $9.6 million contract and woman’s coach Gary Blair makes $800,000 a year after receiving a $150,000 raise last year. Baseball coach Rob Childress, hired in 2006, makes $215,000 annually.
The university has also made major investments in facilities, including adding LED ribbon boards and a huge video screen to Kyle Field, building two state-of-the-art structures next to Kyle Field to house an indoor track and practice facility, building a 68,000-square-foot basketball practice facility and making improvements on the Aggie Softball Complex. Money spent on facilities and salaries continues to skyrocket as top programs compete with each other, Fulks said. From 2005 to 2006, Football Bowl Subdivision athletics departments’ expenses increased 15 percent, but revenues grew only 8 percent.
“There are two expensive items that account for much of athletic departments budgets: grants and aid and salaries and wages,” Fulks said. “Not much else makes a difference. Salaries are market-driven. The University of Kentucky hires John Calipari for $4 million, and that drives up the market for everyone else.”
Facilities are built largely with contributions from donors.
“Most schools are trying to get it paid for by private money,” Fulks said. “They will brag about private money, and that sounds good, but private money isn’t unlimited, either. That is one place where the recession is going to hit schools very hard.”
And many athletic directors contend that they need state-of-the-art facilities to attract top talent. “You can put up hoops in a barn and kids will play just as hard, but that is about recruiting,” Fulks said.
The two largest revenue generators for athletics departments are ticket sales and private donations, Fulks said. Ticket revenue is generated by building large stadiums and filling the seats. Donation revenue depends on the number and devotion of alumni, but also on the success of the most popular sports programs, he said.
Most schools make money only from football and men’s basketball, which subsidize the rest of the sports.
A&M is fortunate because it plays in a major conference and is guaranteed a certain amount of income, Fulks said. The Big 12 sends a number of football teams to bowl games and basketball teams to the NCAA tournament each year and shares the revenue, he said.
[B]Measures of success
No one interviewed for this article was willing to define benchmarks for a successful athletics program. Byrne didn’t directly answer the question in his e-mail, but he pointed to recent progress. “In the past three years, Texas A&M has brought home 17 Big 12 championship trophies,” he wrote. “Since 2002-03, A&M has 26 Big 12 titles. In the first six years of the league, only 14 championships were won by Texas A&M.”
The university also finished 12th in last year’s Directors Cup, which ranks national athletics departments by overall strength. It was the highest showing in the history of the department, and Byrne said he expected a similar or better ranking this year after winning the national championship in men’s golf and the national title in men’s and women’s track and field.
The department has either beaten or tied the University of Texas in the Lone Star Showdown, which counts wins between the two schools in each individual sport, for the past two years. Texas’ athletic department is the most profitable in the country, according to published reports.
A&M has struggled in what many consider to be the most important sport. The football team has had three coaches fail to end the season in the top 25 this decade, and empty seats at Kyle Field have been common in recent years.
Financial future
University officials acknowledged that the loan was made without anticipating such a painful nationwide recession, but Byrne indicated that he was confident in the athletics department’s future. “All of this preceded the overall economic climate taking a downward turn, and some of the revenue in place to fund scholarships, such as endowments, has taken a hit of close to 40 percent,” Byrne said. “Through the efforts of everyone in athletics and with assistance from the university, cost-containment and revenue- generation initiatives are in place to keep the athletics department budget balanced for 2009-2010.”
Concerned that the athletics department would be unable to break even once the loan ran out, A&M President Murano enlisted the help of the school’s division of finance in February to streamline its operations.
Pankratz, the school’s chief financial officer, said his department had helped consolidate contracts and negotiate opportunities that take advantage of the department’s size. He listed an improved air travel contract as an example.
He said that there was no specific amount of money that the department hoped to save, but “our focus is to find as many efficiencies as we can.” “The challenge is the costs of success are very real,” he said.
Some inside and outside athletics departments across the country have questioned whether the costs are worthwhile. Gene Stallings, a former head football coach at Texas A&M and the University of Alabama and a current A&M regent, wasn’t on the board when the loan was approved but said he was unsure whether he would support any more money. “I believe in athletics 100 percent,” he said. “But it looks to me like salaries and things like that are sort of getting out of hand. I would think each sport should try to live within a budget. I think it is a responsibility to see that those coaches live within the budget.”
and it is important to note that athletic departments are self-sustaining and all of the profits they make pour back into the department and not to the university in general (and vice-versa). as a poster noted earlier, a&m is a very wealthy university but that is because of its research facilities.