Berkeley Intercollegiate Athletics at a[nother] Crossroads

With proper accounting for facilities operation and maintenance, Berkeley’s Division I Intercollegiate Athletics program costs the campus about $30m per year.  As the school is facing a very sobering $180m structural deficit, this has finally attracted the serious attention of our administration, and the chancellor has appointed a task force to suggest ways to get it under control.  I have been a regular critic of this operation for several years (search “athletics” on this blog for examples) and the task force was gracious enough to ask me for input on their project.  Special for Cal faculty: the task force has scheduled a Town Hall listening session Mon., December 5, 2 to 4 PM in Sibley Auditorium.

Here is a compilation of the rather bleak recommendations I provided to the TFIA when I met with them:

The “problem with IA” is very large and will not be resolved by small adjustments and fixes. Elements of the problem are in two large categories, the external environment and internal management culture.

I. External environment

A. Strategic positioning

As regards the “money sports” FB and MBB, Cal is in a positional arms race, a competition in which rewards (ticket sales, TV contracts, alumni good will, etc.) are not proportional to success but overwhelmingly go to champions, and winning is greatly correlated with financial resources. In our league are three teams with which we can never compete on an even plane: Oregon, for whom Phil Knight can and will buy championships no matter what it costs; Stanford, which has an enormous athletic endowment and donors accustomed to generous giving as alums of a public university are not, and USC.  Stanford’s and Oregon’s FB woes this year are exceptions that do not contradict my analysis.

The economics and strategic implications of positional arms races are well analyzed in Frank and Cook, The Winner-Take-All Society and other works by Frank, including his report for the Knight Commission on big-time college sports. A short version is that the wise avoid contests of this type.

B. Public face

IA’s public relations commonly exhibits the same entitled arrogance, even mendacity, that makes its financial reporting deceptive. The most recent example (recalling the misrepresentation of the stadium/IAHPC “deal”) is touting the new aquatic center as being “completely” funded by donors even though operation and maintenance, and the lot it occupies, were not thus funded (http://www.samefacts.com/2016/10/sports/the-new-berkeley-aquatic-center/ ).  The administrations/UCOP’s mishandling of this project means that instead of being better off by $15m, we are poorer overall by $10m.

IA refuses to provide financial reports in spreadsheet form, specifically to prevent ‘outsiders’ from doing any real grownup analysis (unless they are willing to retype all the data from, for example, the NCAA tables). IA is a completely commercial enterprise, right down to the .com web page and its flack-flavored content,  but does not observe the accountability rules private corporations are held to.

C. Mission

Intercollegiate sports is frequently defended as providing a way for low-income students, especially minority students, to “get a Berkeley education.” This claim is profoundly undermined when athletes leave for professional contracts after one or two years (even the Athletic Study Center cannot provide a Cal education in one year). Similarly, when our graduate transfer quarterback’s entire training was in effect outsourced to Texas Tech, and his “Cal education” is a year (perhaps only a season?) in a graduate program here, not only is this moral claim obviously vacuous, but the idea that we can take any kind of school pride in his on-field success (or his NFL career, if he has one) is just silly.

The mission issue is broader than this, however.  I am a big sports fan: I really want our students, faculty, and staff to engage in sports, throw balls, run, jump, etc., having fun and staying healthy. (I also like to watch the Warriors and the Red Sox.)  It’s good for all of us and good for our overall productivity.  But IA has nothing to do with this: instead it provides opportunities for us to watch 3% of the student body do those things, sitting on a couch drinking beer or in stands drinking soda. Watching top-level athletes perform on TV (mostly) or in person would not be a scarce resource absent IA. The imperialistic growth of the IA enterprise, however, has been to a large degree at the expense of what used to be a world famous Physical Education/Recreational Sports program, so IA could be said to reduce sports engagement at Cal overall.

We have organizations on campus that are arguably as good at what they do as our intercollegiate athletes are at what they do, like the museum/PFA, Cal Performances, and an orchestra that is headed for its second international tour next summer.  The subsidies the campus provides these organizations are in the tens of thousands of dollars, not tens of millions. I hope the task force will seriously consider the relative value to a university implied by this comparison, and whether the implication matches our real values.

II.Internals

A. Financial

IA financial accounting is opaque and frequently flatly deceptive. IA is much more expensive than its official reporting suggests. The only public accounting is a set of annual NCAA P&L reports that have no footnotes and many implausible entries. There are no balance sheets in which, for example, one could track important fund balances like the accumulated debt to campus. It is imperative that the TFIA do forensic accounting, at a professional level, to understand what’s really happening.  I recognize that overhead and cost accounting is a general problem at Berkeley.

B. General management

I study nonprofit entertainment organizations, similar in many ways to IA, professionally (museums, orchestras, opera companies, etc.) and I know that lax, “wishful thinking” management is common among them, leading to inefficient value creation or dependency on charitable “angels” who tolerate practices they would never accept in their own firms.  IA consistently exhibits many of these habits, including overstaffing, inability to control operating costs, reckless debt funding, overcapitalization with buildings and facilities, overpaying executives, careless retention and hiring with attendant large severance costs, and the like.  It also repeatedly demonstrates oversight failures and inability to execute, resulting in performance failures like the recent academic success collapse among FB and MBB players, and the inhumane conditioning practices that recently killed one player, cost Cal more than $5m, and sent another to the hospital.

Until IA can implement professional management, administrative orders and instructions will not lead to intended outcomes. IA’s culture has been formed over decades by indulgence from campus leadership, and will be refractory to change.

III. A suggestion

Possibilities like swallowing our sunk costs and abandoning Division I, or cutting teams within the constraints of Title IX, are presumably on the table already.

I suggest the task force allow IA to pay its cumulative debt, on the order of $200m plus the debt for the stadium and the SAHPC, with capital resources the university has paid for/is paying for, that are desperately needed by the academic program, but that IA has, in effect, seized. Among these are (for example)

  • playing fields appropriated from PE/RS
  • office and classroom space in Haas Pavilion and the SAHPC
  • exclusive time at Spieker and the new aquatic center

IV. Further thoughts

The central strategic questions for the task force, I think, are

  1. Is there a stable, affordable state for Intercollegiate Athletics at Cal at anything like its current scale, in Division I (i) accepting the stadium/SAHPC debt as IA’s or (ii) accepting the debt as a general campus obligation not requiring IA to recognize debt service in its accounts; and the tactical question is
  2. if so, how do we get there?

On extended reflection, I believe the answer to 1. is no, to either version. Without the stadium debt service, IA at its current scale is still losing about $15m per year when its accounts are corrected. As to 2., efforts to attain such a state will worsen the current situation on several dimensions. A maximum profit case retains football and men’s basketball, plus the minimal number of women’s sports to satisfy Title IX requirements; it might earn half the amount needed to service the stadium debt, and that’s without correcting IA’s current figures to include facilities operation.

The industry in which IA is embedded comprises several very large and powerful players, including

  • The NBA and NFL, which together are a $16b/year enterprise
  • Gambling: Legal betting only on the Stanford-Cal game alone last year was $120m
  • The NCAA, about $1b
  • Broadcasting
  • Equipment makers

None of these ‘players’ has any intrinsic interest in the academic side of higher education. Cal IA is a supplier of training/labor as a farm system for the pro leagues, a content supplier for broadcasting, and a marketing partner for the equipment industry, in every case a small participant with no market power.  The ensemble of Div. I schools might have some bargaining power if it could coordinate its members, but no school can apply any leverage against any of those “big dogs”, let alone all of them.

In addition to the certainty that these major players in the big-time college sports market will extract all surplus plus as much campus subsidy as possible from each school, it would be well to consider business risk to the “Football pays the bills” model in coming years.  These risks include

  • Loss of the use of the stadium for years following the BO (the “big one”) on the Hayward fault[1]
  • Decline of the football market generally in response to
  • legal exposure to CTE class action litigation, which increases every year football is played with knowledge of the risks
  • a sexual abuse, academic, or violence scandal à la Penn State, Baylor, UNC, USC, etc.
  • a 1919 White Sox-type gambling scandal
  • extended mediocre field performance cutting into ticket revenue (this year, for example, football will be at best 5-7 (3-6 conference), with no bowl game).

Trying to contain costs and increase revenues to make IA self-supporting in the PAC-12 competitive environment (this is instructive and sobering http://www.sbnation.com/college-football/2013/7/31/4574556/oregon-football-building-new ), and the larger FB-MBB context, will almost certainly lead not only to financial disappointment and ruinous decisions, but also to successive humiliations of the type we have seen in recent years as desperation motivates rash initiatives (beer billboards, Fox robot, training misbehavior, academic failure, off-the-shelf ringers [2], mediocre field performance, etc.). Watch for beer sales at games, as Ohio State is already doing.

How might we establish an appropriate level of subsidy for a viable IA program? Ideally, this would entail some analysis, beyond assertion and sentiment, of the real benefits competitive sports offer the campus, which are considerable but nothing like what they cost us. Another approach might be to benchmark against other student activities with a comparable reputation for excellence; for example, the orchestra is subsidized at about $200 per musician per year, implying an annual subsidy for IA of about $1,750,000.  The Pac12 chancellors might agree on a “salary cap”, though the enforcement mechanism remains to be determined.  Of course all these require an accounting of real IA costs with which to assess compliance.

_______

[1] The stadium retrofit was for life safety, not continued usability after a major earthquake.

[2] A colleague in the School of Public Health informs me that our graduate transfer athletes typically enroll in that school’s online-only master’s program, hardly show up on campus, and as far as he knows almost none graduate.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

8 thoughts on “Berkeley Intercollegiate Athletics at a[nother] Crossroads”

  1. A maximum profit case retains football and men’s basketball, plus the minimal number of women’s sports to satisfy Title IX requirements . . .

    This is not possible. The NCAA requires that every member school offer at least seven men's and seven women's sports, or at least six men's sports and eight women's sports. So, you can't keep just the two men's sports that are most profitable.

  2. I have nothing to do with Berkeley, but i suspect these issues, especially the phony accounting, are commonplace.

    But there is a more important one, I think. The CTE problem, aside from the associated financial risks, has a serious moral dimension. What business does a university, presumably an organization devoted to intellectual activities of all sorts, have encouraging its students to to something that turns their brains to mush? How can that be right?

    1. There's precedent: students have said my homework assignments are sometimes like asking them to beat their heads against a wall…

  3. O'Hare "invited" himself to the IA committee. The cost of maintenance applies to all campus buildings, such as the Art Museum, the Lawrence Hall of Science, etc. Short on reality, high on opinion, high on assertion.

    1. Of course: every building entails spending real money on its operation, and that cost should figure in deciding whether to build it.
      Your point seems to be to treat IA as we do other campus enterprises. OK, for them we use an awkward and very imprecise formula whereby units (schools, etc.) raise the money to build a building only–but then research grants have to include overhead (for government-sponsored research, about 55% of their direct costs) that go the the campus administration, and then the campus gives the department the space and central administrative services it needs.
      If we charge IA overhead on its earned income in the same way; this would be on the order of $40m per year, so crediting them the facilities expenses they admit to (about $6m), this would make their deficit about $44m per year instead of $10m. I don't think you're doing them any favors by opening this door!

  4. You are wrong about the campus building in maintenance costs (it doesn't, and we were told this directly). As for overhead, the Art Museum ($112 million) doesn't acquire overhead for its maintenance, and – this might surprise you – the campus research is largely subsidized because our overhead doesn't cover it. Should we quit research?

    Finally, maintenance is not 55% of the cost of the building or the cost of the enterprise, it is the cost to maintain the structure. Your estimate at the end is non-sensical.

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