Time to update the amazing failing-upward saga of the UC Berkeley Intercollegiate Athletics program, because we have hit the front page of our local paper with another humiliating roundup.Â Just to review, we are talking about a $70m-per-year business that loses $10m sending athletes to compete against other schools in a couple of dozen sports where they have fun, do fairly well, and mostly graduate without a lot of handholding and tutoring.Â It also sells tickets and television access to people who want to watch about 150 men play basketball and football, and rights to make the usual chotchkes and sweatshirts. There are about 850 so-called student-athletes in the care of IA; our other 20,000 students are allowed to buy tickets and watch them, but IA has nothing to do with “students being athletes” in any general sense.Â (Given that the average playing time for a member of the football squad is eight minutes per year, it’s not so clear that those guys should be scored as athletes either…they do get $10,000 each for those eight minutes, so maybe they should be compared to pro stars)
Nor does IA have much to do with anything else on campus, other than absorbing a Niagara of student fees and tuition money. It was once supposed to be self-supporting, like the parking garages, but the regents – the university’s governing board – fixed that silly rule for us several years ago so the chancellor can give it money that would otherwise be wasted on labs and scholarships and other frills. It even has its own spiffy web site (with a .com, not .edu, suffix).
A few years ago, it was discovered that our art museum and our stadium were too dangerous to occupy with the BO (big one) getting organized under our feet.Â The museum was temporarily propped up with some awesome steel braces, we designed a really nice new museum at a downtown corner of the campus that would benefit from foot traffic and street activity, and we set about fundraising.
The stadium, which is indeed beautiful and in an awesome location, isn’t actually very good for the business-type football we use it for because there’s no parking and thus no tailgating, it’s a big uphill hike to get to from your car or transit, and there’s no commerce around it for eating and drinking.Â We do, however, have two pro football teams in the neighborhood, and one has a stadium with a big parking lot, at a transit station, that was available on the seven or eight relevant fall Saturdays for about $5m per year, a sum that could have been secured forever with about a $100m endowment.Â Rebuilding the stadium would cost about $350m, which we didn’t have.Â But it’s pretty clear that spending $350m to enjoy football seven days a year in inferior circumstances is much better than spending $100m to do it in an appropriate venue, right?
Fundraising for the museum fell short in a difficult economic environment, and our campus leadership certainly wasn’t going to spend money on something so peripheral to our core business as art, so the new museum will be half the planned size. Fundraising for the stadium barely got off the ground, but we’re not talking about amusement or frills here; football was at stake, a core educational value! So the decision was to borrow the money and go for it.Â And while we were at it, we undertook to build a building that’s about a third each coaching office palace/party venue for players and boosters/athlete conditioning space (for some of the 850 letter athletes) right next door, for another borrowed $150m.
The university regents (our governing board) went along with this, with the clear understanding that while the bonds were in their name, the Berkeley campus, not the whole UC system, was on the hook for the whole sum. I should point out that the regents are Hard-headed Republican No-nonsense Business people, people who can Read a Balance Sheet and do not fall for Ponzi Schemes nor let their university get into dangerous financial waters.Â They were fine with the idea that IA, this $70m business that lost $10m per year, would figure out how to suddenly make $35m more to retire the bonds and get the campus subsidy down to $5m, and our chancellor, on the way out as of last month, was fine with it too. Indeed he got to go to a whole season of football games there last fall!
There’s nothing wrong with borrowing for a capital investment, as long as there’s a realistic way to repay the loan.Â There wasn’t.Â The details of the financial magic trick are fairly complicated. One part was asking people to just give us a lot of money and buy expensive seats on long term contracts, putting the money (if we got it) into an endowment that paid more than the tax-exempt bonds cost.Â It also involved putting off repaying any of the bond principal until everyone with fingerprints on this stinker would be safely retired on a nice beach, and it introduced such tough-minded financial innovations as treating a fan’s unenforceable statement of intent “to go on buying seats for some number of more years maybe” as income.Â Not a hope, not a discounted receivable; income. You can read an exquisitely sanitized version of the story here and here.Â It contains the immortal promise “Intercollegiate Athletics is taking full responsibility for generating the funds needed to pay the debt for construction of the Simpson Center and Memorial Stadium”.Â As IA took “full responsibility” a decade ago to eliminate its need for campus subsidy by now, I assume this means, in ordinary English, “When IA shall have failed to pay for its new toys, it will be very sorry and regret the faculty appointments and new facilities Berkeley will have to go without.”
Around the time it became impossible to pretend the stadium financials were going anywhere except in the toilet, the football team and the men’s basketball team’s academic performance collapsed, with this year’s football numbers the worst in the PAC-12 and edging along the 930 Mendoza line of post-season eligibility.Â Their field performance tanked as well.Â Bowl game-what bowl game? March whatness? I cannot overemphasize the importance of winning games to selling tickets to football and men’s basketball games, in case you missed that.
Our athletic director, who has an MBA, leaped into action, having overseen the financial, playing, and academic meltdowns for four years, and she did what weak managers always do when they have no clue: she fired the coach who had had five winning seasons when he came and whose team was now on the rocks, unhesitatingly reaching into our pockets for about $5.5m in severance money for her Trump moment.Â She did more: she ponied up $300,000 of the campus’ money (IA deficits are always campus deficits) to hire marketing experts. Did I mention that she has an MBA [link to MBA in live action added 19/VI/13]?
An unintended reflection on the half-billion-dollar stadium/coaching center morass is provided by John Wilton, the Vice Chancellor for Administration and Finance who found the IA mess curdling in his desk drawer when he arrived.Â Replying to a critical editorial in the Daily Cal, he wrote an op-ed defending the latest screwup he will have to deal with, a fancy new aquatics center for intercollegiate swimmers and divers:
Â The author [of the editorial] presumes that the aquatics center financial model is similar to that used for the Simpson Center for Student-Athlete High Performance [the coaching/party/conditioning center]….this project is being financed in the same manner as a recent academic project…whereby construction cannot and will not proceed until 100% of the donor financing is secured and recorded.
Apparently the stadium-SAHPC scheme, borrowing money against filling a gutshot straight,Â wasn’t so brilliant that Wilton wants to try it again!
Which leads us to the aquatics center.Â This is being built on a parking lot next to the medical center, across the street from the existing swimming/basketball/track/baseball complex at the SW corner of the main campus.Â It is a terrible location for yet another facility that does not generate the foot traffic that that part of downtown Berkeley badly needs, and that could just as well go on the hill above the stadium in a rugby/soccer field.Â I also completely flouts the campus’ rather well-thought-out 2020 development plan. The city hates this very inconsiderate land use decision but can’t do anything about it as Cal is exempt from local zoning.Â But the worst part of it is what Wilton nimbly avoids in his reassurance: there is no provision for operation and maintenance of this very expensive facility.Â A prudent organization does not put a shovel in the ground for a building unless it has assured not only its construction cost but the costs of operating it; at Harvard, for example, a dean may not build until she has not only raised not only the cost of the new building but put a like sum for operating it into the university endowment.Â (Right; Harvard is rich. Should poor institutions be more prudent than rich ones, or less?) We have heard nothing about operating costs for the aquatic center, and no, Virginia, swimming, diving and water polo are not money sports.Â Those operating costs are coming straight out of campus funds. But hey, if weÂ can watch a few Cal swimmers at the Olympics every four years, why would we want to hire more boring professors?Â I mean, what’s a University for, when you come right down to it?
It’s not surprising that IA is insouciant about operating costs. What passes for financial information at IA is this annual P/L (don’t even ask about a balance sheet; we don’t need no stinkin’ balance sheets!). Looked at closely, it has many perplexing entries, of which one is an item for “direct facilities cost” of about $2m, which would cover operating about 200,000 square feet of office space.Â The SAHPC alone is about 140,000 square feet, and a small fraction of IA’s total real estate.Â Who is paying to light and heat and clean all their space, including but not limited to a whole basketball arena wrapped in thousands and thousands of square feet of offices?Â Is it any wonder that IA has a campus reputation for opacity and arrogance, if not flat mendacity?
The next chapters of this story will be continued financial wreckage (ameliorated a little if the economy turns upwards) dumped on the campus, and mismanaged by the same team – in particular the same athletic director (she has an MBA, by the way) and athletic financial director – that has a decade-long record of bad judgment and who got us into the current half-billion-dollar (and growing!) hat trick of losing teams, losing money, and academic failure.
We do have a new chancellor.Â I know little about him: if he’s a ‘football fan’ in the style of our departing leader, meaning that he leaves his critical faculties and his courage at the door when he deals with intercollegiate athletics, we have no hope.Â If he wants to lead a university more than he wants to cheer the occasional touchdown and party with boosters, he will clean a lot ofÂ house at IA, and install leadership that has some hope of getting the ship through the rocks without foundering completely and bringing the rest of us underwater with it.