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UCLA Chancellor Albert Carnesale congratulates coach Karl Dorrell after UCLA’s last win aga

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From his corner office on the third floor of the Morgan Intercollegiate Athletics Center, Dan Guerrero calmly watches over one of the most successful sports programs in the nation. But last fall, a set of numbers sitting in front of Guerrero gave the UCLA athletic director reason for concern. During the 2003-2004 academic year, UCLA’s Athletic Department ran a $163,943 budget deficit. Despite capturing three national championships, the budget was in the red for the first time in 14 years. For most universities, running a deficit is not terribly uncommon and does not carry severe repercussions. Danger only arises if an athletic department consistently and grossly fails to meet its budget. For example, UCLA was forced to cut men’s swimming and gymnastics 11 years ago because of lingering budget-related issues. The most recent deficit didn’t call for such drastic measures. However, it raised eyebrows, particularly since many of the contributing symptoms aren’t expected to disappear anytime soon. Seeking to compensate for these perennial factors, Guerrero went through a comprehensive exercise with his senior staff approximately a year ago, examining every operation and every sport in order to find ways to balance the books. It appears to have been a fruitful meeting. Earlier this month, all NCAA member institutions were required to release their net revenues and operating expenses as part of the Equity in Athletics Disclosure Act. According to this report, UCLA brought in $44.5 million and generated about a $2,000 surplus. It was a modest amount compared to the multimillion-dollar surpluses turned out by schools in other parts of the nation. Nevertheless, it was considered a notable accomplishment for a department facing increasing monetary pressures and fielding two major sports programs that have struggled recently. “We have to be competitive and entertaining and compelling enough for people to donate,” Guerrero said. “The proof is in the pudding. If we put out a good product, people will want to support it.”

Home is where the difference is Some say it’s all about location, and if that’s the case, UCLA fits right in with its geography. Not a single Pac-10 school had a multimillion-dollar surplus according to the EADA report. Meanwhile, California and Washington ran deficits of over $1 million. Of the 30 schools researched for this article, none outside the Pac-10 ran a deficit last year. Furthermore, each of the other five major football conferences (the Big Ten, SEC, ACC, Big East and Big 12) all had at least two schools running multimillion-dollar surpluses. To Guerrero and others, this isn’t particularly surprising. With football and men’s basketball serving as the major economic drivers, athletic departments that sell tickets in these sports tend to have the highest profit margins. “It doesn’t matter who Texas plays, they’re going to fill the stadium every game, year-in, year-out,” Guerrero said. “When you know you have that revenue stream coming in, it’s a different market that supports the program unconditionally. That’s not the reality in a lot of West Coast situations. It’s a whole different model.” Cal’s Deputy Director of Athletics Steve Holton also sees a difference between Pac-10 programs and the rest of the nation. “You’re going to see 70,000-80,000 at a football game in the other big conferences,” Holton said. “You have to be very successful in order to get that kind of attention here.” Like Berkeley, Guerrero feels that general fan support in Los Angeles is much more conditioned on success, citing the Dodgers as the only local franchise that has always drawn in fans regardless of their record. “You’d love to be able to pack the Rose Bowl every game, but that’s not L.A.,” Guerrero said. “When USC was down, they were averaging 45,000-50,000 a game. It’s cyclical. If your product goes bad again, your fans won’t come. That’s very difficult to manage, there’s no question about it.”

The “winning” factor Success in one of the major sports does not necessarily translate into budgetary surpluses though. Despite a 10-win football season in 2004, Cal ran a multimillion-dollar deficit for the fourth year in a row. Meanwhile, Vanderbilt, which finished last in the SEC in football and sixth in men’s basketball, had roughly a $700,000 surplus. “It’s not as entrenched in the culture here as other parts of the country,” Cal’s other Deputy Director of Athletics Teresa Kuehn said of the college sports scene. “There’s so much competition for entertainment in this market. In some of the other conferences, the schools are the pro sports. The fan base is more stable than in the west. We have fair-weather fans.” And as seen in Cal’s $8 million deficit a year ago, those fans may not magically appear overnight. Athletic departments are aware that one strong season may not immediately boost revenue figures. “As positive a season as we’ve had football-wise, the community in general sits back and waits to see if it’s for real or not,” Guerrero said. Many schools struggle to field competitive programs in either of the major sports, adding an additional obstacle to generate money and stay solvent. Though Texas has not been one of those universities in recent years, Chris Plonsky, the Longhorns’ director of women’s athletics and external services of all athletics, has tried to ensure her school will generate surpluses regardless of how the major programs perform. Last year, Texas brought in almost $90 million, good enough for a $15 million surplus according to the EADA report. Though she admits these figures were partly due to nationally ranked football and men’s basketball teams, Plonsky feels they could be sustained without that same level of success. “Winning solves a lot of problems, but it has more to do with buying in with the people in the programs,” she said. With boosters contributing significant amounts to athletic departments, Plonsky has made a concerted effort to sell the charitable aspect of financing a student’s education. Pitching things such as tax deductibility rather than BCS rankings, the Longhorn Foundation raised over $20 million last year, up from $4 million when Plonsky headed the marketing department in 1993. “We sold our fundraising foundation almost like a 21st sport,” she said. “We want people to buy into the concept of donating on an annual basis, where no one asks what the record will be.” Plonsky added that she does not feel geography itself adequately explains an athletic department’s ability to run a surplus. Additionally, she acknowledged that while Texas did generate a healthy surplus, the $15 million amount shown in the EADA report was not accurate. Because the report does not mandate uniform accounting rules, schools themselves decide whether to include things such as camp revenues or debt servicing, causing certain discrepancies.

Cuts that make the grade When the 2003-2004 numbers were released, there was a laundry list of explanations for UCLA’s budget deficit. Buyouts from contracts for former football and basketball coaches, Bob Toledo and Steve Lavin respectively, were six-figure sunken costs the department had to absorb. A 30 percent allocation cut from the student government slashed an annual source of funding. And a 32 percent spike in tuition increased the scholarship costs footed by the athletic department. “When I came in, our scholarship budget was around $5 millon,” said Guerrero, who is in his fourth year at the helm. “This year, we’re projecting those scholarships to be almost eight million. We’ve made a commitment to women’s rowing to add a couple scholarships to continue to meet Title IX. That’s where it makes it harder to meet your budget.” For Cal, meeting its budget is even harder. The Bears carry 27 varsity sports and 923 student-athletes, the most in the Pac-10. Comparatively, UCLA has 22 sports and 585 student-athletes. Texas has 18 sports and 509 student-athletes. Kuehn feels this is a factor contributing to Cal’s long-run deficit problem. “Financial aid alone is such a big part of our budget,” Kuehn said. “We’ve had operating cuts anywhere from 15 to 30 percent.” Kuehn has heard the rumors that Cal will have to cut back on funding some of its sports to meet its budget. However, in her four years at Cal, she insists that there hasn’t been any serious talk of doing this. Instead, the Bears have drawn back in areas such as facility, equipment, and custodial operations. “We’ve gone through real painful expense cuts,” Kuehn said. “We’ve tried to make most of the cuts in administration to salvage student athletics to keep it competitive. We want to maintain the experience of students.” Though there may not be serious talk of some varsity sports being stripped at Cal, officials within the department are acknowledging the increased pressure to scale back. Holton said the department has repeatedly asked coaches to take a look at their expenses and find ways to reduce costs. “The level of hotels you stay at, the per diem amount, type of transportation, and whether you schedule games in the western third of the country,” Holton said. “Those are things we ask coaches to take a hard look at.” UCLA’s situation may not be as dire as Cal’s, but Guerrero approached the department’s deficit in 2003-2004 in a similar manner. To save money on operations, UCLA made a concerted effort to rein in the types of expenses it could control. For example, Guerrero noted that opening up the gates half an hour later at the Rose Bowl saved the department significant amounts of money in game management during football season. “We pretty much cut operations,” said Guerrero, noting that UCLA didn’t compromise any of the sports budgets and actually increased academic support. “We didn’t fill positions that could have been. We streamlined and consolidated. We became a leaner operation.” With the UC regents recently announcing an eight percent fee increase next year, both Cal and UCLA’s athletic departments may feel pressured to get even leaner. Both would prefer to shoulder this greater monetary burden through gains on the other side of the books. “We’re just now starting to reap the benefits of the investment in our revenue sources,” Kuehn said. “We put a lot of money into football, our fundraising, and marketing units. It does take some time, but I think we’re doing fairly well growing our revenues.” These revenue sources come from a variety of areas. Last year for instance, UCLA generated new sources by reworking and extending its contract with adidas and by cutting a deal with Sirius satellite radio for broadcast rights. However, the biggest boon that put UCLA back in the black stemmed from help from the outside.

The impact of third-party marketing firms In 2004, UCLA joined a growing list of schools that contracted its multimedia rights and corporate sponsorship sales with a sports marketing firm. These firms sign deals with advertisers on behalf on numerous universities, allowing corporate sponsors to affiliate themselves with multiple schools while working with just one agency. Guerrero estimates that ISP Sports, which has partnerships with 25 schools across the nation, brought in an additional $500,000 of net income for UCLA’s Athletic Department last year. “You can maximize the power that you have in your local market with a national sales force that is tied to other schools,” Guerrero said. “The ISP network may be at 20 campuses and they can go to one sponsor and say I can bring you 20 universities. The UCLA relationship may help Vanderbilt just because that company may want to get involved with UCLA.” Likewise, UCLA has benefited when corporate sponsors seeking a relationship with another ISP-affiliated school also commit to the Bruins. These sorts of benefits may help explain why ISP has added six of its 25 schools in the last year and a half. “If someone within an athletic department is in charge, they may have other responsibilities like ticket sales or half-time promotions that are a part of college sports or marketing,” ISP spokesman John Justice said. “The marketing we do is focused on large corporate sponsors. We can bring clients to athletic departments that they couldn’t bring on their own because of our contacts.” In June, Cal entered a 10-year contract with ISP sports that guarantees its athletic department an annual rights fee and additional consideration for revenue generated by the firm. The agreement is expected to help bring in an added one million dollars in net income, according to Holton. He noted that since ISP’s arrival, Cal has landed lucrative sponsorships from companies such as Allstate and Chevron. “ISP has got the ability for companies to purchase at a better rate,” Holton said. “The (companies) can look at how many universities there are when buying a corporate package. It’s a much better base for us being aligned with them. There’s a lot more revenue than we could generate on our own.” Other schools have also benefited from these third-party marketing firms. Texas, which has had a long-standing partnership with Host Communications, recently extended its contract through 2015. “Host Marketing pays us an enormous percentage for everything they sign on our behalf,” Plonsky said.

The consequences of running a deficit Though universities work with corporate sponsors all the time, they are, in practice, a far cry from the corporate world. Despite fielding perennial powerhouses in numerous sports, Cal has been running primarily deficits ever since the men’s and women’s athletic departments merged. Unlike a private company, the perpetual deficit has not signaled the department’s doom. Since each university is responsible for its own budget, it would be at the chancellor’s discretion to come down hard on the athletic department. To date, Cal hasn’t faced severe repercussions, but Kuehn realizes her department can’t keep running deficits forever. “While the campus supports us, they’re not interested in subsidizing athletics,” Kuehn said. “We’re going to come to an impasse: Either balance the budget or face tough decisions.”