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Indiana Alumni Magazine

Led by a success-hungry new athletics director, IU Bloomington’s Athletics Department is searching for tools to dig out of a financial hole

By Mike Wright

Ten years ago, the IU Bloomington Athletics Department seemed to be on pretty solid ground. The department took in $2.3 million more in revenue than it spent in 1993-94, and the Varsity Club showed $4.1 million in reserve, an account that would peak at $7.7 million in 1998-99.

But the gap between revenue and expense narrowed quickly, and by 2001-02 the Athletics Department was in a $3.1 million hole. Varsity Club reserves are now nearly depleted. Deficit spending was reduced to about $500,000 by the last fiscal year, but the department still faces a debt of about $5 million and the prospect of generating enough money to operate 24 varsity sports in the black.

"Over the past five or six years, we've had to dip into reserves, both to fund scholarship shortfalls and to fund various projects for athletics," says Scott Dolson, BS'88, director of the Varsity Club. "The reserve fund was used in the way it was intended, as a rainy day fund. But it's been raining hard."

What caused such a storm? In general, annual costs in the athletics budget, such as financial aid for student athletes and salaries and benefits for employees, have risen rapidly over the last decade, and revenue hasn't kept pace. By 2002, contract buyouts, facilities projects, additional personnel, and other initiatives were deepening the financial hole.

The bottom line shows that expenses in the IUB Athletics Department increased $4 million more than revenue between 1993-94 and 2002-03.

WHAT HAPPENED?

A major change in policy more than 20 years ago is a likely starting point for the Athletics Department's recent red tide. Until the late 1970s or early 1980s, the university waived tuition for student athletes. At some point back then, Dolson says, the university required that payment of tuition and fees for student athletes, at full resident and non-resident rates, be phased in over five years.

The Varsity Club is the fund-raising arm for athletics. It is expected to raise enough in donations and associated income to cover all costs of financial aid to student athletes — tuition and fees, room and board, textbooks, training table meals, and tutoring. The bill has grown at a rapid rate.

In 1980, annual undergraduate tuition was $1,005 for Indiana residents and $2,625 for non-Hoosiers, according to the University Budget Office. By the 2002-03 academic year, annual tuition had risen to $4,573 for Indiana residents and $15,184 for non-residents. In 2003, IUB added $1,000 to the tuition rates for new students to fund new faculty and academic initiatives. The majority of IU's scholarship athletes are non-Indiana residents.

The number of athletic scholarships has not increased dramatically since 1996-97, when the current form that colleges and universities use to report data to the NCAA was introduced, even though new women's sports have been added since that fiscal year.

The reports show IU awarded the equivalent of 240.47 full scholarships in 1996-97 — 150.65 to men and 89.82 to women. A total of 227 men and 121 women received financial aid, either full or partial scholarships.

In 2002-03, the equivalent of 249.56 scholarships was awarded, 143.89 to men and 105.67 to women. The scholarships were disbursed among 229 men and 178 women. About one-third of IU's approximately 600 varsity athletes receive no scholarship aid.

Obviously, the rising tuition and fees have driven up the cost of financial aid for athletes. In 1996-97, the average cost of a full athletic scholarship was $16,568, based on the number of full scholarships allocated and the funding provided. In 2002-03, that cost had risen to $22,698. Training table and tutoring costs add up to another $875,000 that the Varsity Club is also expected to cover.

Financial aid is a major component of what the Athletics Department terms its "structural budget." Personnel is another. The Athletics Department has grown from 158 appointed positions in 1995-96 to 172 in 2003-04. The employment total peaked at 187 in 2000-01 under former Athletics Director Michael McNeely. The total departmental salary line increased from $5.8 million in 1995-96 to $9.1 million in 2002-03.

Base salaries for men's sports coaches rose from $1.9 million a decade ago to $2.6 million in 2002-03. Salaries for coaches of women's sports increased from $592,619 to $1.4 million over the same period of time. Four women's sports have been added since 1993 - soccer during that year, water polo in 1998-99, rowing in 1999-2000, and field hockey in 2000-01.

In addition to the increasing fixed costs, the Athletics Department has spent considerable money in the last five years to buy out contracts and pay severance. The biggest payout was to McNeely, who came to IU in 2001 under a five-year contract at $250,000 a year. He left in November 2002 and was paid a lump sum of $839,467.02 in December 2002.

Former Hoosier basketball coach Bob Knight and Director of Athletics Clarence Doninger, BS'57, JD'60, were paid a total of $423,622 in severance. Knight was fired in September 2000, and Doninger retired in 2001. Knight continues to receive annual payments between $400,000 and $500,000 from his deferred compensation fund. IU has paid four of the 10 installments owed to Knight from that fund. The athletics business office explained that money is in an account, paid into while Knight was still at Indiana, and does not deplete the current budget.

The staff of former football coach Cam Cameron, BS'83, and other coaches fired by McNeely in 2001 and 2002 (in women's soccer, softball, and men's swimming) received a total of $265,493 in termination fees. Cameron received his final payment of $84,280 in 2004. Until head football coach Gerry DiNardo was fired at the end of November, Cameron was the last departed coach still on the payroll.

In 2001-02, the year deficit spending peaked, IU also paid $476,000 in supplemental pay and bonuses to coaches Mike Davis, men's basketball; DiNardo, football; and Kathi Bennett, women's basketball. Those coaches have incentives in their contracts and guaranteed minimums. Davis, for example, is working under a six-year contract worth $900,000 a year if he remains IU's coach through July 1, 2005. The university-paid portion, or his base salary, started at $225,000 under the contract, plus $25,000 in deferred compensation. The remainder is to come from outside sources, like radio and TV shows and a cut of the university's shoe contract. If his outside income doesn't reach his guaranteed total, IU pays the difference.

Other expenses incurred in 2001-02 included:

• $308,238 for use of the IU plane, an amount owed but not paid the prior year;
• $112,694 for the new IU logo design;
• $129,000 in additional training table costs;
• $212,740 for refurbishment of administrative offices and the I-Lounge at Assembly Hall;
• $220,000 for refurbishment of the athletics director's suite;
• $35,368 for an increase in insurance costs; and
• $129,644 for the department's assessment from the university. Like all university units, the Athletics Department is billed for services rendered by the central administration.

WHAT NOW?

When McNeely left in 2002, the Athletics Department was $3.1 million in the red. The athletics business office points out that the figure includes depreciation of facilities. The deficit was $2.4 million without depreciation factored in.

J. Terry Clapacs, IU vice president and chief administrative officer, took on the additional title of director of athletics until IU President Adam Herbert announced last spring that the university would pursue the hiring of an athletics director and Clapacs would return to his vice president's position full time.

Clapacs, BS'65, MBA'69, reduced the athletics deficit to $1.8 million ($2.5 million with depreciation) his first year and had it down to about $500,000 ($1.3 million with depreciation) in the last fiscal year. He says there were two compelling issues to address when he started in athletics.

"One was the overall morale of the department," he says. "It had been through some very difficult times. Certainly the end of the coach Knight era and the controversy that all of that generated was very hard on the staff.

"Then the new athletic director chose to bring in a substantial number of new people at the highest level. Those things generated a larger morale problem. Then, of course, there was the financial condition of the department, which had been brewing for some time."

Clapacs noted that football attendance has declined during the last decade of losing seasons, but at the same time IU added four new women's sports to comply with gender-equity requirements.

"At IU we have more women than men in the undergraduate student body, so that means the athletic department should reflect that profile," Clapacs says. "Those sports, along with their scholarship costs, added a substantial new amount to the budget."

Football and men's basketball are the primary revenue generators in collegiate athletics. Clapacs points out that average home football attendance in the Big Ten is about 72,000. IU's home attendance the last six years has averaged about half that number, or less. This past season, average football attendance was 28,377, the lowest total since 1962.

In addition, Clapacs says, the athletics programs at five conference schools — Northwestern, Minnesota, Wisconsin, Illinois, and Iowa — receive financial assistance from the institution. Until IU imposed a $30 student athletics fee in the current school year, the Athletics Department generated all of its own revenue.

"All of those things created a budget environment that simply was not workable," he says. "You can compound that by adding new staff and some other things, but the truth is it's probably been bubbling for a long time. My job was to reduce the gap as much as possible."

Clapacs says that on the expense side, he reduced personnel. To raise more revenue, the department entered into new agreements with partners like Adidas for uniforms, outsourced the Varsity Shop, and created deals like the Simon Giftcard, a credit and debit card for which IU receives a portion of the proceeds.

In addition, Clapacs says, IU increased the number of men's home basketball games.

"You need to have 17 or 18 home basketball games a year," he says. "We were down to 14. Every home game is worth $285,000."

In the end, he adds, football needs to get back on track to winning ways and increase attendance.

"The key to the future is football," Clapacs says. "We just have to get the attendance up. When that happens, and it will happen, IU athletics will be all right."

When new Athletics Director Rick Greenspan was introduced to the media on Sept. 2, Herbert credited Clapacs with providing stability and strengthening athletics during his two years at the helm.

Challenges remain, however. Dolson outlined the scholarship dilemma to IU's athletics donors in the August/September Hoosier Scene, a Varsity Club publication. He said annual contributions for 2002-03 totaled $5.1 million — a 12 percent increase over the previous year — and endowment dividend income was $1.4 million, for a total of $6.5 million available for athletics financial aid.

Scholarship costs for that year, however, came to $7.3 million, including tuition and fees, room and board, training table, textbooks, and tutoring.

WHAT NEXT?

Everything is on the table, Greenspan says of the discussion about the Athletics Department's financial situation. While efficiencies in controlling expenses won't be ignored, IU's success in overcoming financial challenges will depend for the most part on enhancing revenues, he adds.

"Most of our revenue comes from ticket sales or associated income from our two major revenue-producing sports, football and basketball," Greenspan says. "Basketball revenue here has traditionally been very solid and will continue to be, but I think we have opportunities to maximize that.

"And certainly in football, our attendance and gross receipts have been well below the standards of our peers in the Big Ten. Football is probably the biggest single opportunity for revenue increases of any program we have or any single event we could create."

The effort to maximize basketball revenue already is under way. A year ago, IU began requiring a minimum donation of $10,000 for the right to buy a pair of tickets in the courtside bleacher seats on the sidelines. This season, press row was moved to bleachers at the southeast corner of Assembly Hall, near the pep band, to make room for 72 courtside folding-chair seats. Those new prime seats require a minimum donation of $15,000 for the right to purchase a pair of tickets. Dolson says 70 of the 72 seats were sold for this season. The other two are being held for promotional uses.

In the last few years, the Varsity Club has cut expenses by 35 percent and put on a full-court press to increase annual giving. Dolson says the department worked closely with its national board to develop a strategy to increase the annual-giving fund. A $10,000 donor level was created with a goal of attracting 100 benefactors at that level within 18 months. The goal was reached in less than 13 months. This past February, a $5,000 donor level was added. By the end of 2004, 135 donors had contributed at that level.

"We really appealed to our loyal alumni and fans that the scholarship situation is a difficult one," Dolson said. "We tried to be very clear about what the needs are and what position we were in."

Now, Dolson says, the Varsity Club is working to increase the base of donors. Even those who give at the $100 level are important, he says. Points toward basketball tickets are a good incentive to get donations, he adds, but they are not the primary reason people give to the Athletics Department.

"Survey after survey shows that our donors give because of pride in the athletic program," Dolson says. "Time after time we hear back from people about how proud they are of the accomplishments of our student athletes after they graduate and what the department stands for in terms of the overall mission of the university.

"We always try to remind people who the end user is, and that is the student athletes. We are trying to give them the best opportunities to succeed academically and athletically."

Although IU has been spending more on athletics than it has taken in during recent years, the department's $35 million budget is near the bottom of the Big Ten. Ohio State's athletic program, with its 101,568-seat football stadium that sells out every game, generated $87.7 million last fiscal year. Illinois had $47.1 million in revenue, and Purdue totaled $41.5 million.

Ohio State reported $20.6 million more in revenue than expenses, but $16 million was applied to debt service for athletics facilities, leaving OSU about $4.6 million in the black.

The IU Athletics Department operates on less revenue than all of its Big Ten peers except Northwestern, a private institution. Greenspan says it is important to keep that in perspective.

"I'm not sure we'll ever reach the revenue levels of Ohio State, Penn State, or Michigan, simply because of the capacity of their stadiums," he says. "But I think we can achieve some real success, and the success we aspire to, by being at least at the 50 percent level, not at or close to the bottom."

Greenspan indicated that the Athletics Department will become even more aggressive in fund raising. All other ways to enhance revenue are fair game, he adds. Long-term solvency is the goal, and that will be contingent on a number of factors.

"A student fee might or might not be part of it, quite honestly," Greenspan says. "Some of it might be regulatory. There is a chance the NCAA might move to adding a 12th game in the regular football season. There are a lot of other things we need to look at both in terms of cost containment and revenue enhancement.

"Student fees, student and alumni support, ticket sales, marketing, television dollars are all part of the puzzle, and I think they will all be looked at very hard by me and by others in the months ahead."

So might advertising inside the seating area of Assembly Hall, long avoided by previous coaches and administrations. That's an idea that likely will get the attention of traditionalists, Greenspan says.

"I think in a perfect environment, that setting stays pristine," he says. "But if there is significant revenue to be made by doing some advertising in a very classy way, we owe it to ourselves to look at it. Whether we go there or not, whether the numbers will work or not, I really don't know. I do know that almost all revenue opportunities and all expense considerations need to be looked at with a discerning eye, and that's probably one of them."

Improving the bottom line over the long term is the bottom line, a charge directly from President Herbert, Greenspan indicated. It's necessary, he adds, to not only meet immediate challenges but also to provide a margin of excellence, to give IU's varsity teams the best chance to be competitive.

"It's one thing to finish each month with just enough money to buy the last dinner for your family at home before that next paycheck," Greenspan says. "It's another thing to have enough revenue to feed your family well, to put some money in the bank, and reinvest in your enterprise. That's what we really need to do.

"The more time we spend, the more energy we devote to simply dealing with today's budget, the more it is a distraction to the big picture of good work I think we can do here. It's critical that we look toward not only immediate success but long-term viability and credibility."

Greenspan says he hoped to have a good idea about some of the organizational issues and strengths at IU by the end of the fall 2004 semester. He began his position on Sept. 15.

"My hope is that during the current spring semester we will have gathered enough information, reviewed it, and gotten enough feedback to put a plan in place," he says. "I'm not going to put a magic 18 or 26 months on it, but I do know that we need to move beyond these kinds of conversations we're having today."

Mike Wright, BA’78, is managing editor of the Indiana Alumni Magazine. He can be reached at miwrightindiana.edu.

 

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