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October 12, 2006

Athletics posts $8.2 million deficit

Pitt’s Department of Athletics operated at a deficit in fiscal year 2006, continuing a long-term tradition.

Details of the athletics budget’s $8.2 million deficit were made public last week at a Senate budget policies committee (BPC) meeting.

In compliance with National Collegiate Athletic Association (NCAA) bylaws, Pitt hired an outside auditor to prepare an “agreed-upon procedures report,” according to Arthur Ramicone, Pitt vice chancellor for budget and controller.

“The NCAA only requires that this report be conveyed to the chancellor of the institution, so there are no required public disclosure laws that relate to athletic programs,” Ramicone told BPC Oct. 6. But Pitt’s senior administration was honoring a request from BPC to provide an overview and brief analysis of the report, he said.

The report for the fiscal year that ended June 30, 2005, showed that Pitt’s overall athletics department deficit rose to $8.2 million, Ramicone said, compared to a $7.1 million deficit during the previous fiscal year.

“The total deficit had been going down a little for a few years up until 2004, but then it spiked up in 2005,” Ramicone said. A number of variables contributed to that increase, most notably higher student-athlete financial aid costs, he said.

Like most NCAA Division I schools, Pitt has two revenue-producing sports while the other teams annually run deficits. Pitt fields 17 NCAA sports teams.

“Predominantly, the athletics revenue comes from football and men’s basketball, while the other categories — women’s basketball and the other men’s and women’s sports — operate in the red,” Ramicone said.

The operating revenue minus expenses for the two revenue-producing sports was $6.2 million last year, Ramicone said.

“That ‘surplus,’ if you will, is wiped out by the other teams, generating a grand total loss in operating revenue less expenses for all sports of $4.6 million,” he said. “There also are other expenses totaling $3.6 million, making the total loss for FY06 $8.2 million.”

Other expenses include costs associated with the physical plant, which is attributed to athletics based on their use of a particular facility, Ramicone said.

“So for the athletic fields, for example, it’s 100 percent on athletics, but for the Cost Center, which has intramurals, the entire cost for that facility is not attributed to athletics,” he said. Other expenses include student-athlete academic support services, such as advising and tutoring for athletes who travel extensively during their competitive season.

According to the report, the largest line item under operating expenses was departmental staff compensation at $8.3 million, followed by student financial aid.

“The thing that really hurts the athletics budget are increases in student financial aid,” Ramicone pointed out. “If you look at their student financial aid, last year it was $7.6 million, over 20 percent of the total operating expenses. The year before, $6.7 million; the year before that, $6 million; the year before that, $5.5 million. So, over a four-year period there’s a $2 million-plus difference. And those figures, which are affected by tuition raises each year and depend on whether they are scholarships for an in-state student or are doubled for an out-of-state student, bear no relationship to the basic overall revenue structure.”

He said, “What would really help the athletics department, and they’ve made some progress in this area, would be an increase in endowed scholarships, which, not only for athletics, are a priority for Pitt’s capital campaign.”

Other gifts/endowments for the department represented $1.6 million in FY06, the report showed.

The largest revenue source was ticket sales/guaranteed receipts (for certain away games) at $11.8 million.

Other line items showed that Team Pittsburgh, which includes seat-licensing revenue, generated $4.9 million; television and radio revenue was $1.2 million; concessions and other sales, $4.3 million; NCAA/Big East revenue-sharing, $5.4 million, and student seating allocation, which is a transfer fund to athletics to subsidize student discounted tickets, $1.3 million.

According to Ramicone, there are a number of factors that cause fluctuations in the figures from year to year. These include:

• The number of home football games. “Athletics departments live and die off the number of their home football games,” Ramicone said. “In ’02 and ’03 we had seven home football games, in ’04 and ’05 we had six home games and this year we have seven.”

Nationally, traditional football powerhouses typically schedule a Division II or less-prominent Division I opponent that is willing to play on the road for a guarantee, but with no commitment to reciprocate.

• Whether the football team is invited to a bowl game, and whether that game is a “major” or “minor” bowl.

• Television revenue. “Television revenue can fluctuate based on how difficult your schedule is and how good you are as a team,” Ramicone said.

• Big East Conference revenue-sharing. “For example,” Ramicone said, “the Big East revenue-sharing for basketball is contingent on how many times you participate in the NCAA tournament and then how many wins you chalk up, with the formula covering four or five years. Every time you’re selected for the tournament you get one unit and each win earns one unit, so you’re building up units. There is revenue-sharing to a point, but you can also benefit yourself by having a more successful team.”

BPC chair Stephen Carr asked if there are any signs that Pitt could reduce its athletics budget deficit in future years.

Ramicone said, “Athletics has fairly well maxed out their ability to generate additional men’s basketball revenues in The Pete, because it’s sold out virtually for every game. I think the increased success of the women’s basketball team recently will help.”

Women’s basketball operated at a $2.7 million deficit, including other expenses, the report showed.

“And with the relatively small crowds at football games there’s a lot of room for revenue increases there, with the football team being more and more successful,” Ramicone said. “If you’re selling like we are, in a 65,000-seat facility, and you’re averaging 40,000, if you were to average 60,000, that 20,000-seat difference times $40 a ticket or whatever the average price is, that’s a lot of money.”

According to the report, the $11.9 million total for ticket sales in all sports last year dominated the $30.6 million operating revenue.

BPC member Philip Wion said, “Although we don’t generate the kind of revenue that Penn State does or Michigan, still the actual subsidy for athletics at Pitt — the amount coming from other sources and going to athletics — given the size of the program, shows we do relatively efficiently and well what we do. It could be a lot worse, and at a lot of places it is a lot worse.

“Even in living memory here,” Wion continued, “when football and basketball weren’t generating profits, so to speak, the overall burden on the rest of the University was several million dollars greater than it is now by this measure. Seeing that and saying that is one of the values of having this report made public.”

Senate President John Baker said, “I think it’s very important to emphasize that you really can’t put a value on the good will that athletics brings to the University.”

Paul Supowitz, associate vice chancellor for commonwealth and city/county relations and associate general counsel, added, “There also are benefits to the community that athletics provides, including entertainment and concession taxes revenue for the city, and adding to the employment base. There also is a sense of civic pride, even for people with no association with Pitt, that athletic teams, particularly football and basketball, provide.”

—Peter Hart

Filed under: Feature,Volume 39 Issue 4

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