athletics at duke, 2010hain/athletics/acad...richard hain athletics at duke, 2010 money discussion...

MoneyDiscussion

Athletics at Duke, 2010

Richard Hain

Presentation to the Academic Council

December 2, 2010

Richard Hain Athletics at Duke, 2010

MoneyDiscussion

Context

100M = 60M + 40MHere:

$100M = amount Duke is cutting from its budget$60M = cuts already achieved — the “easy part”$40M = cuts yet to be made — the “hard part”?

Schools and academic departments have already madesignificant cuts, and most likely will have to make more.


MoneyDiscussion

The athletics budget

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MoneyDiscussion

Observations

I believe the numbers for 2009–10 are suspect, as theywere in 2006–07. I will explain why in the next slide.The budget has more than tripled in the 11 years (97/98 to08/09) — from $23M to $71M.

This is an average annual increase of 10.8%.

The athletics budget increased by $29M in the 4 years2004/05 to 2008/09 — from $42M to $71M. This increaseis almost 3/4 of what the university seeks to cut from itsbudget.


MoneyDiscussion

Is the 2009–10 Title IX report misleading?

According to Duke’s Title IX reports, from 2008–09 to 2009–10total expenses and revenues fell from $71M to $68M, a declineof over 4%. However . . .

coaching salaries rose from $11.9M to $14.6M, anincrease of 22%. Many other expenses, such as recruitingand student aid, also rose significantly.reported revenues from football and men’s and women’sBB rose from $21.2M to $45.3M, an increase of 114%.This is because almost all revenue not allocated to teamsin previous years was allocated to these three teams in2009–10,while unallocated costs were not distributed tothese teams.


MoneyDiscussion

Athletics runs at a profit, right?

Unrivaled Ambition, the 2008 Athletics strategic plan

“The current financial reality of the Duke Department ofAthletics is quite simple. Our expenses exceed our income, andhave for several years. To cover that difference we haveconsumed our reserves, which are now depleted. Theuniversity subsidy, which was designed to cover the differencebetween expenses and revenue by paying for a certain numberof athletic scholarships per year, no longer fills that gap. As aresult, the department will run a substantial deficit in FY2008,which needs to be covered from University funds.”


MoneyDiscussion

The subsidy

Soon after Unrivaled Ambition was passed by theAcademic Council (May, 2008), the subsidy was doubledfrom $7.5M to $15M. It has since been reduced to $14M.

Undergraduate tuition increased by $1,730 from 2007–08to 2008–09.

The increase in the subsidy was $1, 200 (= $7.5M/6, 300)per undergraduate — 70% of the tuition increase.


MoneyDiscussion

Revenue sports to the rescue . . .

Unrivaled Ambition, 2008“It is crucial to improve all revenue sports in a manner thatmaximizes their financial contribution to athletics. With respectto revenue sports we should continue to maintain ourbasketball programs at their current high level. Football isunder-performing as a revenue generating area and can be asource of increased revenue. This will require certainimprovements.”


MoneyDiscussion

Football operates at a loss . . .

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MoneyDiscussion

And so does Women’s BB . . .

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MoneyDiscussion

. . . but men’s basketball runs at a profit, right?0

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MoneyDiscussion

Compensation

Coaching salaries are a large portion of the cost of the revenuesports.

2008–09 compensationDavid Cutcliffe $1.58MMike Krzyzewski $4.20MTotal $5.78M

The average compensation of the 12 (=3+9) assistantmen’s BB and football coaches in 2009–10 was $238K.These total $2.9M.Total compensation of the men’s BB and football coachingstaffs was $8.7M.


MoneyDiscussion

Unrealistic assumptions

Unrivaled Ambition, 2008"As revenues increase from football and increased giving, wewill consider improvements in sports that do not now have theirfull complement of scholarships. Our goal should be tomaximize the return on investment while recognizing that themeans of doing so may vary from sport to sport."

The empirical effects of collegiate athletics, NCAA, 2003

“We conclude that over the medium term (eight years),increases in operating expenditures on football or men’sbasketball are not associated with any change, on average, inoperating net revenue.”


MoneyDiscussion

So the increase is due to Title IX?

Michael Gillespie, Academic Council, January 21, 2010"The reports that Richard draws on are Title IX really, prettymuch tell you the whole story of where expenses come from inathletics and that is the introduction of women’s athletics on alarge scale. I think it’s one of the best things that havehappened to athletics and one of the best things that hashappened to women in our University, but it does cost money.There is no question about it. If we really wanted to only run amen’s football and basketball program, I can guarantee that wewould make money on it."


MoneyDiscussion

Allocated expenses: totals95

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MoneyDiscussion

Allocated expenses: percentages

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MoneyDiscussion

Should Athletics be subsidized?

Q: Why subsidize some of Duke’s academic units and limitthe growth and size of others?A: Duke needs a rich and varied intellectual environment.This may require limiting the size of some units andsubsidizing others.Should a balance between academics and athletics bemaintained? If so, how?Given that Athletics’ revenues is growing at over 10% peryear, should it receive a subsidy?Should Athletics pay overhead on its broadcast revenues?


MoneyDiscussion

Misplaced priorities?

John Bussian, Duke Chronicle, September 17, 2010

And the [Alabama] game—along with the planned, $125 millionWallace Wade Stadium renovation led by Duke Trustees BoardChair Dan Blue—marks Duke’s renewed commitment tocompete again in its conference and nationally, in theclassroom and on the gridiron.

The French Science Building cost less than $125MPhysics Building is in very poor physical condition (leakingroof, leaking water pipes in labs, . . . ) and has long neededa major renovation . . . other buildings?


MoneyDiscussion

Questions

1 What is Duke?

2 What should Duke be?

3 How should Duke be “branded”?

4 What do we want to be known for?

If not for athletics, then why we do we continue to spend everlarger sums trying to achieve success on the field?


MoneyDiscussion

Recommendations

1 Faculty oversight of athletics and its budget need to bestrengthened.

2 There should be a full accounting of how Athletics uses theextra $30M in annual revenue (over 2004/05).

3 The athletics subsidy should be phased out over a shortperiod. The most significant cuts should come frombasketball and football—not from non-revenue sports.

4 Duke’s President should be an agent for reform of collegeathletics.


MoneyDiscussion

Parting thoughts

There is a (US college) athletics bubble.

What will be the consequences for Duke when it inevitablybursts?

Unrivaled Ambition is a bubble plan; it was written at theheight of the real estate bubble—it was approved a fewmonths before the collapse of the financial markets. It isflawed and should be revisited.


MoneyDiscussion

Thank you! Questions?


MoneyDiscussion

Unassigned by gender

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MoneyDiscussion

Comparisons of athletics expenditures

expenditure2008–09

ugrad en-rollment

expenditureper ugrad

Univ Texas (Austin) $112.9M 38,168 $2.96KOhio State (Columbus) $102.1M 41,348 $2.47KUniversity of Florida $101.5M 33,638 $3.02KUniversity of Georgia $76.5M 26,142 $2.92KDuke University $71.1M 6,578 $10.81KUVA Charlotte $63.7M 15,476 $4.12KUniversity of Maryland $59.7M 26,493 $2.25KGeorgetown University $29.0M 7,433 $3.90KStanford University $75M 6,602 $11.36KDuke University $71M 6,578 $10.81KRice University $31M 3,317 $9.35KNotre Dame $65M 8,372 $7.76KNorthwestern $49M 8,536 $5.74K


MoneyDiscussion

Coaching salaries rose from 2008–09 to 2009–10

salaries 2008–09 2009–10 increasemen’s head 6.5M 8.2M 26%women’s head 1.5M 1.9M 29%men’s assistant 3.0M 3.4M 16%women’s assistant 0.9M 1.1M 7%total 11.9M 14.6M 22%


MoneyDiscussion

Coaching salaries — total

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MoneyDiscussion

Coaching salaries — average

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MoneyDiscussion

Krzyzewski’s compensation . . .

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