Goldman School: Cal Athletics Fiscal Year 2022 Analysis

Or why I am very popular at parties

Disclaimer: This article does not constitute advice or any form of endorsement from and by the International Monetary Fund, the Georgetown McCourt School of Public Policy, the UC Berkeley Department of Economics, or Political Economy.

Credit: Bentpawn

DC parties are an exercise of trying to avoid asking someone what their job is, and avoiding folks who think that Berkeley is somehow a leftist hell-hole where the only thing left of them is a wall. Folks are pretty reasonable at parties, then someone drops a phrase like “medium-term public finances” and people go full John Prine and their minds develop the ability to travel to the bar furthest away from the speaker.

Hi, I am the person who has said both of those phrases to folks at parties.

I am very fun at parties.

Anyhow, here I actually have a reason to spout one of the phrases above: the FY 2022 Cal Athletic data has dropped, first since FY2019 untainted by Covid-19-related variance. Jon Wilner released his analysis of the data that Avinash and I covered previously.

REPORT: Cal manages $3.7 million surplus in FY2022, with huge assist from UC Berkeley

However, I wanted to see for myself the detailed breakdown and look into medium-term trends.

Now, what is “medium-term”, unlike in the parlance of steakhouses, it isn’t a common turn of phrase. In most public finance environments medium term is a 2-5 up to 10 year period, while the long term is anything over 5-10 years.

Here I want to look at Cal finances in a 5-year window from FY2018 to FY2022. This time period covers the entire Wilcox era, and all of the Knowlton era with the last year of the Williams interregnum. Furthermore, it will cover Cal’s transition from Martin to Jones to Fox in MBB.

But the differences will be calculated from the FY2019 since it was the last year we have untainted by Covid related issues though FY2022 will likely still have some revenues/expenditures affected by the endemic.

Some notes:

• FY2022 covers a time period between July 1st, 2021 and June 30th, 2022. And this pattern is consistent, so FY2018 means July 1st, 2017 to June 30th, 2018.

• These numbers are the big picture numbers that are available for the public, this is likely due to the fact that Berkeley is a public institution, however, it is not necessary since UCLA has been suspiciously good at hiding their AD-specific data.

• Since the data is big picture we lack details on what the specific sources of revenues such as donations are or the goods purchased via expenditures.

• Finally, FY2022 data is subject to change due to it being unaudited.

Other notes from the files.

• 1. Direct Institutional Support figure includes non-recurring emergency COVID-19 relief and loan.

• 2. Revenue from Media Rights and Conference Distributions is allocated 80% to Football and 20% to Men's Basketball.

• 3. Learfield sponsorship revenue

• 4. Debt service for California Memorial Stadium is allocated 80% to Football and 20% to Non-Program Specific and Simpson Center is allocated 100% to Non-Program Specific.

Topline Figures - Revenue

First, we look into the overall trend in revenues, positive! Bar goes up! Football being the main source of the gains by raising their revenue by $6.8M mostly due to Endowment and Pac-12 + NCAA + Media money from 2019 to 2022. Men’s Basketball on the other hand only grew by $68k.

Especially compared to 2019, 2022 looks rosy. But what is the main source of said growth?

We see that out of all of the budget items the biggest contributor to the budget in 2022 continues to be Pac-12 + NCAA + Media Rights money, however, jumping in from 6th place in 2018 to 2nd are both forms of direct support from Berkeley the campus to Cal the athletic department.

The two biggest decreases since 2019 were ticket sales and Royalties, Licensing etc. The former is likely due to the gap in the 2020 season sapping away fan retention as well as the last two lackluster football and men’s basketball years. Football lost over $1.6M in ticket sales, while Men’s basketball lost $600k in the same time frame.

Football was able to offset those losses with a $4.7M gain in endowments and investment income. I wonder if it has to do with the Travers Family Endowment? It will have to depend on how it was entered into the books.

So let’s assume the Direct support simply grows with CPI using 2019 as a base year. We can see slight growth, likely driven by Endowment + Investment numbers offsetting the ticket sales drop.

Plotting the expenditure data on top of both types of revenue shows that in all cases since FY2020 the reason the Cal AD is able to claim to be in the green is the $20M to $31M a year injection of cash from the Berkeley campus to the Cal AD. This can be read two ways:

1. Positive spin: This shows the commitment of the campus in ensuring that the Cal athletic brand remains strong and an important part of the identity of everyone associated with the campus.

2. Negative spin: The Cal athletic department has no plan to cut costs associated with the program and has failed to either make necessary cuts in sports or in other outlays such as the administrative wage bill. And the Berkeley campus, not willing to bear the mark of shame of a broke athletic department is footing the bill, the same way a Stanford student’s dad is footing the bill for a BMW.

   Topline Figures - Expenditure

Let’s look at how the athletic department spends the cash. We can see here that Covid affected revenues as well as expenditures. Overall we have been spending at a level of a typical P5 program. Probably more than needed because of the number of sports Cal sustains vs. their counterparts. Coaching salaries as well as support/administrative staff wage bills are the biggest chunk of the spending.

Looking at the pattern of spending, the main source of the dip in Covid spending is the Operating Expenses (ex. Game Day, Student-Athlete Food, Cheer Squads et al.). The big decline in the debt servicing is likely connected with the deal Knowlton and Christ made between the two entities to shoulder the debt jointly.

The biggest increase on the books is the wage bill both coaching and administrative: coaching salaries and administrative staff salaries went up by $3M for the former and $3.7M for the latter. With football taking up an extra $1.8M in coaching salaries and $200k in support staff, with a note that the football program took $700k off the books in the Severance payments line.

I think it is valid for the Cal fan and donor to know the reason why the Administrative and Support compensation has risen so much despite Cal not adding any sports etc.

Concluding Thoughts

From just looking at the overview of the medium term there are a couple troubling signs:

• Football grew its revenue mostly on the back of increases in endowments and investment but due to poor on-field play and loss of attention due to the 2020 season ticket sales have yet to recover.

• MBB failed to grow at all, the only reason it has remained profitable was due to Pac-12 + NCAA + Media payments as well as a low coaching wage bill. But the lack of revenue growth in the 2nd biggest sport on campus is worrying. This is very likely due to Cal Men’s Basketball being in the worst spot it has been since the Reagan Administration… as Governor of California.

• The rise in administrative wage bill is something that has to be monitored internally because of the lack of transparency of what these raises or new jobs actually do compared to 2019 composition. Who was hired, who got a raise, and considering the performance of the two big teams on campus: why?

You can find the source excel file here. Please recall the disclaimer when reviewing the findings in this article.