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SBJ/January 29 - February 4, 2001/Special Report
Michigan's Nike deal can't erase debt
Published January 29, 2001
Just do it.
The famous Nike slogan best sums up how the University of Michigan athletic department plans to tackle its ever-growing financial losses.
Despite having one of the most prestigious athletic programs in the country, the Wolverines are still seeing red, mostly stemming from growing team expenses. Those losses have been slightly offset by a recent seven-year sponsorship deal with Nike valued between $25 million and $28 million. The debt, however, continues to grow, and Michigan officials know they need a game plan.
"We still have got some financial problems that we need to deal with," said Michigan athletic director Bill Martin. "We're in the process of forming a five-year plan, but now we're really focusing on the coming year."
Martin said the athletic department expects to be in the hole about $10 million this fiscal year. The department has a projected deficit of about $5.5 million that stems from overestimated revenue streams. Add about $2 million more with inflation. Plus, Martin said, the school has about $25 million in deferred maintenance that it needs to tackle, at about $3 million per year. This mainly includes upgrading Crisler Arena, where the men's basketball team plays.
"What you're seeing at Michigan is typical of what's going on at big Division I schools around the country," said Larry DeGaris, research manager for The Bonham Group, a Denver-based sports consulting firm. "Costs are spiraling out of control. Yet these athletic departments keep spending money on the teams and coaches to show their commitment to excellence, which is the only way to impress boosters, fans and recruits."
Michigan's situation improved slightly with the Nike deal earlier this month. The two sides had been in negotiations since May, but talks seemed to break off when university President Lee Bollinger signed onto the Workers Rights Consortium, a group attempting to enforce labor codes of conduct. Nike also was not prepared to meet some of the financial demands made by the school.
In the end, Nike eventually agreed to some of the labor rights stipulations. The deal will pay the school $1.2 million per year for licensing rights while also providing all of the teams' equipment.
"The Nike deal helps, of course," said Bruce Madej, spokesman for the athletic department. "But there's still a lot more to do."
The department does have a reserve fund of around $40 million, but only $10 million is unrestricted. The rest is used for scholarship aid and other priorities. To offset losses last year, Bollinger gave the department $3 million from his presidential gift fund, but officials aren't expecting that this year.
Martin said the first priority is to cut costs.
"I'm going after the fat without cutting any programs," he said. This includes everything from reviewing coaches' salaries to finding cheaper ways to travel, he said. "We want to keep all of the programs. We don't want to do radical surgery. Instead, we'll do outpatient."
Compared with other top-tier football programs, Michigan's tickets are a value at $31 per game for season-ticket holders. By comparison, Ohio State University's tickets are $43. Martin said ticket prices will "increase significantly" to bring the program in line with the other top teams. Another idea includes covering the Michigan Stadium field during the summer and hosting concerts there.
One other possible source of revenue is corporate signage within Michigan Stadium. The stadium is one of the few in the country that has no signs inside. And while Martin guaranteed that the name is not for sale, he said the department is evaluating what the value of one on-field corporate logo would be worth to the program.
"We have to see what it's worth," he said. "We're at that point that it's time to explore all options and get back on track. With a few steps, we think we can be back in the black in a couple years."
Jim Martyka is a writer in Minneapolis.
UNIVERSITY OF MICHIGAN
Revenue from athletic operations
|Source: Michigan athletic department|