Outside the bottom lines

EAST LANSING - A Michigan State University athletic department memo circulated in 2003 predicted annual shortfalls of $2 million unless scholarship seating - an extra charge on the best seats at Spartan Stadium - was instituted.

It was instituted. Luxury suites and club seats followed, private donations to the department have reached all-time highs, the Big Ten Network and a radio deal with WJR in Detroit have been lucrative additions.

Yet MSU has not figured out a way to catch up with its spending.

The department lost $1.5 million during the 2007-08 budget year, which ended June 30. That was its fourth straight year in the red, with a total shortfall of $4.85 million.

If this budget were an athlete's body, it would not be in top form. It would need some wind sprints and calorie control, like many of its peers around the nation.

"It'd be time to go in for a check-up," said MSU first-year athletic director Mark Hollis, who is spending much of his time on this inherited dilemma. "The financial models of athletic departments are going to have to change. What that means exactly is an unknown - we're going to have to figure it out.

"But the whole model is going to have to be changed drastically. Everyone in the department has to be part of this. A lot of people are used to the old ways, but times are changing. More with less."

If that's the mantra, it's a new one at MSU, where the athletic budget has grown from $46.8 million to $73.1 million in six years - an average of $4.4 million a year.

Continued advances in fundraising and sustained success in football can yield more cash for MSU in the future, but a sagging Michigan economy and skyrocketing fuel prices aren't helping.

So Hollis is looking to trim some fat. He is freezing the budgets of his administrative departments, such as marketing and compliance, and projecting a 2008-09 spending increase that is ambitious to say the least - just $3,079.

The haves and have-nots

Most major-college athletic departments operate independently of their universities. Some might say they operate independently of reality.

Revenues keep falling short of expenditures, but programs continue to pay higher salaries, add staff and build palatial facilities.

"Basically, it's insane," Minnesota athletic director Joel Maturi said. "But it is what it is, and we need to do the best we can do in this insane world."

An NCAA study released in April tracked Division I athletic department budgets over a three-year period (2003-04 through 2005-06) and determined that overall expenses rose 23 percent in that time, while revenues went up 16 percent.

"I'm not a genius, but I can tell you that doesn't work," Maturi said.

Of the 119 schools in the Football Bowl Subdivision - formerly Division I-A - just 19 turned a profit during the course of the study. MSU was not one of them.

Still, compared to many of those 119 schools - Western Michigan, Central Michigan and Eastern Michigan, for example - MSU is a "have."

It's a Bowl Championship Series school with significant resources and alumni support. It shares millions in TV and bowl revenue each year with the other Big Ten schools.

University money keeps mid-major athletic departments afloat. The MSU athletic department was able to balance its budget the past four years by dipping into its nearly $20 million in reserves.

"You want to be careful when you say an athletic department is 'flirting with the red,' " said Richard Sheehan, a Notre Dame finance professor who specializes in the business of college athletics. "If you're one of these departments, you get to play accounting games, so if you want to show you're in the red or near it, you can. If you want to show you're in the black, you can do that as well.

"I take with great skepticism the idea that any Big Ten program can't make money."

By "accounting games," Sheehan said he meant the flexibility to count some things as university dollars and others as athletic department dollars. But Hollis said there's no spinning the fact that MSU's expenditures exceed its revenues.

The reserve fund won't last forever. The search for new money continues. The question is whether spending can realistically be curbed.

"That's absolutely critical and at the forefront of all our minds," MSU senior associate athletic director Shelley Appelbaum said. "We're constantly asking what we can do without. We're all trying to be development officers, we're all trying to save money."

'There's no more money'

Maturi used to be the athletic director at Miami (Ohio), where university money and student fees kept his department running, and where his football coach, Terry Hoepp- ner, made $100,000 a year.

"It's a different world, but it's a sane world," Maturi said of the mid- major model. "One of the worst things that happened in Division I-A was the move to self-sufficient athletic departments, because now we're spending what we make and we're chasing everyone else."

Many private institutions, including Notre Dame, support athletics out of the general fund just as mid-majors do.

The university sets the athletic budget and takes any extra revenues.

Is this a better model? It certainly imposes discipline on athletic directors that many don't seem to impose on themselves.

Hollis, like many of his peers, prefers autonomy, but self-sufficiency isn't easy.

At Minnesota last year, Maturi had to borrow $6 million from the university to balance his budget, after firing and paying off his football and basketball coaches.

MSU has not had to dip into the general fund. And that's no small feat considering the changes and challenges at hand.

Twenty years ago, Clarence Underwood, two other administrators and two secretaries made up MSU's academic and NCAA compliance efforts. Current departments such as marketing and event management did not exist.

Now the compliance department is separate and counts five full-time employees, while Student- Athlete Support Services - primarily an academic support department - has 13.

Facilities keep coming. Salaries keep rising.

A USA Today study released in December reported that the average salary of the 119 major- college football coaches has reached $1 million a year for the first time.

MSU football coach Mark Dantonio makes $1.1 million a year, among the lowest in the Big Ten, while men's basketball coach Tom Izzo makes $2.6 million a year, among the highest in the nation.

Meanwhile, the university takes its cut from MSU athletics. It gets the parking and concessions from events, more than half of the licensing and charges a 1 percent fee on all athletic revenues other than donations.

Hollis said he "has no complaint" with the long-standing arrangement but would like the university to grant in-state tuition for all athletes.

That would cut into the nearly $9 million Hollis' department pays the university annually for scholarships. Of course, it would also cut into the university's revenue.

MSU athletics is looking for any break it can get, considering the fact that it expects to take a $2 million hit in 2008-09 on rising fuel, housing and tuition costs.

Add it all together and the next budget year looks like a whopper. Yet Hollis believes he can keep the spending increase to around $3,000.

He does not yet know how he and his peers will slow things down on a long-term basis.

"As administrators and ADs, we have to become more and more accountable and responsible, while still competing for championships," Hollis said. "It's an extremely difficult and frustrating task. We want to win, but we have to realize who we are.

"I don't see revenue going up other than in some of the development areas. What are you going to go without? There's no more money. It is what it is. Prioritization in the next year is going to be critical. If you cut, do you cut in sports? Do you cut in services you provide to sports?"

Nothing is out of bounds.

Coming Monday: Day 2 of the series explores the ways MSU can reduce spending, including the possibility of more sports being sacrificed.