2004-05 Financial Report: Revenue Skyrocketing, Expenses Right Behind

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Over the years some of Virginia Tech’s athletic financial information has
been posted on TechSideline.com as well as in various Virginia newspapers. The
Roanoke Times and other state newspapers recently (within the past 3 or 4
months) provided a fairly detailed summary of both Virginia Tech’s and the
University of Virginia’s athletic results from the fiscal year ended June 30,
2005. This information is audited by the Commonwealth of Virginia Auditor of
Public Accounts (APA) and is reported on its website as an NCAA report. The
audited financial statements of all Virginia public colleges and universities
are also provided on the APA site, as well as their NCAA reports.

What the newspapers did not report in detail was the allocation of revenues
and expenses by certain intercollegiate sports activity centers as reported in
the NCAA reports. If you visit the
APA website
and view the
individual school reports
, you will see how the various Virginia
schools classify and report income and expenditures for their intercollegiate
athletic programs. Not all schools are consistent in their reporting from year
to year, and the level of detail provided by each school also differs. Thus, to
provide an in-depth analysis of all items of revenues and expenditures on a
year-to-year and school-to-school basis would require a substantial amount of
research and effort and communications with the various schools.

In an effort to provide a condensed but meaningful analysis, I have
summarized certain information from those reports that I believe will show you
how the Virginia Tech athletic financial operations have grown in the past six
years.

Virginia Tech Athletics Revenue and Expenses

First off is a table showing the athletic revenue and expenses for Virginia
Tech for the last six years. In the following table, the year refers to the
fiscal year, meaning that 2005 refers to the 2004-2005 academic year.

Virginia
Tech Athletics Operating Revenues (in millions)

Category
2005 2004 2003 2002 2001 2000
Football ticket sales and guarantees $13.072 $11.694 $11.376 $6.799 $7.384 $5.470
Men’s basketball ticket sales 1.952 1.325 0.599 0.552 0.715 0.490
Women’s basketball ticket sales 0.217 0.201 0.158 0.149 0.160 0.154
Conf. and NCAA disbursements 8.818 4.058 3.471 3.920 4.095 6.077
Student activity fees 5.841 5.782 5.775 5.826 5.829 5.660
Contributions 10.392 9.738 6.629 5.775 6.059 4.616
All other 5.438 6.039 5.543 3.886 4.300 3.768

Total revenues
$45.730 $38.837 $33.551 $26.907 $28.542 $26.235
Virginia
Tech Athletics Operating Expenditures (in millions)

Category
2005 2004 2003 2002 2001 2000
Athletic student grants-in-aid $4.871 $4.521 $4.147 $3.862 $3.680 $3.766
Salaries, benefits and bonuses 12.945 10.557 9.902 9.153 8.756 7.840
Game guarantees, etc. 0.863 1.239 1.349 1.189 1.018 1.018
Team travel 2.393 2.178 2.499 2.043 2.123 2.117
Conference fee * 2.500 0.200 0.200 0.200 0.200
All other 16.393 10.813 10.199 8.976 9.646 7.640

Total operating expenditures
$37.465 $31.808 $28.296 $25.423 $25.423 $22.581

Profit/(Loss)
$ 8.265 $ 7.029 $ 5.255 $ 1.484 $ 3.119 $ 3.654
* Final payment
of $1.3 million paid to Big East in July, 2005 – will be reported in 2006

Here’s a look at revenue/expenses by sport.

Virginia
Tech Revenue/Expenses by Sport (in millions)
Football

Category
2005 2004 2003 2002 2001 2000
Revenues 25.318 24.084 21.691 14.951 16.337 15.596
Expenditures 14.012 10.360 11.277 10.186 9.885 9.144
Profit (Loss) $11.306 $13.724 $10.414 $ 4.765 $ 6.452 $ 6.452
Men’s
basketball

Category
2005 2004 2003 2002 2001 2000
Revenues 5.793 2.355 1.425 1.388 1.617 1.016
Expenditures 2.629 2.587 2.126 1.643 1.977 1.667
Profit (Loss) $ 3.164 $
(0.232)
$
(0.701)
$
(0.255)
$
(0.360)
$
(0.651)
Women’s
basketball

Category
2005 2004 2003 2002 2001 2000
Revenues 0.899 1.632 0.685 0.929 1.280 0.635
Expenditures 1.915 1.995 1.925 1.490 2.057 1.270
Profit (Loss) $
(1.016)
$
(0.363)
$
(1.240)
$
(0.561)
$
(0.777)
$
(0.635)

As you review the year to year information it is clear that football is the
driving force of revenues and paid the bills for the years 2000 through 2004.
Then, in the first year of ACC affiliation, the men’s basketball program
contributed positive revenue flows to the athletic department. The analysis also
discloses that contribution revenues are increasing at a steady pace primarily
because of the success of the football team and, most recently, because of Tech’s
affiliation with the ACC.

Student
activity fee support has remained relatively stable and has actually decreased
if you apply inflation factors. Salary expenses increased substantially in 2005
primarily due to the athletic administration’s vow to increase salaries and
support for the non-revenue sports. The conference affiliation, NCAA and related
revenues in 2005 were more than double that in each of the years 2001 through
2004, and almost $2.75 million over the 2000 year when Tech received the
approximately $4 million share of the BCS payout from the national championship
football game against Florida State. The ACC affiliation, as we all know, will
result in substantial financial gains to Tech over the years (even though it is
�communist� in its revenue sharing philosophy). Virginia Tech could only
dream of such payouts while they existed in the Big East and other conferences.

As you have probably heard or read in the local and state media, Tech’s
fundraising by the Athletic Fund (Hokie Club) is still setting records, though
the number of contributors has remained relatively stagnant for the past several
years, averaging approximately 12,000+/- over the years. Thus, the average
contribution by each donor has increased, with supporters upgrading their giving
level to attain better seating and parking for athletic events. And the push to
raise more funds by the Virginia Tech Athletic Fund is far from over.

Jim Weaver is always, and rightfully so, seeking to upgrade Tech’s
facilities as well as the conference, national and academic standings of Tech’s
intercollegiate athletic teams. Over the years a substantial number of comments
have been posted on the TechSideline.com message boards about the facilities
that Tech has built over the past ten years and also about the University of
Virginia’s good showing in the Directors’ Cup (formerly known as the Sears
Cup) standings over the years. The Directors’ Cup standings are a measure of the
overall success of a university’s athletic programs. At a Hokie Club
presidents/directors meeting in the past year or so Jim Weaver made it clear
that Tech is striving to consistently finish in the top 25 of the Cup standings,
and that winning the Cup or finishing in the top 25 of the standings is a good

measure of the excellence of a school’s athletic teams.

With the ACC revenue sharing set to be a full share in fiscal year 2007
(increasing from approximately $6.25 million per year to about $9 million per
year), I would look for a substantial portion of these funds to be used to
further upgrade the non-revenue sports and assist in building the anticipated
new multi-level field house, basketball practice gyms, basketball offices and
wrestling facilities. The estimated cost of the facilities upgrades alone will
probably exceed $20 million. The new facilities will surely enhance Tech’s
ability to compete for the Cup in addition to competing for league and national
championships.

A Look at the University of Virginia

If you find yourself wondering about how our neighbors in Charlottesville are
doing, I have provided a summary of their NCAA reports for the 2004 and 2005
years. The 2003 and prior years do not have the comparable detail presentation.

UVa
Athletics Operating Revenues (in millions)

Category
2005 2004
Football ticket sales and guarantees $9.097 $8.391
Men’s basketball ticket sales and
guarantees
1.797 1.967
Women’s basketball ticket sales 0.097 0.109
Conference and NCAA disbursements 10.185 10.261
Student activity fees 7.973 6.761
Contributions 27.849 23.090
All other 6.063 5.527
Total revenues $63.061 $56.106
UVa
Athletics Operating Expenditures (in millions)

Category
2005 2004
Athletic student grants-in-aid $8.155 $7.421
Salaries, benefits and bonuses 19.755 15.298
Game guarantees, etc. 2.107 1.995
Team travel 4.029 2.777
Conference fee
All other 25.779 12.668
Total operating expenditures $59.825 $40.159

Profit/Loss
$ 3.236 $15.947

Here are the figures broken down by sport:

UVa
Athletics Revenue/Expenses by Sport
(in millions)
Football

Category
2005 2004
Revenues $17.304 $14.740
Expenditures 16.813 10.868
Profit (Loss) $0.491 $3.872
Men’s
basketball

Category
2005 2004
Revenues $8.010 $6.846
Expenditures 9.043 3.252
Profit (Loss) $(1.033) $3.594
Women’s
basketball

Category
2005 2004
Revenues $5.923 $0.275
Expenditures 4.983 1.943
Profit (Loss) $0.940 $(1.668)

If you compare UVa’s numbers to Tech’s you will notice that Tech has
generated substantially more football ticket sales revenue than UVa for at least
the past two years. Also, the student activity fees allocated to athletics by
UVa are substantially more than Tech’s ($7.9 million versus $5.8 million).

Another item of note is that the cost of scholarships for UVa is
substantially more than Tech ($8.16 million versus $4.87 million). One of the
reasons is that UVa sponsors 25 intercollegiate athletic sports, whereas Tech
sponsors only 21. One reason for the disparity in the number of sponsored sports
is Title IX. It has been published by various sources that Tech has a male to
female student ratio of approximately 60% men to 40% women, whereas UVa has
approximately 46% men to 54% women. Therefore, in order to maintain gender
equity for Title IX purposes, UVa has to sponsor more women’s intercollegiate
sports. I also believe that some of the additional costs result from UVa
recruiting more out of state student-athletes than Tech.

If you focus on the line item for game guarantees you will note that UVa pays
substantially more to bring other teams to play in Charlottesville than Tech
does to Blacksburg. Although this information is not specifically presented in
the tables, in 2005 Tech expended $650,000 in game guarantees for football and
UVa expended $1,450,000. So, who did the Hoos bring to Charlottesville for
football for the 2004 season? Syracuse and Akron. Who did Tech bring to
Blacksburg in 2004? Western Michigan, Florida A&M, and West Virginia.

In fiscal year 2003 Tech expended $1,050,000 for game guarantees for football
and UVa expended $1,350,000. Who did Tech bring to Blacksburg in the 2003
season? Central Florida, Connecticut, Texas A & M, and James Madison. Who
did UVa bring to their house? Troy State and Virginia Tech.

Also, in men’s basketball for 2005, Tech expended $185,526 and UVa expended
$577,147 for game guarantees.

The numbers appear to indicate that UVa pays a premium for out-of conference
games (even against lower tier schools) and Tech only pays a premium to �name�
schools.

When the Hokies were in the Big East, each school paid a visiting conference
team $150,000 as a conference stipend. Since there were only 8 Big East football
schools, this arrangement somewhat compensated for the years where each school
only played three home games against Big East opponents. The ACC may have a
different system since each ACC school plays four others at home each year.

Here’s another interesting comparison between Virginia Tech and UVa �
athletic department debt:

Virginia
Tech Athletic department debt
as of June 30, 2005 (in millions)
Merryman Center – original debt $0.300
Merryman Center – refinanced May, 2004 4.150
South end-zone 22.285
West side expansion 52.715

Total
$79.450
UVa
Athletic department debt
as of June 30, 2005 (in millions)
Scott Stadium expansion $51.145
John Paul Jones Arena 35.289

Total
$86.434

In order to build athletic facilities that require any sizeable amount of
funding, Tech and UVa issue revenue bonds to be repaid through contributions
and/or athletic operations. Once the revenue bonds are issued, the funds are
readily available to pay construction and related bills. Fund raising for large
projects usually involves soliciting contributions to be used to pay the debt
service so that those costs do not have to be paid from operations.

In
Tech’s case for the West Side Expansion, the Board of Visitors required that
$15 million be raised and placed in a debt reserve fund. These funds have been
raised and the money is in place. I am not sure what UVa’ s requirements were
for their two major projects but, as you can see, they have a substantial amount
of debt to service, also. On June 30, 2005 Tech had approximately $79.5 million
in debt, while UVa had approximately $86.5 million in debt.

According to the Virginia Auditor of Public Accounts web site reports, Tech’s
debt service requirements (which includes principal and interest payments) for
the current (2006) fiscal year is approximately $6.7 million, and UVa’s is
approximately $4.3 million. Tech’s debt service for 2007 is expected to peak
at approximately $9.6 million and gradually decline in subsequent years. UVa’s
debt service remains relative level at approximately $4 million per year for the
next five years. Tech’s debt is scheduled to be fully retired in 2029 and U.
Va’s in 2033. (As a side note, I have heard from various sources that the
Scott Stadium expansion and John Paul Jones Arena have been �paid for�.
Perhaps the people who say that do not have the APA information. However, it is
possible they have long-term pledges to cover this. But, I do not know for
sure.)

If you have been paying attention to Jim Weaver’s comments about the
proposed new facilities as mentioned above (indoor football practice facility,
basketball support facilties, etc.), you may have heard him say construction on
those facilities probably would not commence until 2009. After reviewing the
debt service requirements over the next few years, I can see why this is the
proposed commencement of construction date. From the APA’s
2005 NCAA report for Virginia Tech
:


Virginia Tech Athletics Debt
Service Payments
(in millions)

Year Ended

Principal

Interest

Total
2006 $3,115,000 $3,599,056 $6,714,056
2007 $6,075,000 $3,489,856 $9,564,856
2008 $4,715,000 $3,300,731 $8,015,731
2009 $4,810,000 $3,101,531 $7,911,531
2010 $2,270,000 $2,906,319 $5,176,319
2011-2015 $12,900,000 $12,951,409 $25,851,409
2016-2020 $14,010,000 $9,692,350 $23,702,350
2021-2025 $17,240,000 $5,910,850 $23,150,850
2025-2029 $14,315,000 $1,536,925 $15,851,925

Total

$79,450,000

$46,489,027

$125,939,027

In fiscal year 2010 Tech’s debt service will be approximately $5.2 million,
which is approximately $4.4 million less than in 2007. The heavy debt service
requirements through 2009 are the main reason why construction of new facilities
will have to wait until later. However, if substantial donations were made for
those facilities, construction could commence earlier.

Looking Around the State

How do the other Virginia schools stack up against Tech and UVa in their
athletic department budgets? The following table shows you that Tech and UVa are
truly in the upper class when it comes to athletic budgets and facilities. The
information in the table is from fiscal 2005 for all schools presented. Hampton
University is not presented because it is a private school and this information
is not available on the Auditor of Public Accounts web site. Virginia State is
also not presented because the 2005 information has not yet been posted.
However, the Virginia State budget for 2004 approximated $2.6 million.


2005 Revenues and
Expenditures, All Virginia State Schools

Operating Revenues (in
millions)

Category

VT

Virginia

JMU

Wm & Mary

Norfolk St.

VMI

G. Mason
Football ticket sales $13.072 $9.097 $0.589 $0.821 $0.271 $0.105 $-
Men’s basketball ticket sales 1.952 1.797 0.135 0.898 0.048 0.016 0.238
Women’s basketball ticket sales 0.217 0.097 0.015 0.005 0.007 0.042
Conference/NCAA disbursements 8.818 10.185 0.833 0.582 0.176 0.151 0.447
Student activity fees 5.841 7.973 17.818 6.375 6.689 1.721 7.571
Direct institutional support 1.163
Contributions 10.392 27.849 0.997 2.532 0.145 4.988 0.533
All other 5.438 6.063 1.168 1.695 0.261 0.510 1.045
Total revenues $45.730 $63.061 $21.555 $12.908 $7.597 $ 7.491 $11.039

Operating Expenditures (in
millions)

Category

VT

Virginia

JMU

Wm & Mary

Norfolk St.

VMI

G. Mason
Athletic student grants-in-aid $4.871 $8.155 $3.868 $4.251 $2.053 $ 2.253 $2.693
Salaries, benefits and bonuses 12.945 19.755 7.320 4.411 2.335 3.135 4.358
Game guarantees, etc. 0.863 2.107 0.191 0.140 0.035 0.053 0.005
Team travel 2.393 4.029 1.149 0.945 0.513 0.326 0.993
Conference fee
All other 16.393 25.779 8.623 4.191 2.716 1.760 2.996
Total expenditures $37.465 $59.825 $21.151 $13.938 $7.652 $7.527 $11.045
Profit (Loss) $8.265 $3.236 $0.404 $(1.030) $(0.055) $(0.036) $(0.006)

For Tech students who think they are paying too much in athletic fees, they
should notice that the student fees are substantially greater at UVa, James
Madison, William and Mary and George Mason. With the exception of George Mason
(enrollment over 29,000), Tech has the largest enrollment of any of the other
schools. James Madison uses a whopping $17.8 million in student fees to
subsidize their $21.5 million athletic budget (82.8%). It should also be noted
that James Madison sponsors (according to its web site) 23 intercollegiate
athletic sports. It should be noted that George Mason University provides a
direct supplement from the school’s General Fund to subsidize athletic
operations. This is the �Direct Institutional Support� revenue line item.

Reviewing these school athletic budgets makes you shudder when you remember
back a number of years ago when Bill Dooley got Tech in hot water with the NCAA
and the basketball program also tanked with NCAA violations. There was a lot of
talk about down-grading to Division 1-AA in football during that time. The above
table shows you what we might be looking at if that event had happened.

In conversations with various athletic fund-raising and other athletic staff
about athletic department operations years ago, before Tech joined the Big East
for football, it was noted that Tech literally was operating on a
rob-Peter-to-pay-Paul basis, using next year’s season ticket revenues to
balance the current year’s budget. We can badmouth the Big East about the
basketball deal, but in reality the Big East provided Tech with a huge
opportunity to elevate its football program to another level and obtain national
exposure. It also helped significantly that VT had Michael Vick playing for them
for two years and ESPN, who made the Hokies a national media darling and
provided them with more publicity than we could ever dream.

The primary purpose of this article is to inform you of where Virginia Tech
has been, where it is probably going, and how VT compares with other Virginia
schools. As has been noted by many people, the Virginia Tech athletic department
is making a lot of money, but it is also paying a lot of bills and has a lot on
its capital facilities plate.

Randy Jones is a 1969 graduate of Virginia Tech and currently lives and works
in Charlottesville.

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