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SBJ: At Tennessee, Big Orange battles red ink
As if the pressure of competing in the SEC isn’t great enough, new Tennessee coach Butch Jones will enter the college football equivalent of Thunderdome with the full weight of a financially-strapped athletic department on his back.
Sports Business Journal writer Michael Smith has written a startling expose of Volunteers’ dire financial straits. The article (which you can read here) explains that the Tennessee athletic department lost nearly $4 million last year and is nearly $200 million in debt. It has less than $2 million in reserves – down from nearly $30 million just five years ago – the lowest total in the SEC. (By comparison, most of the Vols’ SEC rivals have between $50 million to $100 million in reserves, UT athletic director Dave Hart said.)
A big chunk of the depleted reserves has gone out the door with former staff members. In recent years, Tennessee has paid out $11.4 million in buyouts to dismissed coaches in football, basketball and baseball, as well as administrators. That total does not include the $7 million owed to Derek Dooley and his staff.
“There’s a perception that we’re sitting on a ton of money,” Tennessee athletics Chief Financial Officer Bill Myers said, “and that’s just not the case.”
The primary cause of Tennessee’s those financial troubles is, of course, football.
The Vols have finished with a losing record in each of the past three seasons and five times since 2005. Average attendance has fallen from 107,595 in 2000 to 89,965 last season.
“We’ve got to get football healthy,” Hart said. “That’s our economic engine. When that program is successful, everybody wins.”
The burden for fixing the football program now falls on Jones, the Volunteers’ fourth head coach since Phillip Fulmer was fired in 2008. Jones will earn nearly $3 million per year over the course of a six-year contract. If Tennessee were to fire him before Feb. 14 2014, it would owe Jones $4 million, making his success a must.
Jones guided winners at both Central Michigan and Cincinnati, leading his teams to conference championships in two out of three seasons he was at both schools. However, Tennessee’s position in the SEC pecking order is nowhere near as strong as that of the Central Michigan in the MAC or Cincinnati in the Big East when Jones took over.
Still, there is a ray of hope.
Hart projects a balanced budget for the 2012-13 fiscal year and has taken bold steps to right the financial ship. Time will tell if his hiring of Jones – ultimately the most important of those moves – was the right one.
SBJ’s “At Tennessee, Big Orange battles red ink” Highlights:
Now, after staggering to losing football seasons in four of the last five years and seeing attendance drop to levels last seen in the 1970s, the Vols find themselves mired in more than $200 million of debt, the most in the SEC, with reserves of just $1.95 million, the least in the conference.
The athletic department spends a startling $21 million a year on debt payments, $13.5 million of which comes from the school’s stressed $99.5 million athletic budget and the rest from donations.
It’s an ugly financial picture for one of the nation’s strongest football brands, the kind of financial hole that SEC football giants aren’t supposed to be in, brought about by expensive coaching buyouts and costly improvements to Neyland Stadium and other athletic facilities, just as the losing seasons set in.
“The bottom line is that, for SEC schools with extraordinary revenues, the profit margin is still very thin,” said Bill Carr, a former AD at Florida who now consults with athletic departments on strategy and searches. “Whether it’s Tennessee or any other school, if you’re not selling tickets at full bore and getting contributions to go with them, and that revenue tapers, it becomes very hard to put away the dollars you need. And then you have some undesired expenses like buyouts, and you can wind up in a negative position. The margin is razor thin for most schools.”
With those savings, Tennessee projects a balanced budget in 2012-13, which is a necessity for a program with just $1.95 million in reserves. Building reserves into the $50 million range or more is a priority, said Hart, who added that most SEC schools have reserves ranging from $50 million to $100 million.
Tennessee’s reserves were close to $30 million about five years ago, but they’ve been depleted by those $21 million in transfers back to the university over the last three years, and $11.4 million in buyouts to fired coaches in football, basketball and baseball, as well as administrators. Hamilton walked away in 2011 with a $1.335 million buyout.
While no one in orange would ever call Neyland Stadium a giant albatross around the neck of the athletic department — that would be sacrilege here in the mountains of east Tennessee — it simply isn’t doing its job as one of the program’s chief sources of revenue.
Attendance dropped to an average of 89,965 in 2012, the lowest since 1979. A couple of late-season games against Troy and Kentucky reportedly drew about 60,000 actual fans in the stands, even though the announced attendance — or tickets sold — was a little more than 81,000.