Problems at Gate, Elsewhere Leave SDSU in Red : Judgment Errors Contribute to Continued Growth of Athletic Department Deficit

The recent suspension of the track and field program is the latest financial crisis for San Diego State University’s struggling athletic department. But the decision, which university officials say was brought on by weak football ticket sales, is representative of larger problems.

Records show that internal practices might have added to a fiscal crunch brought on by the downturn in ticket sales.

An examination of the athletic department budget for the 1988-89 fiscal year indicated a series of decisions and errors that have helped place the department in its most tenuous fiscal position in the four-year leadership of Athletic Director Fred Miller.

While some can be attributed to revenue projections that were overly optimistic, others were the result of what university officials say were mistakes in accounting and planning.

The result is a projected $35,000 increase in the department’s cumulative deficit, to $507,000. That is the largest in three years but less than university officials, including President Thomas Day, said they feared it would be as recently as Thursday. The prediction for much of the past month was that the deficit for the fiscal year that ended June 30 would be approximately $105,000. But Day said Thursday that that figure had been reduced to about $60,000, and Friday he amended it to $35,000.

William Erickson, university vice president for business and financial affairs, said he could not cite specific items that accounted for the change. He attributed the difference to a series of small variations in several accounts.

As recently as a week ago, the department appeared headed for a $577,000 deficit, largest in history and $25,000 more than when Miller was appointed athletic director in December 1985 with the responsibility of bringing financial stability to the department.

But while not as bad as expected, the $35,000 deficit for 1988-89 was the seventh fiscal year in the past nine that the department lost money and the second in a row under Miller. The deficit grew despite statements by Miller as recently as late February that the department would balance its 1988-89 budget.

Doomed Before the Start?

Miller blamed the change on lower-than-anticipated revenue from his new corporate sponsorship program and a failure to meet upwardly revised basketball revenue estimates. But a look at the process shows the goal of a balanced budget might have been doomed before the fiscal year began. Mistakes, oversights and faulty estimates in planning left the department to begin 1988-89 with a flawed document.

There are several major examples that pointed to trouble from the start. All figures are from the latest available information for the fiscal year ending June 30.

--The department spent $98,000 more on athletic scholarships than the $901,000 budgeted. The underestimate occurred even though grants-in-aid are a relatively fixed cost. Most of the error was caused by football scholarships being underbudgeted by about $80,000.

Miller blamed it on a belief that more football players would not return for the 1988 season than did, higher-than-anticipated summer and winter session expenses and more costly out-of-state scholarships than planned.

--The department had to pay $67,000 to complete the new $3 million football operations center, an expenditure the original budget failed to include. Miller said it was hoped private donations would cover the costs, as they had the previous year.

--The rental fees for San Diego Jack Murphy Stadium and the San Diego Sports Arena were miscalculated by at least $14,000. Athletic department officials said they originally failed to count $172,000 in gross revenue from trade-out tickets, those usually given to businesses in exchange for services. Rental fees are based on a percentage of gross ticket revenue.

--$100,000 in anticipated funds from the Golden Aztec Ring program for major donors was counted twice. Budget planners included the expected funds under budget lines for the Golden Aztec Ring program and the Aztec Athletic Foundation, the group responsible for private fund-raising. The error was discovered in time for the department’s fall budget revision and resulted in anticipated funds from the AAF being reduced $100,000 to $400,000. And the department was able to overcome the error because the AAF eventually exceeded its annual goal by raising $568,000.

Pressure to Balance

The increase comes at a time when Miller is under increasing pressure to balance the budget.

Miller has been working with a renewed mandate to operate a balanced ledger since a California State University and College system report endorsed by Chancellor W. Ann Reynolds was issued calling for tighter fiscal restraint in athletic departments. Miller’s public statements have echoed that concern, but he remains frustrated by his inability to carry out the assignment.

In the two years since the report, SDSU is the only one of the five major-college athletic programs in the system to run at a deficit.

Miller frequently points to less-than-enthusiastic ticket support for football as the culprit. But despite trouble at the gate last year, a surge in television money engineered by Miller actually pushed football revenue to $2.163 million, exceeding the budgeted figure by nearly $23,000.

That increase was one reason Miller cited in February for his belief that he would balance the 1988-89 budget. But other factors were undermining that goal. A decision to spend late unanticipated funds, overly optimistic revenue predictions and incomplete budget analysis forced the department into another year of deficit spending.

Among the late changes:

--The department received $30,000 as part of a rental fee from a spring rock concert in Aztec Bowl and decided to turn the money over to football. Most of funds went to increase the budget for off-campus football recruiting by $19,000 to $59,000.

Miller said the money was needed because of change in recruiting philosophy under new Coach Al Luginbill and said such expenditures were an investment.

“It becomes a management decision to make sure we give our football and basketball programs some reasonable tools,” Miller said. “I will do everything I can to give football and basketball, our revenue generators, the tools to succeed.”

--The late downturn in the on-court performance of the basketball program had a ripple effect, Miller said. Not only did ticket revenue fall short of upwardly revised targets, but the team’s misfortunes coincided with the start of the AAF’s annual fund-raising drive and adversely impacted pledges.

--Anticipated basketball revenue-sharing from the Western Athletic Conference was increased in a hope the conference would place four teams in the National Collegiate Athletic Assn. tournament and that two would win first-round games. The assumption was made despite the conference never having placed more than three teams in the tournament and proved overly optimistic. Two teams were selected, and both were eliminated in the second round. That combined with unexpected poor attendance at the WAC postseason tournament to leave the Aztecs short of projections.

--Women’s basketball was allowed to spend more than twice its $23,000 budget when costs for its trip to the National Invitation Tournament in Amarillo, Tex., were included. Miller said the decision to send the team to the March tournament and other increased expenditures were justified because financial support for women’s sports at SDSU needs to be improved.

--Revenue from the department’s first-year corporate sponsorship program was overestimated because the department failed to adequately budget costs such as advertising and client services.

Miller attributed the mistake to the newness of the program. Officials said it still netted $450,000, but that was less than Miller counted when he made his prediction of a balanced budget.

“My concern is that were somewhat flawed (in planning),” Miller said. “But in any first-year operation you are going to have higher costs than you anticipate.”

Inexperience and Turnover

Erickson, the business vice president, agreed that some problems could be attributed to untested nature of some of the department’s revenue-raising projects. But he also said staff inexperience, turnover and overwork in the finance operation contributed.

Miller changed his associate athletic director for business affairs three times in a fewer than eight months last year. Gabe Ortiz, a 14-year department employee, resigned in January 1988 to enter private business. His duties were transferred to John Wadas, who also served as associate athletic director for marketing and promotions. Wadas relinquished his business responsibilities in August 1988 to Jim Herrick, the current associate director for business affairs.

“It is a complicated system, and we have a lot of new people coming in,” Erickson said. “Things drop through cracks.”

Erickson said the department is working to improve procedures and has acted successfully on suggestions included in a management review of the department that was issued in December. The review covered the 1987-88 fiscal year and contained several recommendations as to department polices on gifts-in-kind, cash flow and purchasing.

Most of the improvements concerned accounting methods and procedures to ensure that university guidelines concerning competitive bidding and purchase orders are followed. The report cited several instances when such practices were circumvented, mainly to favor businesses that donated to the university.

Fluctuating Revenue

Erickson said the review found no evidence of impropriety and said most of the mistakes were procedural and likely did not adversely affect the budget significantly.

He said he is more concerned about the difficulty in developing an annual budget heavily dependent on fluctuating ticket sales and private donations.

As Miller said: “Every budget becomes your best guess.”

But the department recently has compounded its difficulties by allowing optimistic expectations of success on the field to influence ticket-sale predictions, failing to consider some expenses and improperly estimating others.

Miller accepts some criticism.

“Are we guilty of raising expenditures last year in some areas? Probably,” Miller said. “Did judgment calls come back to haunt us in some areas? Probably. . . . We know we have to hold the budget line across the board (this year). There can be no overruns.”

Although Day, the university president, said he is disappointed the deficit has grown slightly the past two years, he is solidly behind Miller. He said Miller has done a responsible job despite stagnant football attendance and rising costs.

“When you look at facilities, moral, personnel, community spirit, all the factors, we are much better off with Fred Miller than we were four years ago without him,” Day said. “That is how I evaluate performance.”

Day said the debt has been a burden since before Miller was hired. Most was accumulated earlier in the decade when the department went from a $427,000 surplus at the end of the 1979-80 fiscal year to a $433,000 deficit three years later under then Athletic Director Gene Bourdet. Day said the deficit was the result of a sharp drop in football attendence, costs involved in joining the WAC in 1978, tighter accounting procedures and an increased commitment to women’s sports.

When Miller took over in the middle of the 1985-86 fiscal year, the defict was at $552,000.

Day dismissed the two-year deficit increase as a temporary fluctuation and insignificant in light of the department’s $8.2 million budget for the 1989-90 fiscal year. He said the decision five weeks ago to suspend track and field was a responsible attempt to head off further trouble, not a move dictated by a deteriorating fiscal picture.

“We know how to run this as a business,” Day said. “We are not a bunch of incompetents. We know what we are doing. We just have to get more people to come and watch (revenue-producing athletic events).”

That has been the best hope for university officials searching for a way out of the athletic department’s fiscal troubles.

“If we have big success in football and basketball, we can be out of the deficit in one year,” Erickson said. “It could turn around that fast.”

Optimistic Thinking

But events over the years have shown such thinking to be optimistic. The Aztecs have had only one winning football season in the past six and have not had a winning men’s basketball team since 1984-85.

Even when the department had its best fiscal showing under Miller--when the football team won the 1986 WAC championship and went to the Holiday Bowl for the only time in history--the department was able to reduce the deficit by just $147,000, to $404,000. And university officials generally agree that had the football team not played in the Holiday Bowl that year, the department likely would have lost money again.

And there are indications that the department faces further tough times in the 1989-90 fiscal year that began July 1. With the home opener against UCLA seven weeks away, football season ticket sales are $140,000 behind the department goal of $718,000. University officials warn that unless attention is paid to keeping expenses close to budget, adding further to the deficit is a strong possibility.

That worries Day, who says the deficit is approaching the point that could endanger its ability to operate. Day said that would happen if it were to reach about $700,000.

As long as it remains within its present range, the department is able to sustain normal operations by borrowing, using funds from advance sale of season tickets to cover current expenses and deferring payments to the university, such as the cost of athletic scholarships, until the end of the fiscal year.

Day warned the department only can juggle that way for so long. He longs for a day when the department can budget next year’s expenses based on the previous year’s revenue. That, he said, would give the athletic department a better opportunity to balance its budget. Still, he said, the university was doing a better job financially than many major-college athletic programs.

“As far as I can tell, for a Division I-A program, we’re doing well,” Day said. “You look at other Division I-A programs, and they are much worse off.”

That conclusion is somewhat at odds with a recently released survey by the College Football Assn., a Boulder, Colo.-based association of 64 major-college football schools of which SDSU is a member. The report on the financial health of members had 33 of 47 reporting schools showing a profit or balanced budgets for 1987-88. SDSU reported a loss of $68,000 for that period.

Solutions Sought

Miller has tried several approaches to improve the situation. He has increased ticket prices, created the corporate sponsorship program, raised contributions to the Aztec Athletic Foundation to record levels, held a fund-raising concert during Super Bowl week in 1988 and increased the department’s share of student activity fees by $50,000 to $800,000, the highest in the CSU system.

“(The deficit) has been a constant irritant to our program,” Miller said. “We cannot allowed these kind of deficits to accumulate. Once you get past $500,000, you get to the itchy point in this system. I want to get rid of this burr under our saddle.”

Miller Strong Fund-Raiser

While Miller has had mixed success at balancing the department’s yearly finances, he has developed a strong record of long-term fund-raising designed to improve the university’s athletic facilities.

Under his guidance, the $3 million football operations center was completed a year ago almost entirely with donated materials and labor. He helped lead the campaign for a planned $30 million arena and student recreation facility to be built primarily through increased student fees. And he helped lobby for a state-funded resurfacing of the track facility.

Some of Miller’s fund-raising has been innovative, such as the two Frank Sinatra/Liza Minelli concerts during 1988 Super Bowl festivities that raised about $500,000 for the AAF. Most of that was set aside to be used to build athletic department offices in the planned 12,000-seat basketball arena and student athletic activity center. The rest was used to help cover what would have been an even larger deficit from 1987-88.

Although funds from such a concert could have been used to virtually wipe out the deficit, Miller said he prefers to commit the funds to build new facilities. That philosophical position leaves him with few means to eliminate the deficit.

“Win football games and win basketball games; it’s that simple,” Miller said. “There is no other plan. If you win football games, the AAF goes up, the Golden Aztec Ring goes up. Everybody jumps on the bandwagon. Corporate sponsorship goes up. Happy campers all over the place.”

The expectation, Miller said, is that the Aztecs will have improved football and basketball teams this season, and the impact will show at the turnstiles. But that is how the Aztecs have built their house of cards in the past.

“I always ask the question, ‘Are we dealing with a real dollars or wish dollars?’ ” Erickson said. “I would say we have been optimistic on the revenue side but not unrealistic. I never felt the budget we come up with is unachievable. What has happened is that the programs have not come up to the level we had hoped.”

HOME ATTENDANCE FOR SDSU FOOTBALL

Overall Home Home Year Record Games Attendance Average 1979 8-3-0 6 236,978 39,978 1980 4-8-0 6 149,068 24,450 1981 6-5-0 5 171,829 34,366 1982 7-5-0 6 122,711 20,452 1983 2-9-1 5 89,743 17,949 1984 4-7-1 7 163,650 23,378 1985 5-6-1 7 136,396 19,485 1986 8-4-1 6 190,336 31,723 1987 5-7-0 6 137,464 22,911 1988 3-8-0 5 111,992 22,398