The Arizona Board of Regents recently brought in John Arnold to serve on an interim basis as chief financial officer at the University of Arizona. He’s a numbers guy so if he’s allowed free rein and he asks the right questions he could offer some good counsel.
They know there’s a quarter-billion-dollar mess. Arnold is tasked with turning stones and finding causes/solutions. The press has highlighted at least three main costs centers for the mismanaged funds. One is an $87 million gift to the Athletics Department, another is the cost associated with bringing in the Global Campus, and the institutional costs for research and development have been north of $250 million. Arnold has a roadmap to work from.
In the area of Athletics, he might start by checking into these areas: Have capital projects been audited to assure ABOR budgets were adhered to, or were side projects created to bypass ABOR rules? When Athletics says it’s financially self-sufficient as all auxiliary units are supposed to be, how much in lost revenue to the university is included in the hundreds of tuition and fee waivers granted to that department?
Even if there’s a payment plan somewhere for the $87 million, those dollars came from someplace – and their reallocation to Director Dave Heeke and Athletics therefore deprived some other areas. What was that cash flow and what other opportunities were sacrificed?
Economists call that an opportunity cost. It’s pretty basic. When state facilities are used for private camps, is the UA receiving market-rate compensation? And student fees are being collected from all students, regardless of whether or not they attend athletic events. Do students therefore have access to use intercollegiate athletics facilities, including the academic center that houses computer labs, tutoring and meeting rooms? The answer is that they do not, but Arnold can confirm independently if he wishes.
One new revenue stream UA President Robert Robbins has suggested publicly is to use athletics facilities for things such as concerts. Been there, done that.
It’s an uninformed suggestion that could end up costing money, not bringing in new dollars. First of all those events would be competing against the shows Centennial Hall is trying to attract. A conversation with them could be helpful. But even for large rock concerts that aren’t going to use Centennial, there are deal-breakers Robbins evidently hasn’t considered. Tucson is a B market on the concert tour circuit. That means dates for meaningful shows are squeezed in as a tour is routed through the major cities. That limits flexibility in scheduling. McKale Center is already heavily booked for athletics events, team practices, coaches private camps and maintenance. There are not multiple open dates he will find during the year.
For those dates that are available, the venue has restrictions that make it unappealing to large shows. The truck ramp is at a slope that means semi-trailers cannot back down it for loading shows in and out. That means all of the rigging and gear has to be loaded in by hand – fork lifts – very labor intensive, very expensive and shows don’t want to spend the time and money on that. When the gear does arrive on the arena floor, Robbins and Heeke would be placing the integrity of the playing surface in jeopardy. The maple playing surface is what’s called a fixed-floating system. There’s a gap between the maple you can see and the hard surface a couple of inches below. It’s to lessen the impact on players. The last shows we did there (Garth Brooks) crushed the maple. One reason is that all of the sound had to be floor stacked – the high steel inside of McKale is not structurally built to hold the 80,000 to 100,000 pounds of sound and lighting that comes with major shows. He should check with some of us who have been down that road before.
What about the football stadium? A little checking there would reveal that major shows shy away from booking outdoor events due to the instability weather causes. The artificial turf in the stadium is subject to puncture and damage – the loading in for commencement each term requires significant labor and materials to protect it. Placing seating on the field increases the vulnerability. Finally, you don’t make money by “facilitating” major shows. You only make money by promoting. When you facilitate you take a fee to help with the show logistics. There’s no down-side risk, but there’s no high up-side revenue potential. When you promote, you take that financial risk. The last time the UA had ASUA promote a show in McKale they lost roughly $50,000 – Whitesnake was a bust and the UA at that time stopped promoting. It was the right decision. We made a few thousand dollars facilitating Garth Brooks for two nights in McKale and probably spent most of that rehabilitating the venue. Arnold and ABOR should think hard about the suggestion that booking multiple outside events in those venues is going to make a dent in the financial hole Robbins and Heeke are trying to dig out from.
When Ashford College – now the UA Global Campus – was purchased, Robbins was proud to announce that he only paid a dollar for it. Despite protests from faculty and staff, he went ahead with the deal. Arnold might want to confirm the newly absorbed operations costs that were involved. The local media has said those costs are in the $265 million range. One would have to assume that also meant hiring staff to manage the new operations. There’s a cost to that. The federal government wants to claw back about $70 million in tuition money the Ashford students received. Robbins is now spending money on that litigation. Costs? Who should ABOR hold responsible?
I shared the data from the National Science Foundation last week that shows the UA spent over $250 million in institutional dollars to attract research and development grants. Robbins has announced publicly that one of his solutions to the athletics and wider financial mess is to consolidate support services on campus. One of those would be the development staff.
Is merging staff with the UA Foundation going to help offset the $250 million spent to get the grants? How does it save money by having development officers work the same limited donor pool for dollars? Who will prioritize asks?
The Robbins and Heeke skybox suites have been remodeled at a cost of nearly $3 million. Now they need to finally do the west side of the stadium. Will that project (estimated at between $90 million and $150 million) take precedence over donor asks for other campus projects? Merging the donor pool sounds like a not-so-well-thought-out idea.
And bringing other support functions into the broader campus administrative burden does nothing to alleviate the work load. Someone still has to do the HR, IT, payroll and other work. Is Robbins simply suggesting reassigning current Athletics Department staff to new operating units on campus and pointing to the then “reduced costs” he achieved in Athletics? Arnold is a budget guy. He can do that simple math to show the savings were nil or negligible.
A part of this mess is the UA being a good community partner. Buying properties off-campus in order to bypass city zoning rules (Honors College) is not a good way to build that relationship. Arnold might want to look into other recent UA property purchases to see what’s being paid in comparison to appraised values, and how the anticipated uses will impact the surrounding neighborhoods.
And the current public relations mess happening over the dismantling of the historic Soleri Chapel makes the public relations component to this whole mess even more of a factor for ABOR and Arnold to keep in mind. While Robbins’ spokesperson says they’re “documenting” what’s in the chapel, in layman’s terms it simply means they’re taking pictures of what they’re taking apart so people can go to archives and see what used to be there.
Robbins and Heeke have suggested balancing the Athletics budget by increasing basketball and football ticket prices by 25%. Economists have another basic principle – price elasticity of demand. Basketball already has the image of being elitist and too expensive for the general public to attend. And football just had a successful season. Now the coach wants pay raises for himself and his staff.
Will the public perception – if not the reality – be that the price increases are only going to pay for the salary hikes? Is the public perception going to be that they’re paying to solve the financial mismanagement created by others? It’s an easy concept to float but they’d better do some market studies before assuming it’s going to generate new and significant revenue.
People from within Robbins’ and Heeke’s own inner circle share with me that the work environment has become difficult. That’s what happens when you create a culture of mistrust within the institution. We will see if the ABOR review these and other areas of concern help to alleviate that condition.