Article: Splitting Audience Could Make UM's $240 Million Dollar Athletics Debt A Heavier Lift
Very interesting read with a lot of useful info. Hope you all can enjoy on a slow newsday.
http://www.crainsdetroit.com/article/20170226/NEWS/170229865/splitting-…
February 28th, 2017 at 9:24 AM ^
If so why aren't they using it to pay down their current debt? I believe because that endowment you speak of is off limits to the athletic department. It is why the Athletics Dept is its own entity with its own separate budget and fund raising. I don't know the exact guidelines put in place by Michigan in regards to how they can use their endowment but THIS LINK pretty much spells out what the Endowment is used for and it's not for athletics teams. No where on the page does it spell out anything about athletics. Maybe it does. Who really knows unless you are part of the U of M administration who handles such matters.
One thing to point out is that a donor can specifically specify what the money is to be used for.
February 28th, 2017 at 9:58 AM ^
Most of the endowment money is tied to specific things so no. Also that money should be going to the school anwyays, this is an academic institution first. The AD can operate like this because it turns a profit, if that changes it shouldn't exist as it currently does.
February 28th, 2017 at 1:09 PM ^
In general, I would say no. But it is a lot more complicated than that.
An endowment is a pool of assets designated for a purpose. Most endowments are set up such that the principal is sufficient to pay for some specific thing in perpetuity. The way this happens is that the interest earned on the principal each year covers the cost of the thing for that year plus a little bit more to grow the endowment so that as inflation erodes purchasing power, the principal grows at least that much.
There are directed endowments for lots of things at Michigan. The reason the head coaching position is called the "J Ira and Nikki Harris Head Coach" (or whatever the name is) is because those people endowed funds such that the interest earned each year pays for enough of the head coach's salary that the athletic deparment thought it was worth giving them naming recognition.
There are some athlete's scholarships that are directly endowed as well.
Over long periods of time, however, this could change. Stanford, for example, has been so successful with their athletic department in part because they have been able to endow nearly all the scholarships in some of their sports. Why might this change? Well, if Stanford had 85 endowed scholarships and the NCAA changed the number of football scholarships to 80, there would be endowed funds that couldn't be used for their specified purpose.
The same thing might happen for technological changes that a benefactor didn't consider when specifying a gift.
To manage this, endowments are overseen by trustees who have broad power to interpret the intentions of benefactors vs. the reality of current circumstances.
Without knowing details, there could be a component of the Michigan endowment that has been directed at raising capital funds for the athletic department each year. As responsible trustees, they would need to be confident that the spending rules for the endowment didn't jeopardize the endowment itself.
Even so, managing endowments is hard. And unforseen events might impact the value of the endowment such that the ability to meet the intentions of benefactors might be limited. As a donor, that is the risk you take and the trust you place in those managing the endowment.
February 28th, 2017 at 8:57 AM ^
If TV and ticket revenues go down across the board, then it is possible we will start seeing coaching salaries drop as well and the facilities arms race slowing down.
February 28th, 2017 at 9:00 AM ^
Cal has almost double Michigan's debt, and on top of it is losing $23 million each year. And their alumni are a lot less willing and able to bail them out compared to ours, I would say. Michigan will be fine as long as they continue to exercise wise financial management, and keep the price of bottled water at $4.50 - $5.00.
February 28th, 2017 at 9:14 AM ^
You should know the author is a HUGE Ohio State fan. He openly laughed at the idea of Michigan landing Harbaugh and he thinks Urban Meyer is a god.
Anyway, the article is interesting, but there is nothing newsworthy about it. Michigan is very comfortable with what it is doing and it seems everyone involved agrees.
Michigan likely gets great interst rates and the article repeatedly mentions "favorable rates" based on the size of the endowment, the school's revenue, reputation.
Michigan isn't paying 20% credit card interest rates. It is likely the rate they pay is so small that it makes simple financial sense to borrow at a low rate rather than use money they have invested elsewhere that gets a higher rate of return.
The author is trying to make something of nothing....
February 28th, 2017 at 10:15 AM ^
In other words, the university as a whole ultimately backs the bonds, but the athletic department has to convince the administration that it can pay off the spending without trouble. And that's been working.
It is statements like these which serve as a good reminder that we need to be a bit careful about describing just how independent the athletic department ultimately is from its "parent", if you will. As the article mentions and lays out well, major hiccups would ultimately affect both when payments came due.
Very interesting read on the debt of the athletic department. Thanks for sharing.
February 28th, 2017 at 1:19 PM ^
I agree. See my response to pescadero's comment above, though.
It is the obligation of the Regents to hire the right administration to manage this. My (perhaps maize and blue clouded) view of this is that Michigan has been doing this better than most.
In the Athletic Department, Michigan has a positive-reputation and revenue generating juggernaut that is operating in the context of a University with goals that go well beyond athletics.
At any school, I'm sure this balance is in question. There are athletic vs. academic budget questions at a D-III school with no scholarships too -- they are just different questions and exist at different orders of magnitude.
It is good that this topic is public and subject to scrutiny. For me, the AD comes out looking good.
February 28th, 2017 at 11:00 AM ^
And what is Michigan's endowment? Roughly $10 billion? I'd say we're just fine, as long as the Athletic Department practices sound financial management. With the stupid amount of TV revenue that will be coming Michigan's way in the coming years, I think this guy tried making this a bigger story than it actually is.
February 28th, 2017 at 2:03 PM ^
It's an interesting article, but it also overstates some concerns about debt obligations and acts like this is uncommon. Comparing it to Cal, which is sitting on huge debt obligations and doesn't have easy access to more funds, seems a bit unfair. The market for college sports is changing, but (a) it wont drop off a cliff any time soon, and (b) Michigan is very shrewd and should be able to make appropriate accomodations.
February 28th, 2017 at 4:33 PM ^
All bubbles eventually pop.
The college sports bubble already has, we just don't all realize it yet.
There are an ever-dwindling number of universities that can afford to do what Michigan does. The sky is not the limit for Michigan anymore either.
February 28th, 2017 at 5:17 PM ^
if large donor donations are used to pay the principal for these projects or is it placed in a trust with the investment revenue used to pay for the bonds?
Is this Michigan taking on increased debt now with the expectation of receiving large donations to help pay it down in the future.