MLive: Brandon projects smallest budget surplus in 12 years

Submitted by MGoBender on June 20th, 2014 at 11:22 AM

http://www.mlive.com/business/ann-arbor/index.ssf/2014/06/university_of…

The article is short, give it a read.  I'll post some quotes from it, though, and save my personal comments for a post below.

Brandon said that the department expects to incur about $145.9 million in expenses, giving it a surplus of about $5.2 million.

"Our projected surplus will be a little below previous years, but we'll be ample and our operating surpluses will be reinvested in the facility plans we have (over the next four years)." [Brandon]

Salaries, wages and benefits of department employees account for the largest year-over-year increase. The department budgeted an increase of $3.6 million in salaries for department personnel, making it the largest expanse at $53.2 million.

Team and game expenses are expected to increase to $23.9, up $1.4 million from the previous year, and "other operating and administrative expenses" are projected to increase by $1.1 million.

Nearly $20.4 million is budgeted for financial aid scholarships for student-athletes.

Emphasis mine in the last block quote.

Comments

MGoBender

June 20th, 2014 at 11:25 AM ^

I see nothing worth getting on Brandon about this, at least with the limited info I have.  The thing that bothers me is that $53.2M is spent on athletic department employees and administrators.  $44.3M is spent on the student athletes.

Those might be fuzzy numbers, but still the adminstrative costs are off-setting.  I wonder what percentage of the budget was administrative salaries 15-20 years ago.  I'm sure it's a trend across all Division 1 schools, but that doesn't mean we can't break that trend and be leaders.

Come On Down

June 20th, 2014 at 11:28 AM ^

Does anyone know if the $3.2 million in salaries is related mostly to salary increases or new hiring? Given that it's so much I would imagine it's the latter. I'm curious as to why the AD has so many employees. 

jblaze

June 20th, 2014 at 11:35 AM ^

Is that Borges and Nuss make up a decent part of that. Also, the other fired coaches (like the track guy mentioned yesterday). The other big bucket would be if the Basketball coaches got any raises (performance or otherwise).

MGoBender

June 20th, 2014 at 11:39 AM ^

http://www.mgoblue.com/sports/m-footbl/spec-rel/coaches-m-footbl.html

There are 53 people on staff for the football team alone.  Just the football team!  Not counting student assistants!

There are 15 doctor-type people.

There are 4 equipment managers - this to me implies that there are other part-time people (or maybe undergrad interns) in equipment.

There are 11 people in the administrative staff.  That's mind-boggling.  Some of them do a great job and obviously it's a big enterprise to run.  Larry Martin is a great guy and does great work.  But 11?

Now, an argument I like to make as well is that many of these positions are filled by former athletes and the idea that they are being exploited as players kind of ignores the fact that they are getting unequaled training for these careers.

 

dahblue

June 20th, 2014 at 5:22 PM ^

And yet no one is taking into account the cost of music licensing fees.  ASCAP and BMI have their grubby little hands all over that budget!  You can't get "Sweet Caroline" playing in a 115K person venue without paying a pretty penny.

Don

June 20th, 2014 at 11:32 AM ^

all over the country, and not just in athletic departments. It's a significant contributor to the ever-escalating cost of attending four-year colleges and universities.

M-Dog

June 20th, 2014 at 12:02 PM ^

Yes, it is under-reported how much this is an academia-wide phenomenon, and not just in sports.  
 
There had been a perceived infinite demand, non-sensitive to pricing, that led to this escalation, both on and off the field.  The sky was the limit. 
 
No more.  As DB has found out, demand is not infinite and non-price sensitive.  The days of gratuitously sticking a finger in the eyes of your customers and still watching the money pour in are OVA.
 

TruBluMich

June 20th, 2014 at 11:42 AM ^

I would love the pay check for running an Athletic Department. I however would hate trying to deal with the pitch forks and torches that come along with doing the job.

LSAClassOf2000

June 20th, 2014 at 11:45 AM ^

I couldn't find the FY 2014 actuals, but the originally proposed numbers from the now past budget cycle - which I assume are close in most cases - are in this document presented last June to the Board of Regents (LINK). 

 - proposed expenditure for "Salaries, Wages And Benefits" - $48.834 million, or 10.4% over the 2012-13 cycle

 - proposed expenditure for "Financial Aid To Students" - $19.690 million, or 7.3% over the 2012-13 cycle

 - proposed expenditure for "Team And Game Expenses" - $22.033 million, 0r 14.0% over the 2012-13 cycle

 

WolvinLA2

June 20th, 2014 at 11:46 AM ^

Of all the reasons people hate Dave Brandon, giving across the board raises to the employees of the athletic department can't be one of them, right?  That has to be pretty good for Ann Arbor as a whole.

WolvinLA2

June 20th, 2014 at 1:39 PM ^

I didn't realize Ann Arbor was a "mini metro" and I was just thinking of it as a town of about 100k.  And didn't mean that it would flip the economy on its head, but when a large employer in a small town gives a lot of raises, it's good for everyone.

I completely disagree that a lot of that money came from Ann Arbor as a whole.  Most of that money comes from TV, from apparel contracts, advertising, and even most of the ticket sales aren't from Ann Arbor.  

MaizeAndBlueWahoo

June 20th, 2014 at 2:13 PM ^

Well, I would guess a lot of the employees don't live in Ann Arbor proper, nor always shop there, and the county has about the 350K people in it.  Figured that's what you meant by "Ann Arbor as a whole."

If the university handed out a whole bunch of raises across the board, I might be more into the idea that it'd boost the AA economy, but I don't think there are enough employees in the AD for it to matter much.

Blueto Bluetarsky

June 20th, 2014 at 11:56 AM ^

So I definitely don't have the qualifications to comment on a multi-million dollar budget.  

But I will say that I was at that meeting, and DB's presentation left a lot to be desired... He was extremely arrogant, and when his powerpoint presentation had a small glitch (it was set to run through the slides automatically, not manually, which is obviously an easy fix), he just acted disgusted and wrapped up his presentation without offering any time for questions. President Coleman was kind of taken aback when he just sat down, but she didn't really say anything (it being her last meeting as President). 

All told, the guy spoke for about 2 minutes, while all the other budget presentations went for around 10 minutes and all the other speakers fielded questions and comments from the Regents and President Coleman. 

I've never had much of an opinion of DB because I'd never met the guy or seen him in action, and I'm sure that running Michigan's AD is an extremely difficult job. Well, now I have, and that guy is not the person that I want representing our school in any capacity. 

(btw, first post!)

mGrowOld

June 20th, 2014 at 12:26 PM ^

There is absolutely nothing in your post that surprises me, right down to his actions when the powerpoint didnt work as planned.  Nothing.  I'm 54 and i've been in a lot of meetings with guys like that through the years and his behavior publically certainly mirrors what you saw privately (smartest guy in the room syndrome).

And welcome to the board.  I've got a feeling your first post will set a very high bar for you to follow - thanks for taking the time to share it.

Well done!

alum96

June 20th, 2014 at 5:02 PM ^

Based on this job and the previous Dave B has been in 2 positions where almost no one has said "no" to him in 15 years-ish? (more?) You tend to get insular and live in a bubble when that happens.  I have dealth with CEOs and the "yes man" around them are bemusing - the brown nosers and butt kissers...  then you go from that to an athletic department where I doubt anyone not rowing in the same direction is ever welcomed, and a university is far more bubble like than anything in the private sector.

As someone else said its bloat of the highest order across the higher public education system.  Tis is what happens when you give out student loans to people who are 17-18-19-20 years old, with unknown job prospect and credit... we are seeing massive default rates now and the taxpayer is increasinly eating the costs as almost the entire student debt market is now government funded after the financial crisis.  Even worse our leaders in DC have decided you can pay 10-15%gross of your income for 10 years (if you work in public sector) or 20 years (private) and then walk away from the debt, leaving it to the taxpayer.  There are literally grad schools now who are offering to pay for part of the student debt of students so they take out these massive loans that they will walk away from in 10-20 years because it brings the universities the cash up front and they dont care if it ever gets paid back.  It's a moronic system.

The govt thinks this is "good intentions" but has created a massively perverse system - it is no different than selling $800K homes to people in no doc mortgages.  There is a reason student debt is now > $1 Trillion and more than credit card debt.  And the default rate will only go up from here.  If tuitions were indexed to what people could truly afford off wages it would be like $3500-$4000 a year IMO... back in the 60s/70s people could get through college working on their own in the summer, etc - if you index that out 30-40 years you'd get my figure.  Not $12 - $15 or out of state $35-$40K.   You'd have to take away all student loans and watch a massive crumbling of the system as an inflated systems deflated for 5 years to get tuition back to "what the market could bear" - so it won't happen but this is the broken system we've built....on good intentions.

 

p.s. working in the private sector in automotive most of our budgets ask for flat or a reduction year over year.  So you pay for the 2-3% salary increases by finding cuts elsewhere.  But you don't need to worry about that in the university system I guess.

MGoBender

June 20th, 2014 at 5:20 PM ^

Government loans aren't evil in their own right. If there's one thing I'm cool with the government subsidizing, it's student loans.  Now, they shouldn't be attempting to make a ton of money off it like they are.  Yes, student loan debt is high, but there are plenty of people paying back their loans.  The fed actually finances part of their budget with student loan money which is why the republicans shot down the proposal to lower student loan interest rates (they couldn't find a way to pay for the decrease in revenue).

Debt isn't a terrible thing.  A lot of debt is terrible.  And it's better to be in student loan debt than credit card debt.  

The system needs to be tightened more, but it doesn't need to be thrown out.  It's allowed a person like me who comes from a family who's never sent anyone to college and wouldn't have been able to get private loans to go to an excellent school.  I have put that education to use and I have a stable job, pay my taxes and am actually proud to be paying back my student loans at an accelerated rate.  I'm cool with paying the interest (though wish it was lower so I could put some away for retirement) because the American gov't invested in me and afforded me a chance to live a great life.  Now I'm happy to be paying the USA back.

And I'm not the only one.

alum96

June 21st, 2014 at 2:24 AM ^

Anything you subsidize will drive the price up - it's just economics 101.  If universities could only charge what the market could bear in a world without student loans the stone would have squeezed 20-30 years where no more blood came out.  There would be X price where they could no longer get full enrollment and they'd have to adjust wages, benefits, building luxury dorms, facilities, etc to an area which was in line with what revenue they could bring in.  You'd then have a market in balance and then tuition could rise 2-4% annually, aligned with wages.  Of course this is not the real world due to how our system is structured.

The current default rate is over 20% on student loans.  And that is very misleading becaue people who actually have loans and are in college obviously are not on the clock but are included in that denominator.  So I'd guess the figure for people who actually have to pay back the loan is north of 30%.  That tells you it is a broken system.

Further the debt is so large it has constrained household formation, hurt first time home buying and if you believe a bevy of anecdotal newspaper stories cause a lot of people to put off things like marriage.  These are all things that help the economy.  It is why we are 6 years into a recovery and the Fed is running emergency level policies and the GDP is meh 2-3% every year... a lot of people are either left beind or waterlogged with their debt.

Should there be help for those who need it? Yes. But this type of help is hurting a lot of people who think they are being helped, and now it's becoming a major taxpayer problem since the money being defaulted on is never goin to be paid back AND now we have a new policy in place where you walk away from the debt in total after 10 or 20 years.

People don't feel it becaue the govt runs massive deficits and no one feels it out of pocket but if there was a 1:1 relation for this cost (or any cost of federal govt) people would go bonkers if you explained the current setup.  "Look for every student who defaults we are going to ask you to pay an extra 20 cents a year" - if people felt that they'd say it was insane policy.

It has also set up a feeding frenzy by universities since they can increase costs well in advance of inlation every year and that difference between wage growth and tuition costs is made up with even more debt.  It's especially bad at the for profits like Univ-Phoenix which are almost Ponzi schemes at this point.  This has been going on for decade of course.  Tuition has to have some relation to what a middle class family (one making 40-60K a year) can afford.  It is completely out of line.

 

p.s. my comments are general in nature at more about the university system, not to do with the athletic department which has its own set of issues being in a "bubble".

 

MayOhioEatTurds

June 20th, 2014 at 1:18 PM ^

I'm no fan of Dave Brandon's collegiate athletics philosophy.  (By which I mean Brandon's insistence on dollars over substance.) 

But one good thing about Brandon's philosophy is that it leaves no doubt when he has failed to achieve the stated goal.  When you set budget surplus as the goal, and then your surplus is the smallest in twelve years, then you're clearly doing worse at your job than your predecessors--BY YOUR OWN, OBJECTIVE STANDARD.   

And you cannot be heard to complain, "Well, but see, budget surplus is not what we're about at Michigan.  We're about on-field success, and collegiate tradition, and . . . ." 

vablue

June 20th, 2014 at 2:48 PM ^

What makes you think he insists on dollars over substance? I think he would take a winning football team over dollars any day. The major complaints about Brandon have nothing to do with on field performance. If he really did not care about winning, we would not have some of the highest paid assistants in the country.

Yeezus

June 20th, 2014 at 11:56 AM ^

This should come as a surprise to no one.

They're spending a ton of money, and they're having issues selling tickets for the upcoming season.  

M-Dog

June 20th, 2014 at 12:07 PM ^

It's the fault of the students.

Don't they know that the AD has already decided how much it wants to spend on itself and that it's the students job to make sure they subsidize that spending?

What, they expect the AD to bring its spending in line with reality?  Idiots.  That's not how it works.

 

SF Wolverine

June 20th, 2014 at 12:04 PM ^

UM is still one of only a handfull of D-1 programs that runs a surplus at all, and there are a pretty big number of big-confrence/high-revenue schools that do not.  He's also spread a lot of money around to the non-revenue sports on facilities and coaches.  I think he is due for constructive cricicism in a number of areas, but he seems to me to have been a responsible steward of the department's money.  I think there is more $$ from donors to be had, which  would allow him to not lean into some of his more controversial funding as much.  I remain hopeful that he will develop a better "ear" and modify some of his cash-chasing accordingly.

tbeindit

June 20th, 2014 at 12:32 PM ^

The other thing worth mentioning is that it looks like the revenue stream is still increasing.  Yes, the surplus may be down, but considering the massive, massive renovations over the last few years, that has to be regarded at least as a positive.  I'm sure they will constantly get renovating and improving facilities, but I find it hard to believe that they will keep doing projects this big at least in the next decade or so.

Zone Left

June 20th, 2014 at 12:54 PM ^

I totally disagree on the use of department funds. Michigan is doing the same thing as every major athletic department in the country, which is binging on huge capital projects backed by projected TV revenue and ticket sales, using university AAA credit ratings. A lot of these projects are for non-revenue sports, which will generate zero financial return.

This is against a backdrop of huge lawsuits that could upend the college athletics expense model. 

For me, it's fundamentally irresponsible to finance multi-million projects that are expected to generate no return. It's insane to do it in such an uncertain environment. Let's say the various lawsuits go against the NCAA, which seems, given the reports out of the O'Bannon trial, likely. Assume the result is Michigan ends up paying $1000/month to scholarship football and basketball players.

85 scholarship FB players
13 scholarship BB players
98 total scholarships

That's $98K/month or $1,176,000 / year. 20% of your surplus is gone. That's only $12K per player. Michigan can afford that. There are probably 10-11 departments in the Big 10 that can't. If that number goes to $2000/month, the model might explode.

This is a criticism of Brandon and basically every other AD in the country. The facilities arms race is totally unsustainable and is at-risk today. If the model fails, public universities (taxpayers) all over the country are on the hook for short-sighted AD decisions.

danimal1968

June 20th, 2014 at 1:35 PM ^

are ultimately paid for by donors.  Of all the building that has gone on the last 12 years, the only ones that didn't have donor commitments in place before ground was broken were the Michigan Stadium renovations (where you could see the revenue stream from the suites and premium seating) and the hoops PDC.

All the others were ultimately backed by donor commitments. 

None of this has much to do with whether the athletic department is running a surplus in its operating budget or not.

MGoBender

June 20th, 2014 at 9:12 PM ^

I believe you're referring to the debt from the luxury boxes which is all accounted for through future luxury box revenue.  It was kinda  a huge deal at the time when the regents were deciding to approve the boxes that the debt would be paid off in a responsible time frame.

Erik_in_Dayton

June 20th, 2014 at 12:11 PM ^

The athletes directly receive less than 1/7th of the gross income. 

It would cost $490,000/yr -less than 1/10th of the (small) surplus - to give $5,000/yr to the scholarship MBB players (13) and scholarship football players (85).

Tuebor

June 20th, 2014 at 12:16 PM ^

They already get 24K a year in housing stipends.  If you want your argument to be better received you should say that they need an extra $5,000/12 = $416.67 per month to cover the rising costs of campus housing.  Just saying we should give them five grand because they are basketball/football players and those are the most popular sports is not enough.