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REPORTOFTHECHANCELLOR’STASKFORCEONINTERCOLLEGIATEATHLETICS

JUNE2017

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IntercollegiateathleticsareanintegralpartoftheUniversityofCaliforniaatBerkeley.Sincetheearliestdaysoftheuniversity,intercollegiatesportshavebeenpartofwhatmakesBerkeleythefinestpublicuniversityinthecountry.Thevaluesofintercollegiateathleticsaremany:

• Studentswhoparticipateinsportscanandoftendolearnthevalueofhardwork,commitment,leadership,loyaltyandteamwork–qualitiesthatservethem,theirfamilies,andtheirbroadercommunitiesfortherestoftheirlives.

• IntercollegiateathleticspromotesocioeconomicandracialdiversityatBerkeley.

• IntercollegiateathleticsgenerateabroadersenseofprideinBerkeleyasawhole.

• IntercollegiateathleticscreatealastingbondtoBerkeleyamongmanyalumniandhelpstimulategenerousphilanthropicgivingbythosealumni.

NoneofthesebenefitsdiminishtheimportanceofthegraduateandundergraduatedepartmentsatBerkeley,theartsprograms,andthemanyotheractivitiesofwhichthisUniversityissoproud.Allofthemcomplementeachother,creatingadiverseandenergeticeducationalinstitutionthatstandsapartfromtheothergreatuniversitiesinthiscountry.

OurTaskForcerecognizes,however,thatBerkeleyfacessignificantfinancialchallenges.Thecampusasawhole,andtheIntercollegiateAthleticsDepartment(“IA”)itself,areoperatingunderfinancialdeficitsthatarenotsustainable.LikeotheroperatingunitsatBerkeley,IAmusttakestepstoreduceexpenses,preparemeaningfuloperatingbudgets,andstaywithinthosebudgets.Simplystated,IAisnotimmunetobudgetarycutsandmustabsorbitsshareofthebudgetarypaininordertohelpsolvethecurrentbudgetarycrisisatBerkeley.

Introduction

InAugust2016,ChancellorDirksestablishedtheTaskForceonIntercollegiateAthletics.(SeeAppendixfortheChancellor’schargeletter).TheTaskForcehasmet18timesandhasdiscussedtheissuesinsomedepth.WhilethechargeoftheTaskForcewastolookatthelongrun,itisbeyondourscopetoevaluatetheAthleticsDirector’seffortstomeettheFY18budgetarytargets.

Consensusrecommendationsarepresentedbelow.ManyofthemhavebeenofferedbeforeinoneformoranotherinfivepreviousreportsonIAstretchingbacktotheSmelserreportof1991.1Recommendationspersewillnotsolvetheseissues.Tobemeaningful,theyrequireleadershipandanappropriategovernancestructure.

Thetaskforcewasunabletoreachaconsensusonanumberofimportantissuesinpartbecauseoftheverycomplicatedtradeoffsinvolved,thecomplexityoftheissues,theinabilitytosecureanoutsideoperationalreviewofIApriortothepreparationofthisreport,limitationsofdataandanalysis,andtheverydifferentperspectivesofthemembersofthetaskforce.Inparticular,thetaskforcewasunabletoreachaconsensusrecommendationregarding“an

1PreviousreportsarelistedintheAppendix.

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appropriatescaleandscopeforIA’soverallprogram,includingthenumberofprogramsandrostersizes”asdetailedintheChancellor’scharge.TheAppendixprovidesadditionaldetailsabouttheworkofthetaskforce.

ConsensusRecommendations

1).WerecommendatargetedreviewofIA’sorganizationalstructureandfinancialcontrolsbyanindependent,outsidepartywithcredibilityamongtheentirecampuscommunity.Thereviewershouldalsofocusuponpossiblecostsavingsinadministrativeexpensesnotdirectlyrelatedtosportsprograms.Theanalysisshouldincludeclearestimatesofsavingsfromspecificactions.Thecampusshouldcommitinadvancetoawrittenresponsetothisreport,includingwhatitplanstoimplementandhowitwillmeasureimprovementafterimplementation.ThereviewershouldreporttotheChancellor.

2).Werecommendthatgovernancebeimprovedandlinesofcommunicationclarified.Workingwiththeadministration,IAshouldsubmitanannualbudgetanda3-5yearbudget.Theformershouldbemonitoredatleastquarterlyduringtheyear;thelattershouldincludeproperlyvettedestimatesofcapitalcommitments.Thesebudgetswillnecessarilyestablishthelevelofwhatisoftentermed“institutionalsupport.”Further,“institutionalsupport”shouldbeseparatedbetweenthatrequiredforoperatingcostsandthatrequiredforcapitalcosts.Onanannualbasis,IAshouldsubmitareporttotheExecutiveCommitteethatreviewsallexpendituresmadeduringtheyearattributableto“specialitems”inexcessof$1million.Thisreportshouldincludewhoauthorizedtheexpenditureandhowitwaspaidfor.(Examplesof“specialitems”mightincludelitigationsettlements,severanceagreements,andthelike.)

3).WerecommendthattheViceChancellorAdministrationandtheViceChancellorforFinanceplayamoresignificantroleinthebudgetaryreviewprocessforIA.WhilewerecognizethatRegentalpolicyrequiresthattheAthleticDirectorreportdirectlytotheChancellor,thisshouldnotinhibitthisadditionalreview.

4).WerecommendthatthecampushireoutsideprofessionalstomanageandoptimizetheuseoftheCaliforniaMemorialStadium.

5).Werecommendthatunderutilizedfacilitiesandassetsbeidentifiedandreviewedwithaneyeeithertomonetizingthemormakingthemnewlyavailabletothecampus.

6).WerecommendthattheimpactofIAonphilanthropytotheentirecampusbeconsideredinanyanalysisofthecampus’snetcostorbenefitfromIA.Athleticsisthe“frontporch”tomanydonors,andanyprogrammaticchangeshavethepotentialtosignificantlyimpactoverallgiving.

7)Werecommendthatthecampusrespectallwrittendonoragreementsmadetosupportvarioussports.

8).WerecommendacampaigntoprovidepermanentfundingforAthletics.

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ABriefOverviewofIAFinances

ThefinancialreportfoundintheAppendixpresentsthe15-yearhistoryofresultsinIA.ItshowsthatIAproducedasignificantoperatingprofitinthethreeyearspriortofiscal2016.Duetoseveralfactors,thisreversedtoasmalloperatinglossinfiscal2016.IAforecaststhatitwillbreakevenfromoperationsinfiscal2017.

Thecampusissueddebtofmorethan$400milliontorenovatetheCaliforniaMemorialStadium(CMS)andtoconstructtheSimpsonAthleticHighPerformanceCenter(SAHPC).Thishasresultedinanannualinterestchargeofapproximately$18million.2Whenthischargeisdeductedfromoperatingprofit,itcreatesanexcessofexpendituresoverrevenues.InterestexpenseistheonelineitemonthefinancialstatementthatisbeyondthecontrolofboththecampusandtheAthleticDirector.Givenitsmagnitude,itisvirtuallycertainthatinterestexpensewillexceedIA’soperatingincomefortheforeseeablefuturenomatterwhatactionsaretakenregardingprogramscopeinIA.

Simplyput,thefollowingthreethingscannotholdatthesametimeforthecurrent30-sportprogramoranyotherNCAADivisionIprogramwithfewersports.3

(a)theentireinterestexpensefortheCMS/SAHPCisonIA’sbooks;

(b)IAcountsasrevenue$5Minwhatiscalled“institutionalsupport”incampusandIAaccounting;

(c)IAhasabalancedoperatingandcapitalbudget.

ThoughthefinancialreportprovidesabroadoverviewofthehistoryofIAfinances,severalfactorsmustbeconsideredwhenreviewingitandotherfinancialstatements.“Institutionalsupport”appearsasarevenueitem,butisentirelyoffsetbyanexpenseitemtermed“transferstoinstitution.”ThelatteriscalculatedasapercentageofIA’srevenue.WehaverequestedananalysisofhowthecostofscholarshipschargedtoIA(“studentaid”)isdeterminedandwhyitvariesgreatlyamongsports.Further,benefitcostsallocatedtoIAundercampusaccountingmayexceedtheiractualcostbyabout$3-4million.Ontheotherhand,somecampusfunctionscouldclearlybechargedtoIAandarenot,includingthecostoftheAthleticStudyCenterandotherallocationsthatmaybeappropriate.

TwoAreasofControversy

Inadditiontotheconsensusrecommendations,itmightbehelpfultoaddressbrieflythemostcontroversialareaswherewecouldnotfindaconsensusanddonotmakerecommendations.ThesearethepotentialsavingsfromapossiblereductioninthescopeofIAandtheimplicationsofTitleIX.2Theinterestexpenseislinkedtoandpartiallyoffsetbycertainitemsofvariablerevenue,primarilytheEndowmentSeatingProgram,throughthedebtfinancingmodel.Principalpaymentstoretirethedebtbeginin2032andincreasein2039.3TheminimumnumberofsportsanNCAADivisionIprogramcanhaveis14.Seehttp://www.ncaa.org/about/who-we-are/membership/divisional-differences-and-history-multidivision-classification.

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ScopeoftheProgram

Ifthescopeoftheprogramwerereduced,whatwouldbethepotentialsavings?Toboundtheproblem,wereceivedestimatesthatreducingthenumberofintercollegiatesportsfrom30totheNCAAminimumof14mightproduceaninitialannualsavingsontheorderof$9-12million.Inaddition,totalIAannualcapitalspendingof$7-8millionmightdeclineto$3-4million.Substantialuncertaintysurroundsbothoftheseestimates.

Setagainstthesesavingsistheeffectthatreducingthenumberofsportswouldlikelyhaveonphilanthropy,notonlytoIAbutalsototheentirecampus.Developmentstaffestimatesthattheinitialannualimpactcouldbeontheorderof$25million.4Whilethisestimateisconsistentwiththatmadeinthe2010report,thisnumber,liketheestimatedcostsavingsfromreducingsports,issubjecttogreatuncertainty.Notwithstandingthisuncertainty,anyrecommendationmustconsiderthenetcostofscopesavingsaftertakingintoaccountthepotentialreductioninphilanthropy.

Somemembersopposeareductioninthenumberofsports.Thephilanthropiclosscouldbeveryhigh.LastingdamagemightbedonetoIAandthecampusasawhole,especiallyinlightoftheeliminationandsubsequentre-instatementof5sportsin2010.Itmayalsobepossibletoachieveneededsavingsthroughtightercostcontrols.OthermembersbelievethatthecampusmustspendsignificantlylessonIA.

GenderEquityandTitleIX

AllmembersoftheTaskForceendorsetheprinciplesofgenderequityinAthleticsandtheletterandspiritofTitleIX.TitleIXprovidesthree“prongs”forlegalcompliance.BerkeleyoperatescurrentlyunderProng3,whichrequiresaccommodationoftheinterestsandabilitiesoftheunder-representedgender.Ineffect,thisrequiresthatCaladdawomen’svarsitysportwhenthereisunmetinterest,sufficientabilitytofieldateam,andsufficientcompetitionwithintheournormalcompetitiveregion.Suchadditionshavethepotentialtobeabudgetaryburdeninthefuture.

Prong1ofTitleIXrequiresthatparticipationopportunitiesreflectthegenderdistributionoftheundergraduatepopulation.Atpresent,52%ofourundergraduatesarewomen;amongourintercollegiateteams,42%oftheparticipantsarewomen.5

SomemembersoftheTaskForcebelievethatProng1ispreferablefromthestandpointofgenderequity.Italsowouldminimizetheriskofadditionalwomen’ssportsbecomingthebudgetaryburdeninoperatingandcapitalcostsdiscussedabove.OthermembersoftheTaskForcenotethatProng3providesgreaterflexibilityshouldtheundergraduatepopulationcontinuetoshifttowardfemalestudents.Further,theyfeelthatthespiritofTitleIXistoprovideparticipationopportunitiesforwomen,nottoreducethemformen.

4TotalannualphilanthropyatBerkeleyexceeds$400million.5WedonotdiscussProng2asitisararelyused,unrealisticoption.

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Thecampusfacesharddecisionsintheyearsahead,andmembersofthetaskforcearepleasedtoofferanycontinuingassistancethatmightbehelpful.

Signed:6

RobertG.O’Donnell(co-chair)

RobertPowell(co-chair)

LisaAlvarez-Cohen

LishelleBlakemore

BradBrian

PatriciaDechow

ChrisKutz

RichLyons

CaitlinSmith

NadineTang

MichaelWilliams

6Whilethereportwasbeingfinalized,KhiraGriscavageagreedtoserveaschiefofstafftoincomingChancellorCarolChristandrecusedherselfinlightofhernewposition.

APPENDIXContents

1. TFIAmeetings&stakeholdersengaged2. Listofmembersofthe2016-17TaskForceonIntercollegiateAthletics3. Listofpreviousathleticstaskforces4. Chancellor’sChargeLetter5. 15yearhistoryofIntercollegiateAthletics’financials

Taskforcemeetings&StakeholdersengagedTheTaskForcemet18timesfromAugust15,2016throughApril21,2017.TheTaskForcesolicitedtheviewsoffacultyandalumni/donorsatforumsheldonDecember5,2016andDecember19,2016,respectively.ItalsometwiththeUCBF/BoardofVisitorsCommitteeonAthleticsonJanuary30,2017andMay12,2017.AnditmetasagroupwithBillAusfahl,UCBFTrusteeEmeritus,aswellaswithProfessorMichaelO’Hare,GoldmanSchoolofPublicPolicy.TogaintheperspectivesofStudent-Athletes,theTaskForcemetwithJackAustin(Football),MiaCroonquist(WCrew),andElliotGentile(WSoccer).TolearnaboutIAfinancesandfundraising,theTaskForcemetwithcampusChiefFinancialOfficerRosemarieRae,ViceChancellorforUniversityDevelopmentandAlumniRelationsJulieHooper,andAssociateAthleticDirectorforDevelopmentJeremyWang. TounderstandtheTitleIXimplicationsofvariousstrategicchoices,theTaskForcemetwithSeniorAssociateAthleticsDirector&SeniorWomanAdministratorJennySimon-O’Neill,CampusTitleIXcoordinatorDeniseOldham,andAssociateCampusCounselJulieConner.Foradditionaldiverseperspectives,TaskForceco-chairsRobertO’DonnellandRobertPowellalsometwithRogerNoll,ProfessorofEconomics,Stanford;BudLyons,CalRugbyAssociation;andthelateT.GaryRogers.Finally,TaskForceCo-ChairRobertPowellalsoconsultedthefollowingcoaches:• AmandaAugustus(WTennis)• BrettMcClure(MGym)• BrookeEubanks(WLacrosse)• DavidDurden(MSwimming&Diving)• DavidEsquer(Baseball)• DianeNinemire(Softball)• AlAcosta(WRowing)• JackClark(Rugby)• JustinHowell(WGymnastics)• KevinGrimes(MSoccer)• KirkEverist(MWaterPolo)

• MeaganSchmitt(BeachVolleyball)• MikeTeti(MCrew)• NeilMcGuire(WSoccer)• PeterWright(MTennis)• RichFeller(Volleyball)• ShellieOnstead(FieldHockey)• TeriMcKeever(WSwimming&Diving)• TonySandoval(Track&Field)• WalterChun(MGolf)• CoralieSimmons(WWaterPolo)

Membersofthe2016-17TaskForceonIntercollegiateAthleticsRobertPowell,Co-ChairRobert,O’Donnell,Co-ChairLisaAlvarez-CohenLishelleBlakemoreBradBrianPatriciaDechowKhiraGriscavageChristopherKutzRichardLyonsCaitlinLeverenzSmithNadineTangH.MichaelWilliamsStaff:NilsGilman,DavidSecorPreviousTaskForcesonIntercollegiateAthletics

1. August2010:ReportoftheChancellor’sCommitteeonIntercollegiateAthletics(Chair:ChristopherKutz)

2. September2000:“AdHocAdvisoryCommitteeonIntercollegiateAthleticsandRecreationalSports”(Chair:EarlCheit)

3. January1999:ReportoftheAthleticFundingTaskForce(Chair:RonColey)4. December1993:ReportonGenderEquity(Chair:EarlCheit)5. May1991:BlueRibbonCommitteeonIntercollegiateAthleticsatBerkeley(Chair:

NeilSmelser)

University of California, Berkeley Preliminary DraftAudit and Advisory Services For Discussion Purposes OnlyCompilation of Statements of Operating Revenues and Expenses, Fiscal Years Ending 2002-2016Department of Intercollegiate Athletics(Dollars in thousands)

Operating RevenuesFY Ended6/30/2002

FY Ended6/30/2003

FY Ended6/30/2004

FY Ended6/30/2005

FY Ended6/30/2006

FY Ended6/30/2007

FY Ended6/30/2008

FY Ended6/30/2009

FY Ended6/30/2010

FY Ended6/30/2011

FY Ended6/30/2012

FY Ended6/30/2013

FY Ended6/30/2014

FY Ended6/30/2015

FY Ended6/30/2016

Ticket sales 6,445 7,184 7,133 9,995 9,494 13,898 15,482 15,674 14,343 15,954 11,126 14,556 14,220 10,956 10,690 Student fees 2,443 2,426 2,013 1,911 1,968 2,070 2,241 3,184 2,146 2,258 2,447 1,447 1,444 1,444 444 Contributions 6,902 7,395 9,189 10,907 12,239 14,715 13,894 15,617 10,232 8,127 12,978 26,063 22,693 22,554 19,752 Guarantees - - 2,721 1,285 2,261 1,200 2,063 975 2,336 1,035 3,421 284 44 3,814 332 State/Govt Support - - 4 - - - - - - - - - - - - Direct Institutional Support - - 3,430 3,274 3,640 7,716 5,210 8,893 9,952 8,248 7,072 6,121 3,538 3,556 4,556 In-Kind - - - - - - - - - - - - - 19 23 Media Rights - - - - - - - - - - - - - 17,044 19,486 NCAA/Conference Distributions - - 7,496 9,332 9,884 11,501 10,964 11,396 11,384 10,181 15,279 21,458 22,593 8,654 8,409 TV/Radio/Internet Rights 2,057 2,743 102 110 93 - - - - - - - - - - Program/Novelty/Concessions 134 499 788 403 406 465 784 887 737 1,591 669 1,196 1,325 649 502 Athletic Privilege Cards 417 411 - - - - - - - - - - - - - Sponsorships/Royalties - - 2,554 4,144 4,377 5,046 6,374 6,404 6,967 8,432 7,204 6,972 9,469 9,548 8,789 Sports Camps - - 1,257 1,449 1,616 1,805 2,021 2,534 2,236 1,510 1,700 1,389 638 1 - Endowment Income 1,537 1,428 1,639 1,626 1,600 1,751 2,326 2,888 8,330 7,250 5,885 11,488 13,359 9,193 11,135 Bowl Game Revenue 2,154 3,004 - - - - - - - - - - - - 780 Other 8,072 9,544 1,273 850 866 1,284 2,967 2,698 683 657 403 841 939 1,855 1,366 Total Operating Revenues 30,161 34,634 39,599 45,286 48,444 61,451 64,326 71,150 69,346 65,243 68,184 91,815 90,262 89,287 86,264

Operating ExpensesStudent Aid 4,984 5,782 6,186 8,043 8,402 8,447 8,997 9,957 11,131 8,899 10,053 10,001 9,865 9,686 11,682 Guarantees - - 1,464 2,429 1,679 3,140 1,832 3,233 1,858 3,041 1,731 1,386 1,517 1,445 1,744 Coaches Compensation and Benefits 6,240 6,590 8,656 10,004 10,647 12,581 13,155 14,691 14,496 14,490 15,784 18,022 14,669 16,430 20,008 Administration Compensation and Benefits 6,683 6,861 8,901 9,317 10,016 10,874 12,179 13,778 13,598 13,187 14,713 15,979 17,250 16,969 19,428 Benefits 2,285 2,474 - - - - - - - - - - - - - Severance Payments - - 106 175 272 - 164 821 - 49 5 2,115 2,403 2,291 236 Recruiting 491 538 657 669 683 770 741 838 1,006 945 928 912 1,143 1,265 1,308 Films 127 375 - - - - - - - - - - - - - Team Travel 3,478 3,689 3,679 3,843 3,914 4,985 4,669 5,503 4,868 5,176 6,447 5,588 6,117 6,150 7,225 Equipment/Uniform/Supplies 2,384 2,518 2,159 2,317 2,802 2,203 1,534 2,433 1,934 1,758 1,708 1,898 3,203 3,137 2,929 Game Expenses - - 1,655 1,747 1,884 2,305 2,356 3,210 2,975 2,760 1,499 3,619 3,603 3,766 4,055 Fundraising/Marketing/Promotion 346 1,040 2,227 4,120 2,598 2,747 2,634 2,740 3,246 3,110 3,008 3,879 4,172 4,228 3,558 Telephone 557 411 - - - - - - - - - - - - - Entertainment 441 384 - - - - - - - - - - - - - Campus Administration 585 664 - - - - - - - - - - - - - Interest Expense 225 401 - - - - - - - - - - - - - Sports Camps - - 547 699 794 863 1,152 1,204 1,417 744 833 560 350 11 1 Maintenance and General 7,260 7,072 - - - - - - - - - - - - - Direct Facilities Cost - - 1,834 2,545 2,318 3,656 4,981 4,318 4,018 1,922 2,111 3,747 4,446 6,031 4,897 Direct Support to University - - 427 - - - - - - - - - - - - Indirect Support - - 1,152 - - - - - - - - - - - - Spirit Groups - - - 241 126 132 58 94 78 81 119 140 149 114 100 Medical Expenses and Insurance 221 243 - 1,122 1,063 911 1,366 1,122 1,572 1,170 1,393 1,231 1,430 1,583 2,669 Memberships/Dues - - - 43 47 50 44 51 1,041 1,435 1,548 1,468 49 51 71 Team Meal Expenses - - - - - - - - - - - - - - 930 Bowl Game Expenses - - - - - - - - - - - - - - 1,040 Transfers to Institution - - - - - - - - - 2,392 2,468 2,881 3,483 3,747 4,611 Other Operating Expenses - - 5,517 5,860 6,477 7,787 8,413 8,746 6,108 3,318 3,287 2,936 2,597 3,191 2,319 Total Operating Expenses 36,307 39,042 45,167 53,174 53,722 61,451 64,275 72,739 69,346 64,477 67,635 76,362 76,446 80,095 88,811

Total Operating Profit/(Loss) (6,146) (4,408) (5,568) (7,888) (5,278) - 51 (1,589) - 766 549 15,453 13,816 9,192 (2,547)

Non-Operating Revenue - Capital - - - - - - - - - - 3,000 - - - - Non-Operating Expenses - Capital - - - - - - - - - 28 25 1,260 276 51 619 Loan repayment and/or Debt Service - - - - - - - - - 557 3,387 15,384 16,869 17,617 18,562 Proceeds from Debt Issuance - - - - - - - - - - - 2,672 - - -

Excess (Deficiency) of Revenues Over Expenditures (6,146) (4,408) (5,568) (7,888) (5,278) - 51 (1,589) - 181 137 1,481 (3,329) (8,476) (21,728)

Source: Department of Intercollegiate Athletics, Statement of Operating Revenues and Expenses, Fiscal Years Ending 2002-2016 3/16/2017