The University of California at Berkeley has a pristine academic reputation. Smart students go there. However, the institution's leaders made a dumb decision that they and possibly their students will be paying for dearly.
Memorial Stadium needed an upgrade. Not just to please boosters who had a desire to keep up with the Joneses. The stadium needed to be retrofitted, California's way of saying they needed to fix the stadium so it can withstand the Big One.
However, Cal not only retrofitted the stadium, it built a new athletic center. The stadium cost $321 million to renovate and the athletic center cost $153 million, according to a San Francisco Chronicle report.
Stadium debt already absorbs 20 percent of intercollegiate athletics' annual income, or roughly $18 million of its $89 million budget. And that pays only the interest.
Cal won't start paying down the principal until 2032, when its yearly payments rise to $26 million, then $37 million, before tapering off in 2051. After a brief respite, Cal will owe a lump sum of $82 million in 2053 alone. Then it will have six decades to pay off the final 17 percent, or $75 million.
Incurring $445 million in debt at a California state school was a bad idea. The stadium had to be made seismically sound. But the additional money spent on the athletic center was not a smart decision in a down economy.
The report notes that "even if every endowment seat were sold, Cal would still be short by $134 million." If Cal had passed on building the athletic center, it would be in the black by $19 million.
Every student-athlete deserves to have nice things. But tapping into the academic funds to repay the debt may cause a hike in tuition. The report states that UC schools pledge "all forms of revenue 'including tuition'" when financing large projects with high debt. This will not sit well with the students.
Cal offers one of the best educations in the country. It is ranked No. 21 among all colleges by U.S. News and World Report. With an in-state tuition of around $12,000 per year, Cal's value as an institution of higher learning is unmatched.
But Cal football is in flux.
After 11 years of rebuilding a dormant program, head coach Jeff Tedford was dismissed at the end of the 2012 season. With an 82-57 record, Tedford has the most wins and bowl victories of any Cal coach. He was also named the Pac-10 Coach of the Year twice.
Sonny Dykes is the new head coach. The former Louisiana Tech head coach will have the daunting task of raising the bar and infusing more enthusiasm in the fanbase. Selling all 2,902 of the stadium's endowment seats—at a cost between $40,000 and $250,000—is a priority for Cal. Turning in a good season may encourage more fans to invest in the seats.
But Cal's dreadful 3-9 season last year has already taken a toll. The Chronicle notes that "sales have stagnated at 1,857 seats" and "16 buyers gave their seats back this winter, stopping payments and cutting short their ownership deal."
A resurgent Cal football program would certainly help the league's credibility. But having bigger and better things is not always the way to go. Stanford remodeled its stadium in 2006, reducing the 90,000-seat capacity to 50,000.
At a cost of around $90 million, it was a good investment. The reduction in size was to help the Cardinal football team. More from Stanford Magazine:
Stanford’s facility was influenced by Oregon’s 54,000-seat Autzen Stadium, where sellouts are the norm and raucous, mind-bending noise rattles opposing teams.
Stanford had a smaller budget than Cal, but it is also a private school with wealthy donors. The article notes that John Arrillaga, of Stanford's class of '61, "made an unrestricted gift of $100 million to the University." With cash in hand, the school would not go in the red after remodeling its stadium.
John Wilton, vice chancellor for administration and finance at Cal, says the school has now learned its lesson.
"In the past, if someone promised to buy a seat, Cal added the hoped-for revenue to the books," he told the Chronicle. "They learned a commitment is not a commitment until you have a binding document."
Football is king. But football's cyclical nature demands that athletic venue improvements proceed with caution.
The University of Texas is considering financing a new stadium, but the efforts "aren't going well," according to the Chronicle's interview with Roger Noll, a Stanford professor and stadium financing expert.
"If Texas can't raise the money, how the hell do you think Cal can?" Noll said.
College football makes a lot of money, but it also supports non-revenue sports, which eats up the revenues.
More perspective: Cal's athletic department revenues and expenses database shows roughly $65 million in revenues (almost $11 million subsidized) and $63 million in expenses from 2006-11, according to USA Today. Texas had $150 million in revenues and $134 million in expenses, and it still has not secured financing for a new stadium.
Cal announced last month that it is building a $15 million aquatics center. The school says "work will begin once the entire amount has been committed" and that the "donor-based construction and financial model guarantees that the campus will not incur any expense or debt to complete the project."
It appears Cal has learned its lesson. With a little good luck, Cal's stadium renovation may bring in unexpected revenues.
Dykes' style of football is exciting. He may energize the fans at Memorial Stadium.
With only 11 returning starters, improving on last season's disastrous record won't be easy for Dykes.
Inspiring more than 1,000 fans to shell out serious cash for the unsold endowment seats is a priority for the school. Beating Northwestern, Ohio State, Oregon, Washington, UCLA, Oregon State, USC and Stanford would probably do the trick.
No pressure, Sonny. None at all.