Michigan Athletic Director Dave Brandon spoke in front of a few hundred students at the Ross School of Business last Monday, Nov. 14, as apart of Phi Chi Theta’s “Sport and the Economy” symposium. Brandon discussed many topics, of which included specific finances involving Michigan’s big three sports — football, men’s basketball and hockey.
He also touched on the conference shakeup in college football, the financial viability of lacrosse as a sport and future plans he has to utilize the Big House outside of football games.
The Michigan Daily wrote a story covering the event: here
Here’s a portion of Brandon’s remarks:
ON REVENUES: “Our revenue’s this year will be about 125 million dollars, and we spend it all. We’re a not for profit. We don’t distribute out dividends or declare profits. We basically take whatever surpluses we can generate and we re-invest them in a variety of ways to the benefit of our student athletes, our coaches and our department.”
ON FACILITIES: “We manage what is likely billions of dollars in facilities. … Those are all buildings that we have built, have raised the money or borrow the money to build. Have maintained and we operationalize for the purposes of our program.
“We invest a tremendous amount of capital. These facilities are extremely important. … When we recruit student athletes at the University of Michigan, they’re very focused on the competitiveness of the facilities that we offer. So when you look at the project that we completed last year, which was a $226 million investment in Michigan Stadium. When you look at the current, we’re two-thirds through a $97 million investment in Crisler Arena. As soon as the hockey season ends, we’re going to put a $14 million into Yost Arena. You may have seen those rather small video boards we put up in the Big House, that video board project for Michigan Stadium and Yost and Crisler was about $18 million. There’s a tremendous amount of requirements for capital investment to keep your program competitive — both for your fans and for your student athletes and coaches.
ON ECONOMIC IMPACT: “If you think about Michigan athletics as an economic engine, it’s pretty big, it’s pretty widespread, and we’ve got a lot of people going a lot of places doing a lot of things and generating a lot of economic benefit. But what I’d like to do is focus on Michigan football, because Michigan football represents about two-thirds of the $125 million we will generate this year.
“Depending on the schedule, we have about seven or eight home football games a year, and studies have shown the estimated economic development impact of one Michigan football game is about $15 million. So when you multiply $15 million by either seven or eight, that’s the annual economic impact of that football (team).
“So you may walk over to the stadium and get your very attractively priced student ticket and sit there and maybe not buy any of those really expensive sandwiches. But what you need to know is, when we host one of those football games, the economic impact of that is really quite expensive.
If you just think about the air travel. … If you’ve ever tried to get a hotel room within a 30 mile radius of this place when we have 114,000 people coming to the football game, it’s really pretty amazing. Then you add up the parking, the sponsorships, the food, the tickets, … the bars.”
ON BENCHMARKING AGAINST OTHER SCHOOLS: “(The 120 FBS schools) would be the program’s that we would benchmark and compare ourselves against because they offer 85 full scholarships, as we do. They basically operate as the biggest and largest programs for football in the country.
“So like last year, when our defense was ranked 109th out of 120, that’s my frame of reference in terms of benchmarking.”
ON TELEVSION POPULARITY: The American public has an insatiable appetite for football on television. Saturday afternoon isn’t enough, you need Saturday night. Saturday night isn’t enough, you need Friday night. Friday night isn’t enough, you need Thursday night. And if the networks had their way, we’d be playing college football every night of the week because the ratings are outstanding because we just can’t get enough college football.
“So if you go around and look at the deals being struck by these various conferences, they’re multi-year, multi-million dollar broadcast deals. And in some cases, like we as a Big Ten conference, we decided to go off and create our own channel and capture even more of that benefit for ourselves.
“Texas decided they didn’t want to do it as a conference, they went out and created the Longhorn channel. And it’s just 24 hours of Texas. How horrible would that be?”
ON ECONOMICS OF COLLEGE SPORTS: Far more of these programs lose money, than they ever think of making money. And in fact, of those 120 FBS teams, in 2009, there were only 14 of those 120 college sports programs that were cash-flow positive. The rest of them were all subsidized and the average level of subsidization was over $10 million an institution.
“Looking at this very serious problem, the NCAA led a whole bunch of initiatives to really try to create a cost-containment mentality and try to keep these teams from traveling as far, and cutting back on scholarships and cutting back on costs in every way possible. Interestingly enough, after all those cost containment programs were implemented, last year in the FBS, of the 120 teams there were 22 teams that were cash-flow positive. So there was an improvement, but the average subsidy of the rest went up to $11.3 million.
ON WHAT DRIVES THE PROGRAM “Football and men’s basketball support fundamentally every athletic department in the country, with very few exceptions. You may go around and find very limited exceptions where there’s another sport or two that are positive cash producers.
“For instance at Michigan, our men’s hockey program is very marginally profitable. Very marginally profitable. But at least it pays for itself. And in a good year generates a few extra dollars.
“For the most part, every other sport is cash-flow negative and needs a strong football and basketball program to support it.”
ON RECENT FOOTBALL SHAKEUP: “Many programs around the country are looking at how they can maximize and leverage their football programs. So Texas A&M is in the Big 12, which became the Big 10, and is now the Big Nine. And they’re looking at what kind of TV deal they can get, particularly now that Texas has run off and got their own deal. (Texas A&M) decided to go to the (Southestern Conference) because the SEC has just signed a multi-billion dollar, multi-year television contract. So there’s more money to be made, so for Texas A&M, ‘Let’s go play in the SEC.’
“What you’re seeing is merger mania in college athletics. And there will probably be more of that, and they’re primarily driven by the television deals and contracts our there in place.”
ON THE PRESSURE TO WIN: There is great pressure on the gate receipts to win. There’s even more pressure, because if you’re winning, you get put on the big stage. You get put on ESPN. You get to participate in there major events on television and that inners to your benefit. If you win, donors donate more money. Funny how that works.”
ON HIGH COST OF COACHES: Coaches who can take you to a national level of competitiveness are expensive. They understand their market value. They understand their market worth. And they have agents who negotiate on their behalf.”
ON FOOTBALL DEFYING THE ECONOMY: “Over the last couple of years, the business of college athletics and particularly college football, is terrific. If you look at the general economy over the last three years, it’s probably one of the best stress tests you could’ve provided to find out exactly how connected is college football to the general economy.
What I will tell you, over the past three years our revenues have been growing at a double digit rate. We successfully implemented ticket increases. We’ve had more ticket sales at higher values. We sold 3,900 club seats. We’ve sold all 81 of our suites. And we’ve sold every bench seat in the entire stadium during what some people are describing as the worst economic conditions in modern times in Southeastern Michigan.
“Yeah, times are tough. But not so tough that people don’t still love their football. Not so tough that people won’t continually invest in football. Michigan fans thankfully love their team and the football program.”
ON WHAT PLANS HE MAY HAVE IN THE BIG HOUSE FOR FUTURE EVENTS: Yeah, I’m frustrated over this terrific asset that we have such a big investment in and we only do use it seven or eight times a year. And I think we should figure out ways to leverage it. The Big Chill was a great example. I think it would be difficult to try and repeat that year after year, because a big part of it was it’s uniqueness. The reason we got 109,000 people to show up was because it was a ‘once in a lifetime’ opportunity and that’s how we marketed it. And I’m really sure, if we would’ve turned around and done it again next year it would’ve been a very different outcome.
But what we will try to do, we will try to come up with creative ways to try and leverage all of the assets we have. Particularly those facilities we made big investments in. I think there’s a lot more we can do with Crisler Arena once we open up those concourses and create a much better environment.
The stadium is tough, it costs a lot of money to open it up and you’ve got to get it right. I’ve wanted to do a concert, and I still would love to figure out a way to do it. But you know, when it was design, the guy whop designed it went to great lengths to try and make it as difficult as possible to do anything other than play football in there. For those who haven’t been through the tunnel, it was actually built with this huge kind of slope … with a low ceiling. And you can’t get a semi-truck down there. In fact, you can’t even get an significantly sized fork-lift truck down there. So if we were to do a big stadium concert, where we brought in a big stage, which is kind of required when you’re going to put 80-90,000 people in a stadium, we would have to use a lift helicopter to bring in everything used to build the stage. Or we would have to have like the world’s biggest crane to lift everything over the edge of the stadium, which just the thought of that makes me nervous.
“So when we run the numbers of how would that work, and hoe we would make that work, it gets difficult. I’m looking for a really hot duo that just plays folk guitar that we can just sit in the middle and get 90,000 people to show up.”
ON THE NIKE AND ADIDAS DEBATE: Nike was our partner. Nike is No. 1 in the college space and has been for a long, long time.
They were doing a good job for us, but their contract was winding down. Adidas was No. 2 in the space, and really wanted to change their business model and capture what they kind of consider eight or 10 flagship college programs that would provide them the ability to become a very, very credible high-profile player in the college space.
When our contract was coming due, they came and got involved in the process that turned into a bit of an auction. And they — and this happened before I arrived — they bought the business. They gave such a compelling financial proposal that the decision at the time was to leave Nike and go with Adidas. And Adidas is our partner.
I think that was a 10-year contract that was signed, and we’re three or four years into that contract. So Adidas will continue to be our apparel partner, and we’ll continue to build that partnership and relationship and get the benefit of the revenue stream that was created as a result of it. But also, hopefully, do a good job of leveraging it in a way that is exciting for our fans and student athletes.
ON CORPORATE SPONSORSHIP: “Another decision that was made before I came on board was to retain the services of IMG to represent us for corporate sponsorships. So we basically sold off an asset and that corporate sponsorship opportunities and that was to a third party.
“And they give us a guaranteed revenue stream every year and if they can pass the certain cliff, there’s a profit share. So we’ve outsourced that and we have somebody who’s very hungry to maximize the opportunity because that’s their business model. And I would say we do much less in the corporate sponsor area than virtually any other college program that I know of. And certainly in the Big Ten.
“And the reason we do much less — we are pretty much the same as everybody with hockey; we’re the same as everybody with basketball. But the thing that distinguishes us as particularly different is we don’t allow advertising in Michigan Stadium. And that’s at a cost.
“In fact, based on what happens at Ohio State and Penn State and the bigger venues in our conference, if we were to decide to display advertising opportunities or commercial advertising opportunities on those video boards in Michigan Stadium, it would probably generate somewhere between five and six million dollars of incremental general. Which, for a $125 million business would be huge.
“So there’s a part of me that would like to do that. But there’s another part of me that knows I’d need police protection to get back and forth to work. Because, I’m a big believer, Sam Walton said, ‘If you don’t know what to do, ask your customer.’ And every bit of customer research that we’ve done with our fan base at Michigan Stadium tells us, ‘We’ll pretty much put up with everything but please don’t play commercials and please don’t commercialize the place.’
“So I’ve made a silent deal with out ticket holders and that is, I won’t put advertising in there and I’ll walk away from those revenue streams, but I’ve got to keep increasing your ticket prices. Because I have to be competitive.
“At the end of the day, we’re paying a price not to have advertising in our stadium. And that’s OK.”
ON THE FINANCES OF ADDING LACROSSE: “There are certain campuses where their lacrosse program is bigger than their football program. That tends to be more in the East, where it’s been established for a lot longer. We have not built into our projections a lot of revenue growth from lacrosse because we would like to be pleasantly surprised. But adding men’s and women’s lacrosse will cost us about $3 million per year. And that’s before we even figure out what we’re going to build in terms of a facility.
“The good news is the donor support for lacrosse has been phenomenal. People love that sport. It’s growth sport in every way I know how to measure it. It’s growing on TV. It’s growing at the youth level. It’s growing at the high school level. It’s growing geographically. It’s a great spectator sport. And I think it has a great deal of potential. If we can get our men’s lacrosse programs to pay for themselves over time, by getting enough fan interest, then I think it’d be a huge homerun for us.”