Financial Analysis

John HawthorneEdwards PRT 466 (001)

Table of ContentsCompany Profile 3

Economic Issues 4

Revenue & Expenditure Summary 5

Assets & Liabilities Summary 6

Financial Analysis 8

Appendix 10

References 12

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Company Profile

Mission

To inspire and support our student-athletes in the pursuit of comprehensive excellence.

Vision

To represent the University of Tennessee among the nation's premier athletics programs by developing student-athletes who graduate, compete for championships and conduct themselves in a first-class manner, honoring and fulfilling the Volunteer spirit.

Core Values

Integrity without compromiseNational leadershipService to our students, fans, and communityPersonal accountabilityInclusion and respect for the individualRelentless competitivenessExcellence in education

University of Tennessee – Knoxville Overview

The University of Tennessee at Knoxville (UTK) is known nationwide by their mascot of the Volunteers, or Vols and is home to 21 varsity level collegiate sports competing in NCAA Division 1 FBS-SEC athletics. UTK is a financially responsible athletic department because it is completely self-supported. They are one of only 10 athletic departments in the country that receive no public dollars from the state subsidies or taxes to help run its programs.

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Economic Issues

One of the major issues for UTK athletics is that the athletic department does not receive any money from the state of Tennessee. All of the income the UTK receives comes directly from alumni support, sponsorships, and profit making sports such as football, men’s basketball, and women’s basketball (University of Tennessee, 2013, p. 9). A majority of the department’s revenue comes directly from ticket sales, student fees, and gifts (University of Tennessee, 2013, p. 28) UTK is unique in that they can enjoy a profit from women’s basketball due to their unmatched success with legendary coach, Pat Summit.

Unfortunately, UTK has failed to put together an extremely successful football program in years past and their finances are seeing the downfalls of that as of late. Including four losing record season in the from 2007-2012 as well as four different head coaches in the last six years, the Volunteers simply are not putting a product on the field that people are willing to spend money on. (UT Athletics, 2012) As of 2013, the Volunteers were more than $200 million in debt, paying out $21 in debt payments each year, with a reserve of only $1.95 million left, compared to the $30 million they had in reserves only 5 years ago (Smith, 2013).

UTK has traditionally made a donation to the main university of about $7million per year. However, due to their debt crisis that they are currently operating in, new athletic director Dave Hart asked the university if they could cease this donation in order to re-build the reserve fund to aid their debt issues. UTK Chancellor, Jimmy Cheek agreed to cease the donation and to re-invest some of the year’s previous donations back into the athletic department over the next three years (Woodberry, 2014).

Another way that UTK tries to offset their ever-increasing debt is through student fees. The University considers these fees to be subsidies and every student pays them through their tuition to be enrolled in the University. Currently, the UTK athletic department receives $1,000,000 in student fees directly from tuition. (Berkowitz, 2013)

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Revenue & Expenditure Summary

The balance sheet below shows the revenue and expenditures for the years 2009-2013 (University of Tennessee, 2013, p. 28). As is common with most major universities, most of UTK’s revenue comes directly from ticket sales, specifically football ticket sales. Football ticket sales in 2014 were nearly 50% of all total revenues for that fiscal year. Revenues for 2014 are further broken down in the chart provided in Appendix A.

UTK’s expenses are dominated by coaching salaries and benefits totaling nearly 33% of the total expenditures during the 2009-2013 years. See balance sheet below for further breakdown of expenses.

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Assets & Liabilities Summary

The current UTK athletic department financial reports do not show directly what the athletic department has in terms of assets and liabilities. However, because the athletic department operates as an extension of UTK, their auxiliary budget was able to provide information on their net assets (University of Tennessee, 2013, p. 19). For UTK’s liabilities I will be referencing their Net Position summary found in the 2014 Audit Report. A complete breakdown of their assets and liabilities according to the Audit Report can be located in Appendix B. (Controller of the Treasury, 2014, p.7)

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Assets & Liabilities Summary

2014 2013

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Financial Analysis

The University of Tennessee at Knoxville has the 7th highest expenses in the country for an athletic department, and is over $200 million in debt. As it stands, the University of Tennessee at Knoxville is in quite a mess. With average attendance at football games around 89,000 people; the lowest UTK has seen since 1979, the University is struggling to turn a profit each year.

UTK cannot continue to operate on their non-sustainable financial path long-term. Having four head coaches in six years and having to buy out their remaining contract is a completely unsustainable financial decision. That alone equates to around $18.4 million in contract buyouts when you broaden the scope to football, basketball, and baseball coaches (Smith, 2013). The Volunteers also have to deal with an “entertainment tax” that the City of Knoxville incurs on them, which takes away another $4.6 million away from the athletic department. The UTK athletic department is the most heavily taxed athletic department in the nation, which has a major impact on the overall revenue of the program.

Simply put, UTK needs a lot of financial help. Luckily enough, it seems as though that help has arrived. First of all, UTK has finally found some stability in the Butch Jones as the head coach of the Volunteer football team; he has been there since 2012. Secondly, Dave Hart, who took over the athletic director position in 2011, is trying to turn the program around financially speaking. Hart was the one to discover just how much debt UTK had actually occurred over the years and he is also the one implementing changes to bring that number down significantly. For example, he is the one who halted the giving of the $7 million a year to the university from athletics and through discussion with the chancellor has had some of that be reimbursed back into athletics from years past. Hart also hopes to increase their current debt reserve, which is around $1.95 million, the lowest debt reserve in the SEC to “building into the $50 million range.” (Smith, 2013)

Dave Hart is not the only saving grace for the Volunteers. New SEC contracts with ESPN and CBS are estimated to bring in an additional $300 million for the SEC. The projection is that it will bring in between $5 and $10 million for each school in the SEC (Smith, 2013). The Volunteers also switched apparel providers from long time sponsor Adidas to Nike in 2015. This switch alone brought in an additional $2 million for the athletic department. Over the 8-year contract, UTK is expected to make $1 million from Nike in cash each year. On top of this, Nike has allowed UTK to receive a $3.4 million allowance on new equipment in the first year of the contract and that number drops off to $2.6 million in the second year. Furthermore, UTK and Nike negotiated a 13% royalty on net sales of licensed Nike apparel that goes directly to the UTK athletic department (Cheney, 2014). This new apparel sponsor as well as the new contracts with ESPN and CBS will hopefully close the gap on the overwhelming debt that has accumulated over the years.

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Although the current numbers do not support my claim, I believe that The University of Tennessee is poised for financial growth over the next few years for a few reasons: Dave Hart possess a sense of inspired leadership that he is expounding on all of the departments of UTK athletics in order to create a financially balanced budget, something that UTK has not seen in years. The Volunteer football program is becoming relevant again which is directly related to the consistency at head coach for the past three years. The Volunteers finished the 2015 season at 8-4 and 2nd in the SEC East division. They are projected to be in the Outback Bowl in January 1st against Northwestern according to FoxSports.com (Fox Sports, 2015). Bowl games bring in a significant amount of money for the university and if coach Butch Jones can continue this success, it can only mean good things for the entirety of UTK athletics. Lastly, with increased success and relevance in your profit making sports, people become interested in the programs once again. With the increase of interest in the programs comes an increase in revenue as well.

As long as the revenue continues to increase and Dave Hart continues to cut eliminate the accrued debt, I believe that the University of Tennessee at Knoxville athletic department will once again see financial growth.

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Appendix A

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Appendix B

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References

The University of Tennessee . (n.d.). About Us - University of Tennessee Athletics . Retrieved from http://www.utsports.com/ot/10-about.html

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The University of Tennessee Athletics Department . (2005). Budget Overview. Retrieved from http://grfx.cstv.com/photos/schools/tenn/genrel/auto_pdf/06-budget-overview.pdf

The University of Tennessee. (2013). Revised Budget Document FY 2012-2013, 1–47. Retrieved from http://www.tennessee.edu/budget/docs/FY13_Rev_Bud.pdf

Smith, M. (2013, January 28). Tennessee Athletic Department Mired in $200 Million. SportsBusiness Journal. Retrieved from http://www.sportingnews.com/ncaa-football-news/4473061-tennessee-athletics-department-debt-200-million-sec-derek-dooley-dave-hart

UT Athletics. (2012, August 27). UT Athletics Provides Financial Update. UTSports.com. Retrieved from http://www.utsports.com/genrel/082712aab.html

Woodberry, E. (2014, June 5). Tennessee’s $111 Million Athletic Budget in Context. Knoxblogs.com. Retrieved from http://knoxblogs.com/evanseleven/2014/06/05/tennessees-111-million-athletic-budget-context/

Berkowitz, S., Brady, E., & Upton, J. (2013, July 1). Most Division I Athletic Departments Take Subsidies. USA Today. Retrieved from http://www.usatoday.com/story/sports/college/2013/05/07/ncaa-finances-subsidies/2142443/

Controller of the Treasury. (2014). Audit Report - The University of Tennessee. State of Tennessee, 1–66. Retrieved from http://controller.tennessee.edu/pdf/2014%20U%20T%20State%20Audit%20report.pdf

Cheney, C. (2014, March 10). How Much It Cost Tennessee to Jump From Adidas to Nike. Business Journal. Retrieved from http://www.bizjournals.com/portland/blog/threads_and_laces/2014/03/tennessee-cost-leave-adidas-for-nike.html

Fox Sports. (2015, December 1). Bowl Projections 2015. Retrieved from http://www.foxsports.com/college-football/story/bowl-projections-2015-week-14-clemson-alabama-oklahoma-michigan-state-playoff-120415

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