With its back against the wall and facing a $10.7 million deficit, the University of Hawaii Athletic Department made a game-changing decision last year: It abandoned the Western Athletic Conference.
In December, UH announced it would leave the WAC — which the school has been a member of since 1979 — and instead compete in the Mountain West Conference for football and the Big West Conference for most other sports. The change will happen on June 30, 2012.
UH officials say the move should position the school for a big financial windfall in the future. But, no matter how you slice it, the move is a gamble.
UH Athletic Director Jim Donovan tells Civil Beat that the immediate impact will be lost revenue. For the 2011 season, he says the department will run deeper in the red because contractual obligations force any school announcing a departure from the WAC to forgo normal television and some marketing revenue. Donovan estimates additional losses will be anywhere from $700,000 to $1 million for the year.
However, despite the bleak beginning, Donovan says the school made an important investment. In short, go further into the red for the short term and hope for the longterm benefit of bigger revenues in the future. He says the transition offers the university its only viable option to begin working down its debt.
“We want to get in the black, so to speak, and start paying off that deficit,” Donovan said. “That’s our goal.”
Since 2002, the department has been borrowing money from the school’s general fund. Eight of the last nine years have been financial failures thanks to sagging ticket sales and a national recession. But Donovan says that if 2010 had not unfolded how it did – with reshaping of conferences around the country – 2011 was going to be the beginning of a rebound.
“If you just run the clock back – literally seven months – if that seven-months-ago WAC were to go forward, next year we would have been in the black for sure,” Donovan said. “But things changed around us and the question was, were we going to change too, or not?”
Seven months ago, the WAC boasted a strong membership that included dominant Boise State, Fresno State, Nevada and UH. But during the 2010 summer, in a year that would be defined by conference reshuffling, Boise, Fresno and Nevada all jumped ship.
To Donovan, that meant the conference could disappear in the next few years. He says that if he and other UH officials did not accept a Mountain West invitation, the school could have been left without a conference.
“We really had three distinct paths to choose from,” Donovan said. “To do nothing and stay in the WAC; to do something and move to the Mountain West in football and Big West with our other sports; or to go independent in football and move the rest of our sports to the Big West.”
Donovan, the UH Regents and President M.R.C. Greenwood decided that if UH athletics were to have a profitable future, the WAC wasn’t the place for the Warriors.
Currently, the school is paid about $450,000 per year in revenue sharing for its televised games in the WAC. Donovan says conference officials told him that figure would drop to $100,000 after 2012. In addition, the department anticipated losing about half the value of its $2.5 million share of an Oceanic Cable pay-per-view contract. Travel costs would have also ballooned another $250,000 after Texas State and the University of Texas, San Antonio, joined the conference.
At the end of 2012, if UH had stayed with the WAC, it expected its athletic revenue to drop severely from current levels. “Our cost of staying in the WAC and doing nothing would have been about $1.85 million,” Donovan said.
Adding to that, he expected ticked sales would have continued to fade. He said the possible loss of tickets was the “x-factor” in the decision to switch conferences.
“If we stay in the WAC, with the addition of Texas State and UT San Antonio – having literally no appeal for our fans in Hawaii – we were facing a reduction in ticket sales,” Donovan said. “Probably most severely in football, volleyball and baseball.” (In other words, the sports that actually make money.)
The total loss for joining the Mountain West and Big West in 2012 is expected to be $2.48 million. This is assuming (in what Donovan describes as “the worst case scenario”) that UH loses its entire pay-per-view deal with Oceanic and adding travel subsidies that the department will have to pay to help other teams fly to Hawaii.
In the Mountain West, UH will make about about $1.4 million for televised revenue sharing, which will make up for some of the pay-per-view losses. But all told, Donovan says it will cost UH about $600,000 more to make the switch.
“People look at it, and they go, ‘Wow, that’s an awful lot to get into a new conference,'” Donovan said. “The part that people don’t look at is, what would have happened to us if we did nothing and just stayed in the WAC… We couldn’t tell if in five years from now the WAC would exist.”
That’s a point WAC officials don’t agree with.
WAC Media Spokesman Dave Chaffin told Civil Beat he expects the conference to continue with a high level of competition and exposure.
“We added Texas State, Texas San Antonio and the University of Denver to the mix beginning in 2012,” Chaffin said. “So we’re going to be right there being able to compete as a football conference and continue on as we have in the past.”
Asked about UH officials’ prediction that the WAC was on its last legs, Chaffin replied: “Like I said, we added those three teams so we’re still going to be a viable conference with eight full members and I’m not even sure if we’re done with any expansion at this time. I disagree with that.”
If it didn’t leave the WAC or join Mountain West, the only other option for the school, according to Donovan, was going independent. He says that move would have cost the department about $3.6 million, or twice as much as staying with the WAC and one-third more than joining the Mountain West.
“That became our disaster planning,” Donovan said. “If we couldn’t get into the Mountain West, we either were going to choose to go independent or stay in the WAC and so we had to figure out the numbers. And it was pretty substantial.”
Considering that the department expects to run another $800,000 in debt by the end of this fiscal year on June 30, bringing its total debt to about $10.7 million, the independent route was just too expensive, Donovan said.
If you’re wondering how the department will chip away at its debt when switching conferences will cost another $2.48 million in 2012, the answer, according to Donovan, comes in strategy.
By aligning itself with the Mountain West, and offering the Warriors nationally-recognized opponents, Donovan is banking on as much as a four-fold increase in annual payments for Mountain West members. Currently, Mountain West teams receive about $1.45 million in revenue shares for belonging to the conference.
“I really believe that that $1.45 (million) that every school is getting right now is going to go up substantially sometime in the next five to eight years,” Donovan said. “It wouldn’t surprise me at all if that number went up to close to $5 million per school. I don’t think that’s far-fetched.”
Civil Beat could not reach the Mountain West commissioner to confirm Donovan’s suspicion, but a look at other major conference revenues seems to indicate that $5 million a year isn’t unheard of by any means.
The Denver Post reported last year that in the soon-to-be Pac 12 (Utah and Colorado will join in 2011), each member team is expected to receive between $10.8 and $14.1 million per year. The conference has an even-split revenue sharing system among its teams, except for USC and UCLA, which will each earn $2 million more than other schools because they have more nationally-televised games.
In June, 2010, the Charleston Daily Mail blog reported that SEC teams make $18.6 million per school per year.
The Mountain West has a long way to go before it can compete with either the (future) Pac 12 or the SEC, but revenue sharing among teams is increasing.
It’s important to note that much of a team’s profits depend on how other teams in their same conference perform. When Boise State and UH played in BCS bowl games, for example, all members of the WAC saw their profits increase.
Donovan believes that if the Mountain West can maintain a high level of play and hold on to all of its members, it has the potential to become an automatic qualifying conference for BCS bowl games. Automatic qualifying conference teams – those that belong to the (future) Pac-12, the Big 12, the ACC, the SEC or the Big Ten – consistently make far more money than non-BCS conferences.
UH reached its first BCS Bowl game in 2008 when former head coach June Jones orchestrated a 13-0 season and the team went to the Sugar Bowl. It was the only year since 2002 the athletic department had a surplus, making $295,243 in fiscal year 2008.
Donovan says his goal is to pay back all of the money the athletic department has borrowed from school funds – money that could have gone to the classroom – but for at least the near future, the deficit will only grow bigger. Still, if the Mountain West is as successful as he thinks it will be, perhaps there is some hope on the horizon.
“It feels like we took one step back but we’re going to take a couple steps forward,” Donovan said. “The conference changed around us and forced us to take a hard look at where we want to be five or ten years from now. And that’s how we got to where we’re at.”