A Budgeting Crisis at Little State University Chad D. McEvoy Syracuse University Dianna P. Gray University of Northern Colorado The Little State University Athletic Department faces an immediate budgeting crisis. Due to state budgeting woes, the legislature has reduced its allocation to Little State significantly for the upcoming year. The impact of this reduction included a loss of $800,000 to the athletic department, which represents approximately ten percent of the athletic budget. LSU Athletic Director Beth Duncan must determine how to best make the necessary cuts while preserving a strong department and minimizing the impact on student-athletes. Keywords: finance, budgeting, college athletics, economy, college and high school, North America, finance and economics Beth Duncan was having the most challenging week of her long career in intercollegiate athletics administration. On Monday morning, Little State University (LSU) President Edward Jasper summoned Duncan, the university's athletic director, to his office for an emergency meeting. Rumors had been circulating across campus for weeks that the state budget situation would result in a significant decrease in higher education funding across the state. As Duncan feared, President Jasper informed her in the meeting Monday that these rumors were indeed true, and that LSU's athletic department would have to bear a considerable reduction in funding, as would many units at the university. Duncan's final budget for the upcoming fiscal year, which was set to begin in just two months, was due to President Jasper and Little State's Board of Trustees by the end of next week. Duncan and her senior athletic department staff had been working on preliminary drafts of the budget for months, and would now have just days to figure out how to alter the athletic budget minus $800,000 in state legislature allocations the department has received in the past, which represents approximately ten percent of Little State's total athletic budget. President Jasper concluded their meeting Monday by assuring Duncan that he had confidence in her ability to make the difficult decisions necessary to balance LSU's athletic budget in light of these drastic cuts. Duncan spent the days after her meeting with President Jasper exploring seemingly every option of how to make the cuts necessary to balance the budget, including collecting input from her senior staff, which is comprised of the department's associate and assistant athletic directors. Ultimately, however, she would be the one to make the final decisions. As the time approached to do so, Duncan reflected on the structure and situation of the Little State athletic department. About Little State Athletics Little State University has an enrollment of 16,000 students, primarily focused on undergraduate education with some master's degree programs. LSU's athletic program participates in the National Collegiate Athletic Association's (NCAA) Division I classification, which is the highest level of college sports. Approximately 340 schools compete in McEvoy is a professor of sport management at Syracuse University, Syracuse, NY. Gray is an assistant professor of sport administration at the University of Northern Colorado, Greeley, CO.. 2 McEvoy and Gray This content is copyright Human Kinetics, Inc. and is not to be distributed, disseminated, or reproduced without permission. Division I, varying from high-profile programs like the Ohio State University, the University of Texas, and the University of Florida, each of whom has an athletics budget well over $100 million per year, to smaller and lesser-known schools with budgets of less than $5 million annually. Little State University's athletic department would be classified as a "low-major" or "mid-major" program, depending upon one's choice of terminology. Division I is further separated into three subdivisions, with the school's level of football program serving as the criteria for this categorization. The highest-profile football programs compete in the Football Bowl Subdivision (FBS). These schools are allowed a maximum of 85 football scholarships, or grants-in-aid, and must meet specific average attendance minimums. FBS football programs compete to participate in postseason bowl games, including the Bowl Championship Series (BCS). Schools that compete in the Football Championship Subdivision (FCS) may offer a maximum 63 football scholarships, possess no attendance minimums, and compete in a playoff-style postseason national championship in football. A third subdivision includes schools without a Division I-level football program. Little State University competes at the FCS level and is a member of a ten-school conference made up of similar institutions and athletic programs. For the sake of comparison, Little State's conference is similar in size, resources, and stature to the Big Sky Conference, the Colonial Athletic Association, or the Ohio Valley Conference. As is standard for athletic departments of this type, Little State Athletics' mission is to compete successfully in athletics on a conference, regional, and national level, to educate and graduate its student-athletes, and to exemplify integrity, character, and diversity both on and off the field of play. Figure 1 displays the organizational chart for Little State's athletic department. Athletic Director Beth Duncan's department is administratively divided into two primary areas - internal and external operations, with an associate athletic director responsible for each area. The internal division of the athletic department is involved in matters focused primarily within the department itself, including rules compliance, academic services for student-athletes, business and accounting matters, equipment, strength & conditioning, facility & event operations, and athletic training, which handles medical functions for student-athletes. As shown on the Operations & Administration worksheet of the Excel budget, LSU's compliance coordinator position, one of two full-time compliance staff members in the athletic department is vacant as the former compliance coordinator recently left to take a position at another school. Duncan could choose to not fill this vacancy, potentially saving the $32,000 budgeted for that position, but she is aware of the importance of having a strong compliance office related to the administration of NCAA and conference rules. The external division of Little State Athletics is focused on the outward function areas of the athletic department, with a specific emphasis on generating the revenues necessary to fund LSU's athletic operations. These external function areas include development and fund raising, which seeks donations from Little State alumni and supporters, marketing, which handles advertising, promotions, and sponsorship acquisition, communications, which interacts directly with the media, and the ticket office, which handles the sale of athletic tickets and related matters such as seating and parking. As noted on the Excel-based budget, the position of communications coordinator, which is the second of two full-time staff positions in the communications office, is currently vacant. Similar to the compliance position described previously, Duncan can choose to fill the position, for which $29,000 is budgeted, or she can choose not to fill the vacancy and cut that funding from the budget. The names, job titles, and salaries of each LSU athletic administrator are provided on the Operations & Administration worksheet of the accompanying Excel-based budget file. Additionally, it should be noted that LSU Athletic Director Beth Duncan reports directly to President Edward Jasper. LSU's Sports Programs Little State University sponsors 20 varsity sports programs within its athletic department, as delineated on the accompanying budget file. These are organized into 16 sports programs, with the men's and women's track and field programs counting as six sports (i.e., men's and women's cross country, men's and women's indoor track and field , and men's and women's outdoor track and field), despite operating as just two programs - men's track and field and women's track and field. Fifteen head coaches oversee the 16 programs, with one head coach leading both the men's and women's gymnastics programs (note: the gymnastics coach's salary is divided equally among the two squads on the Excel-based budget for accounting purposes). Each of the head coaches reports directly to Athletic Director Duncan for oversight purposes. Table 3 This content is copyright Human Kinetics, Inc. and is not to be distributed, disseminated, or reproduced without permission. Figure 1 Little State University athletic department organizational chart. 4 This content is copyright Human Kinetics, Inc. and is not to be distributed, disseminated, or reproduced without permission. 5 This content is copyright Human Kinetics, Inc. and is not to be distributed, disseminated, or reproduced without permission. Table 2 6 McEvoy and Gray This content is copyright Human Kinetics, Inc. and is not to be distributed, disseminated, or reproduced without permission. 1 provides a brief description of the current status of each athletic team at Little State. See Table 2 and the accompanying Excel-based budget file and the worksheets contained within for line-item budget information for each sport program. Capital Projects As they do each year as part of the budgeting process, Duncan and her staff have spent time in recent months accumulating a list of capital projects needed or desired and incorporating those projects into their proposed budget. As shown in the Capital worksheet of the budget file, six such projects are planned for the upcoming fiscal year. Two of these have been identified as crucial needs, or things that are vital to LSU's operations and are needed almost immediately. These include the roof of the arena, which has numerous leaks and is overdue for replacement. The cost for the major roof repair is estimated at $47,000. Additionally, the softball field is in extremely poor condition, affecting game play and potentially risking the safety of student-athletes. The cost of re-seeding the softball field is $19,000. Two other projects currently in the upcoming fiscal year's budget plans include an upgrade to the computer software used in Little State's athletic ticket office and re-surfacing the parking lots surrounding the stadium and arena. These two projects are estimated at $80,000 and $30,000, respectively, and are considered by Duncan and her staff to be capital expenditures necessary sometime in the near future. Finally, two other projects currently in the budget listed as expenses that are not vital, but ones that would help LSU's recruiting for the high-profile revenue sports of football and men's basketball are renovating the football locker room and purchasing a stylish new court surface, or floor, for the basketball team. While these might be considered to be luxury items by some, it could be argued by others that aiding these two sports in recruiting and therefore helping improve their squads might result in increased revenue generation to assist the entire athletic department's operations in the future. The Impact of Title IX Another issue weighed by Duncan in making difficult decisions about the cuts to be made is gender equity and Title IX. While a thorough discussion of Title IX is beyond the scope of this case, one major aspect of this legislation is known as "the provision of participation opportunities." To determine compliance with participation opportunities the courts have adopted a three-prong test. One of these prongs is known as substantial proportionality. Substantial proportionality has been interpreted by the courts to include an examination of the proportion of participation opportunities provided to male and female student-athletes compared to the proportion of males and females enrolled at the university as undergraduate students. While there is not an "official" benchmark regarding compliance with the participation opportunities prong, there is some consensus among previous court decisions is that these athletic proportions must be within five percentage points (comparing male-to-male or female-to-female data) of undergraduate enrollment. As shown on the Overall worksheet of the Excel budget, the undergraduate makeup of LSU's student body is equally divided between males and females. Currently, the disparity of the proportion of participation opportunities allocated to females versus males falls somewhat outside the five percent range at 6.28 percent. As Little State University is committed to improving its gender equity status, Duncan does not want to make any decisions as part of these new budget cuts to widen this gender disparity, but would rather keep the disparity at its current level or, ideally, reduce it to within five percent. Budgeting Philosophy In the three years since Duncan became athletic director at Little State University, LSU Athletics has adopted a fairly conservative budgeting philosophy. Preparing an athletic department budget presents a challenge pertaining to revenue projection, in so far as revenues are affected by the success of a school's high-profile teams such as football and men's basketball, which can vary considerably from one year to the next. If an athletic department anticipates having strong seasons in these key sports but fails to match those expectations, revenues from ticket sales and fund raising in particular may suffer greatly, leaving the program the challenge of overcoming a significant budget deficit. Conversely, if an athletic department budgets conservatively and projects revenues based on moderate success in football and men's A Budgeting Crisis at Little State University 7 This content is copyright Human Kinetics, Inc. and is not to be distributed, disseminated, or reproduced without permission. basketball, but achieves exceptional seasons in those sports, revenues are likely to exceed projections. Duncan and LSU Athletics' philosophy is toward the latter of these two scenarios, projecting its revenues cautiously and taking the more conservative path. Duncan also attempts to leave a surplus or contingency of approximately $50,000 built into the budget in case teams fail to live up to expectations or the department faces unforeseen expenses. Duncan would like to continue this practice despite the dramatic loss of the state legislature monies, although she realizes that doing so may be a challenge given the deep cuts that need to be made. Staff Recommendations After exploring options and discussing possible budget cuts, LSU Athletic Director Beth Duncan convened one last budget meeting of her senior staff, including all of the department's associate and assistant athletic directors. An entire afternoon was devoted to taking input from the staff and discussing ideas and their strengths and weaknesses. The staff generated several recommendations for Duncan to consider. First, the senior staff was unanimous in their desire to avoid directly impacting student-athletes' experiences as much as possible. Wherever able, the staff recommended trying to make cuts that would be less noticeable to student-athletes and their academic and athletic experiences. Second, and related to the previous point, the staff recommended trying, if at all possible, to avoid eliminating sports programs altogether. Dropping a sports team is a traumatic event for the student-athletes, forcing them to make choices about whether to leave their school behind and transfer to another institution to continue to play their sport, or to give up competing in the sport they love in order to stay at LSU. Further, cutting a sports program entirely results in coaches losing their jobs and facing unemployment. Duncan's staff commented on how their department functions with a family-like atmosphere and how devastating it would be to the morale of the department to see sports cut entirely. Another issue discussed by the staff was the possibility of reducing costs by dismissing administrative employees or possibly have some or all of the administrative staff take furlough days, where their salaries would be reduced temporarily next year by a percentage related to the number of furlough days they were required to take. Department morale was raised as an objection to this solution as well, with senior staff commenting about how hard their employees work for relatively low-to-moderate salaries. The staff felt it would be hard to ask employees to taking even less pay for their very hard work, and that doing so might result in some employees considering pursuing jobs elsewhere. The final issue discussed by the staff was revenue generation. Little State has raised ticket prices in past years and also recently commissioned a study of their ticket pricing strategies by sport management and economics faculty members at LSU. The study revealed that Little State's athletic tickets were already priced optimally and that increases in prices would not result in increased revenue as the higher prices would cause fewer people to buy tickets. The staff also discussed charging ticket prices at sporting events that are currently free to the public, but the consensus was that attendance at these sports was so low that only an insignificant amount of revenue could be generated from doing so. As a result, Duncan and the senior staff agreed that ticket prices would not be altered. The only viable revenue generation alternative resulting from the staff meeting was an offer that had recently been made to Little State to give up one of their home football games in the coming season in order to play a game at Mid-Sized State University (MSSU) in return for a $150,000 guarantee. As noted on the Football worksheet of the Excel budget file, LSU is already scheduled to play a guarantee game against Big State University in the coming season for a $250,000 payday, which is a significant part of their football revenue. The trade-off associated with guarantee games is that they are quite likely to result in a loss for Little State's football team, which can make it challenging to earn enough victories to qualify for the FCS postseason playoffs. Adding a second such game against MSSU will make it extremely difficult for LSU's football team to win enough games to make the playoffs. Also, Duncan knows that accepting MSSU's offer will allow her to add $150,000 in revenue, but that she will have to reduce her ticket sales projections based on the loss of a home game's gate revenue. As Beth Duncan left the senior staff meeting and headed home for the evening, she knew she had a sleepless night ahead of her. Just hours remained before she needed to make final decisions as to where to cut $800,000 from Little State's athletic budget and report those decisions to President Jasper. 8 McEvoy and Gray This content is copyright Human Kinetics, Inc. and is not to be distributed, disseminated, or reproduced without permission. Discussion

Questions 1. Utilize the accompanying Excel-based budget file (found at http://journals.humankinetics.com/case-supplements) to balance the budget minus the loss of income from the state legislature. Be sure to eliminate the deficit and, preferably, budget for a moderate surplus in case next year's revenues fall short of expectations or costs exceed projections. Also, make sure the gender disparity of males' and females' participation opportunities are no worse than the status quo and ideally within the five percent range.