MONEY BALL
UH CONSTANTLY BATTLES TO GET BY WITH MUCH LESS THAN ITS TEXAS COUNTERPARTS IN POWER FIVE CONFERENCES
It has been more than 20 years since Texas, Texas A&M, Baylor and Texas Tech bolted the Southwest Conference for the Big 12, leaving the University of Houston and three other schools in the lurch.
And yet old wounds, and harsh feelings, linger on Cullen Boulevard.
UH has spent more than a generation as a relative financial also-ran in the world of NCAA Division I college athletics in Texas, an enterprise that in fiscal 2016-17 generated more than a billion dollars in revenue among 23 schools.
For calendar year 2017, Texas brought in $214 million and Texas A&M $211 million, becoming the first schools to top the $200 million mark. Texas Tech totaled $88 million, and Baylor and TCU, based on available 2016-17 data, likely approached or topped $100 million.
UH athletics, meanwhile, generated $57 million in 2017, easily outdistancing most of the remaining seven Texas schools that field teams in the Football Bowl Subdivision but trailing its Texas counterparts in the socalled Power Five conferences.
That stratification reflects a trend that has been building for two decades and, sharpened by old slights that smart, represents a large part of the challenge that former UH football player Chris Pezman faces in his new role as his alma mater’s athletic director.
Pezman, who began work in early January, was less than 100 days into his new job when he received a stark reminder of how the past lingers in the minds of Cougars fans.
“I just had lunch with a guy who is upset that he still hears scores from our former conference brethren at our baseball games,” Pezman said. “I would say that sort of feeling is prevalent among a lot of people.”
It’s an emotional response that indicates the long-term nature that old arguments can carry years later. Not only do some UH alumni grouse about the Big 12 slight, it is not unusual for older alumni to blame part of the reason for UH’s financial struggles on a wildly divisive mid-1980s decision by athletic director Cedric Dempsey, who went on to become president of the NCAA, to impose one of the first seat license fees for UH athletics.
But those old slights also have a factual element that is reflected in the hard facts of the Department of Education’s Equity in Athletics Act database, which has compiled financial numbers since 2003 for private and public schools. The NCAA has a similar reporting system to which all schools contribute, but private schools are not required to share their reports with the public.
The financial divide reveals itself in starkest terms when comparing revenue totals for Texas Tech, which was invited to join the Big 12, and Houston, which was not.
Since 2003, Tech has brought in $320 million more in athletic department revenue than has UH. Adding estimates for the previous years since the conference split in 1996, and it’s not inconceivable that being left out of the Big 12 has cost UH a chance at more than $450 million earned by its former SWC counterparts.
UH competes on the field of play with the Aggies, Longhorns, Red Raiders and others when it can schedule them, and it has enjoyed success of late, with a New Year’s Six bowl appearance in 2015 and its firstround men’s NCAA Tournament basketball win this spring.
Under chancellor Renu Khator, UH can be justly proud, too, of its athletics facilities, which have been upgraded to the tune of more than $200 million in the last five years.
But the gap in revenue between the Power Five conferences and the Group of Five conferences to which UH belongs is hard to ignore and, for some, hard to stomach.
“That sort of thing is in everyone’s thoughts,” Pezman said. “There are natural rivalries that people have in their minds that involve institutions that we compare ourselves to.
“It’s still very prevalent. It doesn’t feel generational. It’s a mindset I see in current and former students.” A winning mindset
As an alumnus, Pezman is uniquely qualified to understand the mindset of UH fans and, perhaps as importantly, to harness that energy in a way that will enable the school to keep pace as best it can with the spending race in hopes a future realignment of the major conferences will provide access to larger revenue streams.
“It’s an aspirational thing,” he said. “There are teams at the highest level of what you intend to do, so you’re always striving to be better. It fuels fires around here, not just within me but within the administration and the institution.
“There’s a lot of ‘want to’ around here.”
Much of that stems from Rockets owner and Landry’s chairman Tilman Fertitta, chairman of the UH board of regents and the school’s bestheeled athletics donor. Fertitta chipped in $20 million to fuel the $50 million renovation of Hofheinz Pavilion, which will be renamed Fertitta Center when it opens this fall as the home of UH basketball.
Fertitta is well aware that UH trails its former Southwest Conference counterparts in revenue generation, although it compares favorably with most programs in the American Athletic Conference, its conference home the past three years.
It also competes well on the playing field against conference foes, ranking second to Connecticut as of mid-April in the annual Learfield Cup all-sports standings.
Fertitta said he would like for UH’s athletics budget to be in the $70 million range. But while some believe that is possible only with a new conference home, he thinks UH can prosper in the AAC by upping its game on all fronts.
“We just need to do our part and win games in all sports,” he said. “We expect to win at a high level. We are not satisfied with eight wins in football or with 20 basketball wins.
“We want to win, and when you win you put butts in the seats. If you can average 40,000 for football instead of 31,000 and 7,000 for basketball instead of 3,000, you’d be surprised at what you can bring in. I’ve seen it with the Rockets. We need to put people in place and to win.”
Former UH athletic director Hunter Yurachek, who presided over the first stages of the arena redesign, said the Fertitta Center could contribute more than a million dollars to the department’s bottom line, and Pezman sees that as a conservative estimate.
Among Pezman’s first tasks as athletic director was to hire David Tagliarino, a UH alumnus who handled marketing and other duties for the Dynamo and Reliant Stadium, as chief operating officer to maximize revenue opportunities at UH’s stadiums and arenas.
Making ends meet
While he focuses on the Fertitta Center renovation and other matters, Pezman also recently hired Monty Porter, a longtime athletics administrator at Western Michigan and assistant athletic director at Lamar University, as chief financial officer to deal with the unique challenges of UH’s funding model, which by necessity requires hefty support from student fees and from the general university fund.
The UH athletic department in 2017 received $25.7 million in student fees and direct institutional support, representing 45 percent of total revenues. That’s on par with other AAC schools and less, in terms of percentage of budget, than other Group of Five schools in Texas but much higher than Power Five schools like A&M and Texas, which generate so much money from media rights, ticket sales and sponsorships that they require no direct school support.
Student fees, Fertitta said, are “a necessity for schools in conferences such as ours.”
As of 2017, UH had $114 million in athletics-related debt, representing about 9 percent of UH’s total debt of more than $1.2 billion. Debt service, leases and rental fees in 2017 totaled $5.3 million, just under 10 percent of athletic department expenses.
Fertitta is comfortable with UH’s level of athletics debt and replied “Not at all” to the notion UH’s educational priorities are limited by the money spent on athletics.
Even with the recent construction projects, UH’s percentage of debt allocated to athletics and its athletics debt service load trails five of the eight Texas public schools that compete in FBS.
It also ranks sixth among the eight Texas FBS schools in the percentage of total university operating expenses devoted to athletics — about 5.5 percent, compared to 7.7 percent for Texas, 8.2 percent for Texas A&M and 10.2 percent for Texas Tech.
With its recent investments in TDECU Stadium and the Fertitta Center, plus a new indoor football practice center, is doing its best to keep track with other Texas schools in the athletics “arms race.”
Texas A&M spent more than $450 million renovating Kyle Field to include more than 100,000 seats. Baylor spent more than $250 million on McLane Stadium, TCU spent more than $150 to renovate Amon Carter Stadium and North Texas built a $79 million football stadium. SMU renovated Moody Coliseum for basketball, and Texas plans a new basketball arena to replace the Erwin Center.
Administrators use the “front porch” analogy to justify athletics spending as a boost to a university’s image.
“You can’t get that kind of exposure elsewhere in the world, and that’s the reality,” said Scott Hirko, a professor at Central Michigan who manages a funding database for the Knight Commission on Intercollegiate Athletics. “I definitely buy the front porch analogy. The question is whether the money that the school provides is a subsidy or an investment. Schools must decide how much they want to pay for the front porch.”
But some analysts see issues with the department’s depen-
dence on the student fees and the direct support from the university.
Once again, UH’s place in a Group of Five conference comes into play. In 2015-16, no Big 12 school obtained more than 9 percent of its revenue from student fees or university support. By contrast, each of the seven public American Athletic Conference schools except Memphis topped 40 percent of its income from those two sources.
The other four Texas FBS public schools outside the Big 12 — North Texas, Texas State, UTEP and UTSA — require even larger subsidies than UH, ranging from 51 percent at UTEP to 71 percent at Texas State, which began FBS football in 2012, according to 2017 numbers.
Trying to keep pace
Robert Kelchen, a professor at Seton Hall who studies university funding issues, said UH’s position in the AAC requires it to provide facilities comparable to a Power Five school without a Power Fivesized budget.
“Texas, A&M and Texas Tech can spend nearly as much as they want on athletics without endangering university budgets or charging excessively high student athletics fees,” Kelchen said. “But the other Division I institutions either have few large revenue sources or are trying to keep up with the big FBS programs. Houston is a great example of that. I’m not terribly alarmed by expenditure and debt numbers for Texas, A&M and Texas Tech, but it’s a concern for all other universities. Some of them may have to face a tough decision: try to keep up in the arms race or consider cutting back athletics programs in order to keep college affordable for students.”
Khator acknowledged in 2014 that it would be difficult to sustain the current athletics spending model without more conference revenue. She said recently, though, that continued spending for athletics “matches with our powerhouse ambitions is part of the university’s priority.”
“We are just looking at every source of revenue,” Khator said. “We have not increased the athletics budget from the university any more in the last three years.
“We have a great product now for the conference. My hope is that we go out for the negotiation in the next round we can sell the product of our confidence.”
The donor factor
One challenge facing Pezman and Tagliarino will be revenue growth in ticket sales and donor contributions. UH outpaces other non-Power Five Texas schools in that area, but it trails the three public Big 12 schools in Texas by wide margins.
UH’s $6.5 million total for ticket sales in 2017 was dwarfed by Texas’ $72 million and A&M’s $47 million, and its $9.9 million in contributions for that year, while up more than 10 percent from a year ago, pale compared to Texas’ $42 million and A&M’s $92 million, which included money for the Kyle Field expansion.
The UH figure does not include contributions toward construction projects because those projects are not considered part of the department’s annual operating budget.
UH also has high hopes for Cougar Pride, the department’s fundraising arm, which has about 4,000 individual donors compared to 1,500 before TDECU Stadium opened. The goal is for Cougar Pride donations to cover scholarship costs and to provide money for use elsewhere.
UH has raised $854 million of a billion-dollar capital campaign goal for general university expansion, with contributions from 155,000 donors. That, Khator said in a recent interview, indicates “people are out there who want to help us build a powerhouse university for a powerhouse city and for a powerhouse state.”
One hopeful sign, school officials said, is the support from recent graduates. The undergraduate class of 2016 contributed $92,867 in the 2016 and 2017 fiscal years — more than what the undergraduate classes of 2008 through 2011 combined gave in the two years after their graduations.
Khator and Fertitta are hopeful for the next round of media rights talks for the American, although they acknowledge the future is murky as cord-cutting reduces the number of viewers who subscribe to channels such as ESPN and FS1.
“Houston has proven that our product is really very valuable in the market,” Khator said. “We have done so well and we’ll just continue to do that. I’m not worried about where the landscape goes. If your product is valuable, you’ll find a good place.
“I remain extremely committed to athletics because I know the role it plays along with academics is part of our overall university priority. … Our revenue is not where it needs to be against a (Power Five school), but our product definitely is. We’re just hoping we can close that gap as time moves forward.”
More projects in the works
UH has plans to build a football office building to go along with its new practice building, but that project will be delayed while the department focuses on the Fertitta Center unveiling.
The school is switching one of its outdoor practice fields from turf to grass and is adding lights, an example of what Pezman said is the continual investment in facilities that is a part of life in college athletics.
“If you stop investing, you stagnate and start to atrophy,” he said. “So we have to grow without continuing to put a burden on the campus and be as self-sufficient as possible.
“We can be successful with what we have today. There’s nothing missing that keeps us from getting (All-America defensive lineman) Ed Oliver to go to school here. There are things we want to do, but we’re not starting from scratch.”
Challenges not unique
Not only are UH’s decisions emblematic of the challenges faced by Group of Five schools, they reflect issues at some Power Five schools as well.
While Pezman declined to discuss a former employer, the University of California, where he worked for five years before returning to Houston, reported $90.9 million in operating revenue to the NCAA in 2017 along with $106.9 million in operating expenses and $438 million in athletics-related debt.
Mark Emmert, president of the NCAA, in a recent discussion with newspaper sports editors said: “The vast majority of people think that schools make money on athletics. Twentyfive make money. There are not many Pac-12 schools with positive cash flow. It’s not just the small schools that face problems. “I worry greatly about it.” Emmert also noted the growing divide between Power Five and Group of Five schools, as well as among both groups, adding, “A lot of schools are saying we can’t chase that and say ‘let’s do what we do and stay where we are.’
“Student tuitions, student fees are being tapped out. State (legislatures) are not tolerating big increases. They are flattening out.”