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Financial Problems at UC Berkeley

And it has nothing to do with the sorry state of the State Budget.  I got an interesting cold call yesterday from a faculty member at UC Berkeley.  He is a member of a task force examining the financial crisis in the Cal Athletic Department.  According to an article in the Daily Californian, the athletic department was subsidized by the university to the tune of $13.7 million dollars last year, including a $5.8 million dollar "loan" from the "former vice chancellor of administration."  I can guess where the "former" came from.  Based on the article, things got rather heated at a meeting to discuss the preliminary report of the task force that took place yesterday.

Economists have long recognized that accounting problems associated with intercollegiate athletics makes it very difficult to assess the financial impact of big time college sports.  No generally accepted accounting procedures exist in this area, and accounting differences across campuses (and within individual institutions over time) makes it almost impossible to determine the profitability of a big time college athletics program.  TSE co-blogger Brian Goff wrote one of the best case studies I know of, and concludes that even a relatively small athletic program like Western Kentucky produces a small surplus on average.  I have no idea what the actual state of the athletic department budget is at Cal, but where there's smoke, there's fire.  If the Cal athletic department is losing money, many other large athletic programs may also be in the red.

I was contacted because the relationship between athletics and donations is one of the issues being studied by the task force.  I have written a couple of papers on the topic that find a small positive correlation between athletic success and donations, and a larger impact of the presence of a Division I-A football program on state appropriations.

It will be interesting to see how this plays out in Berkeley.  The final report is due in the summer.  In a financial environment where faculty are taking furlough days that amount to an 8% pay cut, and where many departments are eliminating telephones for everyone but the chair, it's easy to see why faculty would be up in arms about almost $14 million flowing from the university to the athletic department.