Financial challenges intensify for UCLA, Cal — with several daunting hurdles ahead

Months away from joining new conferences, UCLA and Cal might consider changing school colors before going their merry ways.

A deep red hue seems appropriate.

The Bruins and Bears continue to bleed cash as they prepare for life in the Big Ten and ACC, respectively. According to documents obtained by the Hotline, the two athletic departments posted a combined deficit of more than $80 million in the 2023 fiscal year when support from central campus is removed from the equation.

Without a course change, the grim financial trajectories in Westwood and Berkeley could undermine success on the field (and court) in their new leagues against peers with stronger fiscal foundations.

For the fiscal year ending June 30, 2023, the Bruins reported revenues of $105.4 million and expenses of $142 million — a deficit of $36.6 million. The revenue total represents a 2.2 percent year-over-year increase while the expense figure marks a jump of 8.2 percent.

No single item accounts for the uptick in UCLA’s operational expenses. However, the lifting of COVID restrictions and a change in the football schedule, which resulted in eight home games during the 2022 season, were key contributors.

Regardless of specifics, the bottom line is all too familiar for the Bruins, who reported a $28 million deficit in the 2022 fiscal year and were running deep in the red before COVID hit.

“Like other athletic departments, financial challenges remain as a result of the pandemic which impacted revenue streams such as sponsorships and media rights,” the Bruins said in a statement issued to the Hotline.

“In this evolving college landscape, we have continued to emphasize putting our student-athletes first. This includes increasing our investments in student-athlete focused areas including mental health, team travel, nutrition and academic awards.

“We will always put our student-athletes first and provide a world-class holistic athletic and academic experience.”

The situation in Berkeley appears significantly more dire.

The Bears reported revenues of $126.1 million and expenses of $134.9 million in the 2023 fiscal year, a deficit of $8.8 million. Those figures represent year-over-year increases of 6.6 percent (revenue) and 17.8 percent (expenses).

That eye-opening surge includes a $6.5 million increase in costs for coaching and administrative salaries — the Bears fired one men’s basketball staff and hired a new one — and a doubling of the dollars spent on fundraising and marketing, to $8.1 million, that was partly due to efforts related to the football game at Notre Dame in the fall of 2022.

What’s more, Cal’s revenue includes a whopping $36.7 million in direct support from campus — that’s 29 percent of the total revenue and a $5.7 million increase in raw dollars over the support level provided in the 2022 fiscal year.

(The revenue figure excludes $3.4 million that the Bears transferred back to campus as part of an internal financial structure.)

Cal’s substantial annual support for athletics was announced by chancellor Carol Christ in December 2019 based on her belief that “our Intercollegiate Athletics program has great value for the Berkeley campus.”

The approach to athletics stands in stark contrast to the situation in Westwood, where the Bruins received a mere $2 million in support from central campus (via student fees).

If we remove all financial exchanges between campus and athletics and instead focus on organically generated revenue and expenses, the combined totals for the Bruins and Bears in FY2023 are as follows:

— $196.2 million in revenue
— $276.7 million in expenses
— $80.5 million total operating deficit (with Cal accounting for 52.2 percent)

All this comes as the schools prepare for their new conferences and several daunting financial challenges:

— The 2023-24 fiscal year could be worse because of a reduction in Pac-12 revenue — it’s expected to approach $10 million per campus — that can be traced to the Comcast overpayment fiasco and the recent settlement between the 10 outbound schools and the two remaining universities, Washington State and Oregon State.

— UCLA’s annual expenses related to the Big Ten move (travel, academic and nutritional support, etc.) are expected to climb by approximately $10 million, according to an internal report submitted to the UC Regents in 2022.

The cost of living in the ACC should be comparable for Cal, if not more expensive.

— The University of California Board of Regents could require UCLA to support its sister school.

In December 2022, the regents agreed to consider imposing a subsidy on the Bruins in which a portion of the Big Ten media revenue would be diverted from Westwood to Berkeley. Since that point, the situation has only gotten worse with the Pac-12 collapsing and Cal forced to join the ACC, along with Stanford, at a steep discount.

The regents have yet to formally establish the subsidy which, if imposed, could range from as little as $2 million to as much as $10 million annually.

— Cal and Stanford are headed into the ACC on the cheap. The Bay Area schools reportedly will receive 30 percent shares of the conference’s primary media rights revenue for the first seven years of their 12-year membership arrangement.

That translates to paychecks of approximately $7.5 million in Tier 1 revenue, compared to the $25 million headed to the campuses of the ACC’s existing members.

(Cal and Stanford will receive full shares from the ACC’s other revenue streams, including the College Football Playoff and NCAA Tournament.)

— Like their peers across major college football, UCLA and Cal are vulnerable to a series of legal challenges to the NCAA’s amateurism model.

Atop that list is a class-action antitrust lawsuit that could result in billions of dollars in damages being awarded to former athletes and the creation of a revenue-sharing plan with current and future athletes.

The revenue sharing potentially could divert as much as 10 percent of a conference’s media rights revenue directly to football and basketball players, thus draining the athletic departments of crucial resources to support Olympic sports.

With the college model under assault, NCAA president Charlie Baker recently proposed a subdivision of the top football-playing schools. The radical plan would require any school opting into the subdivision to allocate millions annually to a trust fund for its athletes. The totality of Baker’s proposal likely would cost more than $10 million annually.

In order to join that exclusive group and remain competitive on the field (and court), the Bruins and Bears must have their finances in order.

Is there any reason for optimism?

UCLA believes the financial picture will improve with the Big Ten move. While costs will increase, the Bruins expect their revenue from media rights and postseason events (i.e., the CFP) to soar.

There are also signs of help coming from central campus which, in 2023, reallocated the debt on athletic facilities — a move that took about $10 million off the Bruins’ books.

Cal’s outlook appears more fragile given the discounted revenue shares the Bears will receive in the ACC.

“Since the announcement of the ACC agreement, we have been transparent about the financial challenges we’re facing,” said Dan Mogulof, Cal’s assistant vice chancellor for executive communications.

“At the same time, we have been clear in our commitment to sustain a broad-based athletic program. The challenge before us is how to protect and defend all that we have in the context of the budget realities we face.

“We don’t have a completed, specific budget plan yet, but we’re making good progress with evaluating and deciding about options that will allow us to control expenses and increase revenue, including philanthropy and stadium usage.”

The biggest unknown for both schools? Changes at the top.

The UC regents are expected to select new leaders for the Westwood and Berkeley campuses later this year.

Both athletic departments desperately need chancellors who value athletics and are willing to implement strategic plans that provide the Bruins and Bears an opportunity to thrive in their new homes — and climb out of the red.

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