The $200 million Matthew Knight Arena, perched on the farthest corner of campus and casting a sulky shadow on the shanty villages of Bean and Hamilton, is yet another marker of the chromium-plated athletic splurge of the past decade at the University of Oregon.
The UO men’s basketball program is showing a spark of promise that hasn’t been seen since the 1920s, starting their regular Pac-12 season 7-0.
Since that start, the Ducks stumbled to 10-3 in typical Oregon fashion — rallying back to defeat Washington and Washington State on the road after hard losses to Stanford, Cal and Colorado. But with all the hype around their exuberant start to the season, the main tenant of the nation’s most expensive college basketball arena still can’t pay even the majority of their bill.
In its third year of operation, the arena is expected to return $7.7 million in operating revenue — just over $3.2 million short of what it was projected to gross when the athletic department originally drew up a funding model back in December of 2010. This funding model, known as the Oregon Athletics Legacy Fund, was funded in large part by Nike chairman and co-founder Phil Knight, as well as various other donors.
The athletic department published an updated Legacy Fund budget earlier this year. In this new budget projection, the athletic department had to make major readjustment’s to its revenue stream projections for the arena, yet again laying out the repayment plan to be finalized in 2027.
The new ticket revenue projections for men’s basketball show a $900,000 difference between what was originally forecasted in December 2010 and now — down from $3.7 million to $2.8 million, with over $5 million in operating expenses for the team.
Despite projection shortfalls, University administrators are not worried about the Legacy Fund drying up or the athletic department missing a payment. Jamie Moffitt, vice president for finance and administration, said that the administration’s regular discussions with the athletic department on key financial issues keeps athletics accountable to their debt.
“All arena fund debt has been fully paid, on schedule, as planned,” Moffitt said. “The Athletic Department is an auxiliary operation. Like other auxiliary operations, such as Housing and the EMU, it is responsible for paying for all of its operating costs with its projected revenue streams.”
The debt service on the arena — on top of its projected $3.1 million operating expenses — cost the athletic department $14.5 million last year, but it didn’t pay a dime out of pocket thanks to the Legacy Fund. This year, the athletic department will only use $12.5 million out of this allotted fund, with the other $2 million coming out of the department’s general fund.
“We have a longer term financial plan designed to reduce, on an annual basis, the amount of money we’re pulling from the Legacy Fund and taking more of the athletics operations revenue to pay for debt,” said Eric Roedl, athletic director for finance and administration. “In doing that, the Legacy Fund becomes more of a safety net as oppose to a funding source.”
But even with the men’s basketball program looking toward the NCAA tournament this March, the return on ticket sales’ revenue hasn’t been as good as originally projected when the Legacy Fund was first established.
“Attendance and revenue this year are pretty much flat,” Roedl said. “We’ve gotten a lot more aggressive with outbound ticket sales, and that’s a new initiative this year; so, it’s too early to tell what kind of an impact it’s having.”
According to documents showing the number of tickets sold for the 2012-13 season for games in Knight Arena up until Feb. 7, the athletic department sold 3,663 season tickets — neither a record for the arena nor the athletic department.
In the first four games of this season, there were only 986 single-game tickets sold. Over the same four games, there were 5,354 student tickets left unclaimed. Up until Feb. 7, there have only been three sell-outs for student tickets this season— Arizona, Arizona State and Washington.
The arena’s best day this year for all ticket types came on Jan. 26 during the Ducks’ first of two meetings with Washington when they managed to sell out the building, with attendance reaching 12,364. The arena has sold out three other times in its three-year history — all within its first year when the novelty of a new arena hadn’t wore off yet.
As the athletic department builds upon its recent run of success across all of its sports, the comparisons to traditionally affluent and large athletic programs continue. But in terms of balancing its big revenue programs, Oregon has some catching up to do with its self-proclaimed peers.
The Ducks’ expected $2.8 million revenue is only a third of what larger basketball programs average, such as Kentucky, which pulled in $6.5 million in revenue last year — but other even larger programs dwarf the UO: Duke, Louisville and North Carolina all grossed over $20 million during the 2009-10 season. In the Pac-12, Arizona’s basketball revenue sat at fourth in the nation, grossing $19.2 million with approximately equal the expenses Oregon will pay this year.
State officials at the Oregon University System are satisfied with the athletic department’s plan and commitment to repay the debt. OUS Vice Chancellor for Finance and Administration Jay Kenton says the only expectation is that the UO pay the annual debt service, not how they pay it.
“Our board has a policy on debt that we don’t want any one campus to have a debt ratio more than 7 percent,” Kenton said. “UO has 7 percent limitation and frankly are probably one of the highest in terms of being close to that threshold.”
He believes the UO’s current debt won’t affect how it asks for capital construction financing in the future unless it starts missing payments, an event he thinks is highly unlikely in this case.
“The only thing that would worry us is if they were unable to make that payment on that annual debt service, and everything I’ve seen to date indicates they are doing that and plan to continue to do that,” he said.