A subcommittee in the University Senate released a more cautious report about the funding model for the proposed arena this week, saying that the worst case scenario could put the Athletic Department in a serious financial predicament that would exhaust its resources and force it to either downsize its budget or draw from academic funding.
But the worst case scenario takes the Athletic Department’s most conservative revenue estimates and halves them – and even at that pace the department would be able to sustain the debt payments until 2024.

“The probability, or likelihood of that worst case scenario, for me, is probably very unlikely,” said Dennis Howard, who was one of the four University Senate subcommittee members who completed the 29-page report.
The report, which was presented to the University Senate Wednesday, didn’t make an official recommendation about whether building the arena is a good idea, but committee members did suggest the recent audit by CSL International of the Athletic Department’s estimations were reliable.
“We are not endorsing the arena project, that was not our task,” said Marie Vitulli, chair of the senate budget subcommittee. “We pretty much assume the arena is going to happen no matter what we say.”
But if the worst-case scenario does come to fruition, the Athletic Department would bear the full burden of financial shortcomings and the academic budget will not subsidize any losses the department might face, said University President Dave Frohnmayer, adding that he agreed with the committee’s recommendation that the entirety of the project should be conducted in a transparent way.
“That seems incredibly fair,” Howard said. “Because they’re suggesting in their analysis that that’s the way this thing is going to go, that it’s a slam dunk.”
By the committee’s estimations, the worst case scenario would be if the arena earns $3.5 million annually, which is half of CSL International’s most conservative estimation of $6.9 million.
That number is still double what McArthur Court brings in today, but it wouldn’t be enough to cover the $13 million total debt service (which includes the payments for the Williams’ Bakery lot that the University purchased in 2005 to build the arena on).
With a revenue shortfall, the department would draw from the Duck Athletic Fund to cover debt service and the Oregon Athletics Legacy Fund to cover operating expenses of the department. If the department was forced to sustain that from the moment the arena is built, it will empty the Legacy Fund by 2024.
But the Athletic Department says it can only be benefited from building the arena, which at its best could bring the department several million dollars per year of excess revenue.
Currently the department is “floating on a razor thin margin,” Athletic Director Pat Kilkenny said. “The good news is that we continue to pay our bills.”
Another concern of the subcommittee is that season ticket prices for the new arena are more than double the cost of season tickets at McArthur Court.
“What if we have three really difficult basketball seasons back to back to back to back,” Howard said. “That can happen. Are people still going to be willing to pay those premium prices? Well, any prudent assessment would have to at least acknowledge that possibility, and that’s really where that 50 percent worst-case scenario happens.”
Kilkenny said he’s confident the worst-case scenario won’t come to life.
“It just would take a lot of incredibly bad management,” he said. “I can’t imagine that happening in 1 in 50. You’d have to totally fall asleep at the switch in terms of running your business.”
Kilkenny said the department will continue to meet with members of the subcommittee to flush out more details. There will be a special senate meeting dedicated to discussing the arena on Jan. 23.
“There are two or three areas that we need to work with them on to get more comfort on their side,” Kilkenny said. “When you line (the numbers) up the way we’ve lined them up, we get to a comfort level that’s very high.”
[email protected]

Related Articles

“Arena could earn more than originally anticipated” Jan. 7, 2008
“Administration accused of poor communication” Dec. 3, 2007
“Senate passes resolution to preserve Mac Court” Nov. 20, 2007
“University one step closer to building new basketball arena” Nov. 5, 2007
“Legality of new arena’s finances questioned” Nov. 1, 2007
“University plans to take out loans to pay for new arena” Oct. 18, 2007