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Department of Intercollegiate AthleticsPresentation to the Committee on Finance,

Business and Capital PlanningSeptember 17, 2015

Overview

• NCAA Sport Sponsorship• Organizational Structure• Institutional Control• Operating Budget Overview• Capital and Other Considerations

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NCAA Sports Sponsorship

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Total TeamsMen's Women's Coed (Men, Women &

Institution Teams Teams Teams Coed)

Big Ten:

Ohio State University 16 17 3 36Pennsylvania State University 16 15 0 31University of Michigan 13 14 0 27Rutgers University 13 14 0 27Michigan State University 12 13 0 25Indiana University, Bloomington 11 13 0 24University of Iowa 11 13 0 24University of Wisconsin, Madison 11 12 0 23University of Minnesota, Twin Cities 11 12 0 23University of Nebraska, Lincoln 10 13 0 23University of Illinois, Champaign 10 11 0 21University of Maryland 8 12 0 20Northwestern University 8 11 0 19Purdue University 9 9 0 18

• Director of Athletics reports to President• Administrative Responsibility

291 Full-time employees 31 ICA Varsity Sportso 16 Men’s programs/15 Women’s programso Approximately 800 student-athletes participate annually in

these 31 programso Approximately 525 receive some type of scholarship/NLC

support; full GIA equivalencies = 367 (2015-16 PA Resident = $33,894; 2015-16 Non-PA Resident = $47,826)

General Funds Budgets

o Men’s/Women’s Rugbyo Sports Campso Pegula Ice Arena – non-varsity operationso PSUAC o Ability Athletics

Organizational Structure

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• Reorganization of ICA Structure (effective 3/16/15) Creates a more vertical structure, which will encourage

communication and collaboration across business units and sports

Formation of 4 administrative divisions, aligned with how Penn State will best serve its student-athletes and stakeholderso Student-Athlete Performance, Health and Welfareo Finance and Business Operationso Internal and External Operationso Administration

Leadership Team headed by the Director of Athletics, with the Deputy Athletic Director and three Senior Associate ADs overseeing the newly-created divisions

A broader, 29 member, Management Team consisting of the Leadership Team plus the group of Associate and Assistant Athletic Directors

Management Team lends itself to the formation of cross-functional teams which will ultimately break down silos formed in the past

Organizational Structure (continued)

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Institutional Control

• Administrators with dual reporting roles Senior Associate Athletic Director, Finance & Business Operations –

Corporate Controller Assistant Athletic Director, Human Resources – Vice President for

Human Resources Associate Athletic Director of Development for Athletics –

Associate Vice President of University Development and Alumni Relations

Associate Athletic Director, Compliance – Director of University Ethics and Compliance

• Administrators with cooperative roles with ICA Athletics Integrity Officer – Director of University Ethics and

Compliance Director of Sports Medicine Center – Hershey Medical Center Director Morgan Academic Support Center for Student-Athletes –

Vice President for Undergraduate Education

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Budget Overview

• Big Ten Revenue Sharing Policy

• Rolling five year plan

• ICA must report annually to both the NCAA and to the Department of Education (Equity in Athletics Disclosure Act - EADA Report)

• Budget justification process was modified for FY 16

Overall goal was to “right-size” the operating budgets and ultimately set an increased level of accountability

Budget administrators were required to justify their requested budgets rather than have existing budgets simply carry over from the prior year

• Moving into FY 17, process will be further modified with the introduction of a full zero-based budget approach

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5 Year History Total ICA Revenues/Expenses

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FY 10/11 FY 11/12 FY 12/13 FY 13/14 FY 14/15

REVENUES $116,118,029 $108,252,290 $104,751,464 $117,590,993 $128,404,613

EXPENSES ($101,336,483) ($107,389,260) ($110,737,200) ($117,440,639) ($123,639,464)

MAJOR MAINTENANCE/CAPITAL PROJECTS ($10,610,100) ($16,300,000) ($1,700,000) ($3,900,000) ($10,698,650)

OTHER RESERVE ACTIVITY ($1,566,004) $3,329,810 ($248,265) $8,827,766 *** $7,305,758

NET TRANSFER IN / (OUT) OF RESERVE $2,605,442 ($12,107,160) ($7,934,001) $5,078,120 $1,372,257

ENDING RESERVE BALANCE $20,191,609 $8,084,449 $150,448 $5,228,568 $6,600,825

***Includes $10 million of external financing in FY 15/16

Operating Budget OverviewKey Revenue Budget Assumptions – FY 16 through FY 20

• Football Flat season ticket prices reflected for duration of five year

outlook (single game ticket prices project upwards as a result of variable pricing)

Restoration of conference bowl distributions in FY 15 and FY 16, totaling approximately $11.2 million

Attendance projected at 2014 season actuals plus an upward adjustment to reflect realistic revenue projections ($2.1 million increase over actual FY 15)

Parking adjustments implemented in FY 16 to cover increased costs. The revenues generated to offset these expenses are mainly in the areas of overnight RV parking and prepaid season parking, areas which have not seen an increase since the 2007 season ($.7 million increase over actual FY 15)

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Operating Budget OverviewKey Revenue Budget Assumptions – FY 16 through FY 20 (continued)

• Learfield In FY 15, we renegotiated our multi-media agreement with

Learfield. As a result of this negotiation, and the renewed strength of our overall brand, this contract yields an increased base guarantee and potential revenue share over the previous agreement

• Nike In FY 15, we renegotiated our apparel agreement with Nike. As a

result of this negotiation, and the renewed strength of our overall brand, this extended contract yields increased cash and product allotment over the previous agreement

• Levi Lamb 3%/yr. increases built in beginning in FY 16o Increased revenues of ~$.5 million/yr.

• Future Big Ten TV Contract Reflects conservative estimate of increased revenue beginning in

FY 18 related to anticipated new Big Ten TV agreement

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Operating Budget OverviewKey Expense Budget Assumptions – FY 16 through FY 20

• Football Expense related to availability of 85 full scholarships reflected

beginning in FY 16 (first time since 2012)

• NCAA Legislation – Meals Beginning in FY 15, $650k/yr. was added to the ICA operating

budget to account for the cost of fueling stations recently installed in all of our ICA venues

• NCAA – Cost of Attendance Beginning in FY 16, a $1.75M/yr. placeholder has been included

to plan for any future incremental costs ($4,788 per full GIA equivalent)

• Debt Service Debt service related to three (3) separate $10 million bridge

financing installments

• Sports Medicine Placeholders for cost reductions under current discussion are

reflected annually beginning in FY 1712

Operating Budget OverviewKey Expense Budget Assumptions – FY 16 through FY 20 (continued)

• NCAA Fine $60 million fine has been reallocated between ICA and Central

administration

$60 million apportioned to cover NCAA fine as follows:o $12 million funded by Central administration to support the Network

on Child Protection and Well-Being endowment

o $48 million will be repaid by ICA over 30 years, as principal only

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Operating Budget Overview – FY 15 through FY 19(WHERE WE WERE - As presented in September 2014)

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FY 14/15 FY 15/16 FY 16/17 FY 17/18 FY 18/19

REVENUES $112,564,735 $125,285,914 $126,573,938 $136,981,721 $137,984,161

EXPENSES ($112,598,733) ($119,813,015) ($122,414,553) ($126,213,940) ($135,127,129)

MAJOR MAINTENANCE/CAPITAL PROJECTS ($8,800,000) ($8,600,000) ($8,600,000) ($9,200,000) ($9,850,000)

OTHER RESERVE ACTIVITY $9,664,872 *** $3,468,949 *** ($6,467,013) ($6,463,021) $290,915

NET TRANSFER IN / (OUT) OF RESERVE $830,874 $341,848 ($10,907,628) ($4,895,240) ($6,702,053)

ENDING RESERVE BALANCE $6,059,442 $6,401,290 ($4,506,338) ($9,401,578) ($16,103,631)

***Includes $10 million of external financing in FY 14/15 and FY 15/16

Operating Budget Overview – FY 16 through FY 20

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FY 15/16 FY 16/17 FY 17/18 FY 18/19 FY 19/20

REVENUES $128,188,307 $130,126,857 $145,970,994 $149,915,023 $153,145,316

EXPENSES ($125,749,409) ($126,824,161) ($130,766,890) ($133,168,683) ($136,153,138)

MAJOR MAINTENANCE/CAPITAL PROJECTS ($10,710,000) ($8,900,000) ($9,200,000) ($9,400,000) ($9,400,000)

OTHER RESERVE ACTIVITY $9,106,834 *** ($889,392) ($885,468) ($1,431,600) ($1,430,801)

NET TRANSFER IN / (OUT) OF RESERVE $835,732 ($6,486,696) $5,118,636 $5,914,740 $6,161,377

ENDING RESERVE BALANCE $7,436,557 $949,861 $6,068,497 $11,983,237 $18,144,614

***Includes $10 million of external financing in FY 15/16

Potential Revenue Enhancement ModelingNot Included in Budget Model – No Decisions Made/Pending

• ICA Venue Revenue-Generating Opportunities Beaver Stadium Pegula Ice Arena Other Could result in additional revenue of $1.0 - $2.0 million/yr. and a $4.0 -

$8.0 million contribution to the reserve from FY 17 – FY 20

• Levi Lamb Potential enhanced benefits model…increased revenue of $1.0 million/yr.

and a $4.0 million contribution to the reserve from FY 17 – FY 20

• Football Season Ticket Price Increase Last season ticket price increase in 2009 EXAMPLE: A $2/game public and $1/game student increase results in a

$1.0 million increase/yr. and a $4.0 million contribution to the reserve from FY 17 – FY 20

• Football attendance increase Current five year plan forecasts at 91% of sellout in all out years Every percentage point increase results in an additional ~$375k/yr. in

revenue If 91% in FY16 and increase by one percentage point every year

thereafter, it would result in a $3.75 million contribution to the reserve from FY 17 – FY 20

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Potential Expense ReductionsNot Included in Budget Model – No Decisions Made/Pending

• Sports Medicine Additional vendor cost savings anticipated with new agreement

with Hershey Medical Center

• Internal Operations Examination of all operations ongoing to identify both efficiencies

and cost savingso Current outsourced activities recaptured internally (Design)o Consolidation of activities/vendors

• Other Strategic staffing decisions While not necessarily an expense reduction, the new budgeting

models (budget justification in FY 16 and zero-based budgeting in FY 17) will put a much higher emphasis on the management of departmental spending, while also holding those who have budgetary responsibilities to an increased level of accountability

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Philanthropy Considerations

• FY15 Results Almost $30M in funds raised (annual fund, capital gifts, etc.) Levi Lamb (annual fund) covers all scholarship expenses and

assists in covering operating budget

• Philanthropy is boundless Substantial growth opportunity to support student-athlete and

program conditions for success Transactional Giving vs. Philanthropic Giving Opportunities for enhancement

• Campaign considerations Make a strong case for investment Expertise and engagement opportunities Facilities Master Plan

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