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UNM has game plan for Neal buyout

Copyright © 2017 Albuquerque Journal

The University of New Mexico owes its fired basketball coach $1 million in a pricey parting that the school’s athletic director insists his department will pay for.

Terminating Craig Neal, who had three years left on his contract, triggered the buyout, and athletic director Paul Krebs said after last week’s announcement, “The expectation is the buyout will be covered by athletics.” It will be paid in 24 monthly installments.

Paul Krebs

Paul Krebs

But the UNM athletic department has a poor budgetary track record, finishing 2016 with $1.5 million more in expenses than revenue. It was the seventh deficit in the past nine years.

In those cases, the university covers the deficit and the athletic department is supposed to pay it back. However, the department has not paid back any of last year’s $1.5 million debt.

Athletic department officials expect this year to be much better, given some cost-cutting measures and a possible sponsorship agreement, but troubling signs exist.

So what happens if the department fails to meet its budget again?

The department probably would go into further debt to the university.

The school’s executive vice president for administration and chief operating and financial officer told the Journal on Wednesday that he is not assuming the department will come up short for the current fiscal year.

Davie Harris

Davie Harris

But if it does, “we’ll work with them,” said the official, David Harris. “They’ll have to pay it back. There’s not any money in the (instruction and general budget) of the university to square up their budget. They will just have to carry a debt obligation.”

With the university struggling to absorb its own budget cuts – both from reduced state funding and tuition decreases associated with lower enrollment – it’s particularly critical that the athletic department live within its means, Harris said.

The department already has shown evidence of financial strain this year. It was projected to finish the current fiscal year with a $444,607 deficit, according to a financial report presented to UNM’s Board of Regents last month. And that factored data through Jan. 31 – well before Neal’s firing and even before the conclusion of the basketball season, in which the men’s and women’s programs together fell $775,783 short of ticket revenue projections.

Optimistic

Still, Harris expressed confidence that the department would not show a significant shortfall when the fiscal year ends June 30. He noted that Neal’s buyout does not create an immediate $1 million hit. Payments are rationed over 24 months and could decrease if Neal takes another basketball job.

Harris added that the $444,607 projected deficit did not factor in what he called the department’s “austerity” package.

“I think that they’ll come close to no deficit – that’s my hunch,” he said.

Krebs said his department – which spends about $14 million annually on salaries and benefits – has saved money by eliminating “five or six” positions already this year, mostly through attrition. He has also frozen some open positions, leaving them unfilled when staff departs. The department also will lay off another four or five employees, he said, though that will happen at the start of the next fiscal year.

The department, in addition, has worked to trim some travel-related costs and boost revenue.

Krebs said athletics also could get a bump this fiscal year with a new facility naming rights agreement. UNM has not formalized such a deal, but Krebs said negotiations are underway for an unidentified donor to pay a “seven-figure amount” to sponsor an unidentified venue. An announcement could come in the next few months.

“There’s no question (this year) will be better (than last year),” Krebs said. “I’m not exactly sure where we’ll end up, but we’re working very hard to be good stewards of the money.”

Deficits are nothing new for UNM’s athletic department, given that it has only met its budget twice in the past nine years. The university itself typically covers the shortfall with the expectation of repayment. Such was the case last year. Harris said athletic department’s debt is to the university’s central principal operating fund.

“We did not bail them out,” Harris said. “It went to their bottom line. At some point they’re going to have to repay the university.”

Debt not paid

But the history of athletic deficits has stoked frustration within and outside the UNM community. UNM retiree Ken Carpenter wrote in a letter to the Journal, “The poorest state in the nation cannot afford both first-rate academic, research and service universities and Division I athletics. No matter how many millions we pay for coaches, UNM will never be the University of Texas, UConn or Villanova.”

Neither Krebs nor Harris provided an exact figure Wednesday for how much debt athletics has accumulated with the school, but Krebs acknowledged his department had not paid down any of last year’s $1.5 million.

“We’ve made payments on some lines of credit or debt, but right now given the current economy and the challenges we face with our budget we have not been able to put together a plan that includes repayment of that debt,” he said.

Harris ties the recent challenges to debt athletics owes on the 2010 renovation project at WisePies Arena aka the Pit, noting that the department historically met its budget before initiating that project. The annual bill has been $3 million, though the school refinanced the bond last year to reduce it to $2.4 million. The debt service runs through 2036.

UNM expected to cover the debt payments by selling $40,000 suites and high-dollar club seats in the venue but that has not happened. It has sold some, but not as many as needed.

Adding to the turmoil is the department’s reliance on basketball revenue.

“So when the attendance fluctuates downward as it has the last couple of years, it just makes their budget balancing virtually impossible,” Harris said.

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