Finance & Football at the UW

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No longer born in America is the child so naïve as to believe that big-time college sports is anything less than an entertainment business empire astride the fruited plain, swollen with endless hours of TV time, million-dollar salaries, billion-dollar deals, and a steady flow of scandal and litigation. Ever more perfunctory is its relationship with the universities that spawned the colossus.

At the University of Washington, the athletics department has a $70 million annual budget to support more than 650 scholarship athletes sustained by 219 full-time employees. And the Huskies’ operation is less than half the size of its counterpart at the University of Texas in Austin, where football has a gross domestic product large enough to be eligible for membership in the United Nations.

Once the Longhorns acquire nuclear weapons, Security Council seating will be mandatory.

But the arms race in college sports—Washington’s budget ranks 30th among big-time programs, and Oregon, at $85 million, is 17th, according to USA Today—leaves little choice but to keep going because quitting is just not in the sports business DNA. The Huskies finally have amassed first-strike capability by making over the venerable but decrepit Husky Stadium into a modern monster money maker for a mere $250 million in construction costs.

“Mere” is an accurate adjective in this era of professional sports. And don’t let the National Collegiate Athletic Association’s nonprofit tax status fool you: These are the same sort of “pro” sports where $175 million is the going rate for a premier baseball pitcher and $500 million will build a basketball/hockey arena (not counting $500 million for an actual franchise, along with the additional costs of land, litigation and traffic mitigation).

So getting a 93-year-old relic up to digital-age hipness with neither a tax dollar nor a crippling mortgage is a feat worthy of acute eyebrow arch. The central figure in the project, UW Director of Athletics Scott Woodward, is not shy about anything, but he is especially unbashful about the stadium renovation, which will be visible to all come August 31, when the Huskies return from a year downtown at CenturyLink Field to the shores of Lake Washington for the home football opener against Boise State University.

“Given the circumstances of who and where we are,” Woodward says, “this is a phenomenal project. I’m very, very comfortable as a steward of this department telling our fans, upper campus and all constituencies that we have done this as cost effectively and as well as humanly possible.”

Because football revenues fund 85 percent of a department budget that sustains the 17 other varsity sports and facilities, investment in the stadium was mandatory and long overdue. (Men’s basketball is the only other revenue source.) The gradual, ghastly decline of Huskies football, which reached its nadir in the winless (0-12) season of 2008, put the program in financial peril. The UW was undefeated (12-0) in 1991, making it the only program in big-time college ball to experience such a dramatic reversal of fortune. Many other Football Bowl Series schools, especially the archrival University of Oregon, upgraded their facilities to modern standards years earlier. The Ducks, thanks to the largess of mega-donor Phil Knight, the cofounder and chairman of Nike Inc., have made a huge investment in sports facilities and, as a partial result, have a nine-game football winning streak over the once-dominant Dawgs.

“Facilities have given them a competitive edge,” Woodward says. “It wasn’t even a revitalization. They created a winning football program. It’s been a boon for them. ...I watched the same thing happen at Alabama, Florida and other places. Oregon didn’t invent it. There’s a correlation between facilities and success—look what [Oregon coach] Dana Altman is doing with basketball in a new facility. It does work. It’s an advantage to have good facilities for fans and recruits.”

Over time, the UW spent money on its facilities, just not on the stadium, which is now the biggest capital construction project in the school’s 152-year history. In the past, the even more outdated basketball gym, Hec Edmundson Pavilion, as well as facilities for women’s sports required by the 1978 federal law known as Title IX, were more urgent priorities. So the big fix for the stadium, with its crumbling concrete, World War II toilets and exposed wiring, was put off.

“Those other projects needed to be done, but it’s still no excuse for the neglect of Husky Stadium,” says Woodward, who came to Washington from Louisiana State University in 2004 as a vice president under new president Mark Emmert and took over as AD in 2008. “I don’t blame my predecessors at all. It was everyone—campus leadership and the whole community—that needed to get behind this thing.

“There was potential for monetization of Husky Stadium, but no one was willing to take it on. It’s never a good time to raise ticket prices, never a good time to add premium seats, never a good time to invest in the goose that laid the golden egg.”

The university tried on multiple occasions to get funding for the upgrade from the state Legislature. But the politicians in Olympia, who often clashed with UW leadership on matters of higher education, had even less tolerance for burning political capital on a sports building, especially after catching voter grief for public subsidies of Seattle’s pro football and pro baseball stadiums in the 1990s. So even though Husky Stadium was a public building in need of fixes for public safety and code requirements, politicians were deaf to the university’s pleas.

But two developments, one gradual, one sudden—and neither of Woodward’s making—combined to create an opening for a different funding mechanism. “I tell people that I’m not that good,” he says, “but I am very lucky.”

The modesty isn’t necessarily unwarranted. In the middle of the past decade, the major NCAA conferences began receiving from cable TV networks such lucrative rights-fees deals that individual schools would break away from their old leagues to chase money among the big-timers. Some conferences, like the Big 10 in the Midwest, began their own TV networks.

Because the then-Pac-10 Conference’s old rights deals were the last among the major conferences to expire, Woodward was mostly a spectator to this development, and the conference fell behind temporarily. But after consulting with experts at the Wasserman Media Group and Creative Artists Agency, Woodward gained confidence that revenues to conference members soon would be sufficient to pay for a stadium by using the university’s bonding capacity along with private donations, eliminating the need to go to the Legislature for tax dollars. “The consultants said, ‘You’re going to get it,’” Woodward recalls. “It wasn’t guaranteed, but I had a very good feeling it was realistic.”

Then came the sudden development: the crash of the financial markets in September 2008. Gruesome as it was for many, the nosedive in construction projects created opportunity for the UW. “The biggest thing people forget about this project is that costs went down between 20 and 30 percent for commodities and labor [steel, concrete, subcontractors]. When the bottom fell out of the market, I said, ‘OK, now we can get our arms around this.’”

The Husky Stadium Advisory Committee put out a request for bids that required a flat fee, meaning that rising costs and overruns would be the responsibility of the contractor. The $250 million bid of Wright Runstad & Company, a longtime Seattle real estate development firm, came in $30 million under the next highest bid, and was the winner. It didn’t hurt that CEO Jon Runstad is an alumnus who rowed on the 1964 UW crew and is also a former University of Washington regent.

The Board of Regents approved a financial plan to issue $200 million worth of bonds through the university’s internal lending program and to seek $50 million in private donations. The construction plan included removing the running track that surrounded the football field as well as the entire lower bowl of the stadium (built in 1920), and lowering the field four feet to bring the seats along the sidelines and end zones nearer the field. New seating included 27 private suites and one president’s suite, 42 loge boxes and more than 2,500 club seats. While most modern college stadiums have 10 to 12 percent premium seating, Husky Stadium will have only 6 percent “to keep the collegiate feel,” Woodward says. Also new are a football operations office, locker rooms, weight rooms, conference rooms and a sports medicine clinic.

“Again, we got lucky with timing,” Woodward says. “We had very good campus and donor support and a will to get it done. Failure was not an option in this project.”

A reason the UW could afford to do the bonding was because athletics had almost no remaining facilities debt. The final payment on the last relatively recent building, Dempsey Center indoor practice facility (completed in 2001), occurs in December.

“There was a mentality [here] of pay as you go and not incur debt, which is honorable,” Woodward explains, “but it puts you behind because the competition has bright, new, shiny facilities. That’s why we have to play catch-up with Husky Stadium. And we have.”

Woodward probably says the phrase “on time, on budget” more than he says, “hi, honey” to his wife, but the phrase seems to be accurate, barring unforeseen events in the final months leading up to completion. The $50 million in private donations came in ahead of schedule and more than half the cash has been spent on immediate construction expenses. By 2014, the first annual bond payment, estimated by the department’s associate athletic director for business and finance, Paul King, to be about $16.1 million, will come due.

Woodward estimates that total revenues from the new seating in 2013 will produce $16 million annually. The last season in the old setup produced $6 million. Besides that $10 million windfall, another big bump comes from the Pac-12 Network, which began 24/7 cablecasts in August. ESPN and Fox Sports partnered to offer the conference a $3 billion deal over 12 years, through 2023-24, which allowed the conference to create its own 24/7 network. While the average annual value per school for the life of the contract is $20.8 million, in the first fiscal year of 2012-13, each school receives $16.1 million, which—ironically for Washington—happens to be the exact amount of its annual debt service on the bonds. The new money is a significant increase for UW, which in 2011-12 received $9.2 million in TV revenue from the conference and local rights. A year earlier, the total was $6.2 million.

With the increased revenues from the gate and TV, Washington has the new mortgage covered. Absent the arrival of the Pac-12 Network, funding of the stadium would have been virtually impossible.

“The Pac-12 Network assures the

viability of this department for the next decade,” Woodward says. “Would I have wanted to incur that kind of debt for that kind of growth? You start eating your seed corn if you don’t continue to invest in your program. To let Husky Stadium deteriorate to the point where it’s a turnoff to fans and recruits would have been a dilemma. Thank God I didn’t have to worry about that.”

For a far-corner seat in the third deck, the cheapest nonstudent season-ticket price in the new Husky Stadium is $299 for the seven home games of the 2013 season. For a 50-yard line seat in the lower bowl, a season ticket is $499, plus a $750 donation, or $179 a seat per game. That’s pricey for alums fresh out of school or a retiree on a fixed income. And there have been the predictable grumblings, especially from the student section, which was moved from midfield north-side seats to the west end zone. But the UW’s belief that the market would absorb the increased costs has been borne out by early returns. By February, season-ticket sales had hit the number projected by the August 31 start of play: 42,500. For all categories of premium seating, the stadium has sold 80 to 90 percent of its inventory. “Regarding premium seating,” says King, “we have exceeded our projections.”

Of all the decisions made regarding the stadium, scaling the house was the most perilous. So Woodward brought in for consultation Tod Leiweke, the former Seattle Seahawks CEO generally regarded as perhaps the best executive in modern-day Seattle sports, who is now part owner of the Tampa Bay franchise in the National Hockey League.

“I was scared to death,” Woodward says. “I asked Tod, ‘Can I go up this much?’ He started laughing at me. He said, ‘Your demographic and your market is so much better—it’s the best one in the city. They’ll pay it. ... Whatever you charge, you can charge more.’

“I said, ‘C’mon, Tod.’ He said, ‘I’m telling you.’ I said, ‘OK. You’re a lot smarter than me. I’m not going to argue with it.’”

The increased ticket prices follow the pattern of stadium donations and revenues from TV: up, up, up. A lot of people flinched, but few said no. The only thing that went down was the cost of concrete and steel. In all, a tidy deal for the university, primarily because its constituencies can’t seem to get enough of Huskies football. Imagine what might happen if they ever beat the Ducks.

 

Futon Fever: The things that worry Scott Woodward the most

futonfever_image
All the Comforts.
Replicating the living-room experience is one challenge universities face in attracting fans to football games. Suite seats in the new Husky Stadium will offer just about everything but a do fetching beer from the fridge.

The popularity and financial success of big-time college football and men’s basketball do not mean the NCAA is riding high; in fact, threats are everywhere for the college sports’ governing body, whose president is former University of Washington President Mark Emmert.

Lawyers and former players who want to end the hypocrisy of TV networks, schools and coaches making millions of dollars on the backs of unpaid labor are gaining legal traction. On the health front, from peewee ball to the National Football League, fear grows among executives and coaches that player concussions pose a long-term threat to football’s future. For another reason, fear among college sports bean counters grows, too: The rising costs of sports programming on basic cable and satellite TV may provoke a consumer backlash.

Doomsayers argue that with so much litigation as well as increasing public contempt for the way the NCAA does business, now is not the time to undertake a 30-year mortgage on a $200 million debt to pay off a football stadium. But Scott Woodward, the UW athletics director who has done that very thing with revamped Husky Stadium, is more concerned with another threat that has nothing to do with law or health, and everything to do with pleasure.

“It’s the leather couch and the HDTV screen,” says Woodward. “I’ve always said that the competition is not from other entertainment. It’s from the seats at home. Now, instead of four camera angles, you have 20-something angles. With HD, you see blades of grass hitting cleats. As a fan, it’s a heckuva way to watch a game. I get it. We have to give a better experience to a live audience.

“The game is so much more exciting live. We can provide all the replays, all the stats you get on TV, on the stadium video boards and on fans’ mobile devices. I’ve driven [stadium planners] crazy with it. We will have as fine an audiovisual experience here as any stadium in America—all the things that matter to a younger generation. That’s where we hope to beat the leather couch and HDTV.”

The Huskies drew an average of 56,212 fans in 2012 at their temporary home of CenturyLink Field while Husky Stadium underwent its extreme makeover. Arrival of massive TV revenues has taken some pressure off the urgency to sell out at the new configuration of 70,000 seats. But the revenue opportunity coming from each sold seat on a per-game basis has increased dramatically. So mediocre teams that produce more stay-at-home customers who don’t want to put up with game-day traffic, parking and drunken contemporaries are not good for business. That means winning big and often, which only adds to the pressure for UW football coach Steve Sarkisian.

“Sure, there’s pressure, but it was there before the new stadium,” Woodward says. “Has that changed? Not really. You have to have excellence. We have to have a good product to give fans reasons to come.” Many fans in many markets across the sports landscape report an increasing belligerence in crowd behavior, which is especially threatening to parents who bring children to the games. Woodward claims that, so far, safety and harassment haven’t been a concern around Montlake.

“One thing I’m very proud of,” he says, “is we get compliments across the country and from our conference about well-behaved fans. We have very friendly fans.”

Beyond the school’s control, however, are three problems that threaten the NCAA entertainment machine the universities are desperate to keep in order.

A class-action antitrust lawsuit filed in federal court by former UCLA basketball player Ed O’Bannon charges that the NCAA used his image in a licensed video game without compensation, as it has done in the past for thousands of other athletes in many marketing vehicles. A number of current and former players, including basketball greats Bill Russell and Oscar Robertson, are plaintiffs. In February, the NCAA lost for a third time in an attempt to get the case dismissed.

All the pro sports leagues long ago ceded the point, paying players’ unions substantial annual fees for the use of their members’ likenesses. But college players don’t have unions and, until recently, they have never had the help to challenge the NCAA’s questionable commerce.

Writing for ESPN’s Grantland.com website, longtime journalist Charles Pierce said the O’Bannon suit is the “meteor” the NCAA “never saw coming.” If it hits, and Pierce says it’s more than likely that it will, “it will be an extinction-level event for college sports as we know it.” It also could “force the development of a more equitable system in which the people who do the work get a decent share of the profits. All the profits.”

Woodward is entirely dismissive of the harm that the legal challenge may bring, partly because the NCAA successfully has fought off previous charges that it runs an inherently exploitive, plantation-style enterprise.

“There are always warnings, but look at the trends. Get objective and don’t get caught up in the hype,” he advises. “In five years, when we talk about O’Bannon, it will be as a great UCLA player, not someone driving a lawsuit. Threats come and go.”

He views more seriously the threat posed by brain trauma from repetitive blows players suffer during football’s mandatory collisions. Prompted by class-action litigation from retired players, the NFL has taken the lead, and the NCAA has followed, in attempting to make player safety a much higher priority.

“We have to do the right thing and I don’t know what it is,” Woodward notes. “Does damage come from the constant thudding or the violence of a single collision? I don’t know. Medical science doesn’t know. But they are starting to figure it out.

“Where we are today is good—being vigilant with our training and medical staffs regarding athletes and concussions. But to the parents’ question, ‘What have you done?’, I can tell them we have a lucky resource. ... Your son or daughter is going to get the best care on planet Earth right here [at UW Medical Center]. In the new stadium, we’re going to have a UW Sports Medicine clinic.”

Finally, Woodward doesn’t believe that many TV consumers who are funding monthly this more expensive enterprise are likely to turn away from the cable and satellite providers of TV content over the increasing costs of premium sports channels bundled into packages they do not want. He sees the refusal of DirecTV to carry the Pac-12 Network in its first year as less an industry tipping point and more a company playing hardball on price.

“I think there’s a great future and outlook for college football,” Woodward says. “Could there be a bubble [of hyperinflated rights fees passed on to consumers]? Absolutely. Are we prepared for it? Absolutely.

“I don’t see [a consumer backlash]. I wouldn’t want to be in the TV entertainment business with TiVo, On Demand and the other tools that cut out advertising and allow playback anytime.

“For sports, you have to watch our product live; you can no longer escape the information about the game and outcome. When people turn it on, they flock. It’s appointment TV and that will never change. That’s what ESPN and Fox Sports [the Pac-12 Network’s primary national partners] are paying for.” —Art Thiel

Spotlight: Ranking the Banks

Spotlight: Ranking the Banks

State’s ‘Big 5’ remain the same in market share report.
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Wells Fargo & Co. remains the second-largest bank in Washington state by deposits, per the FDIC’s annual Deposit Market Share Report. Will that change next year, given the news of Wells Fargo’s recent, um, less-than-savory customer relations in recent month? Or will depositors have forgotten and forgiven by then?
 
Hard to say. Unless a bank goes out of business or gets swallowed up by another, not much changes year to year in the market-share report, which reflects where bank deposits stood on June 30 each year. But rarely does a bank get fined $185 million for defrauding its customers (see page 64). So stay tuned.
 
In Washington state, Bank of America is perpetually No. 1 — by a large margin — and Wells Fargo No. 2. Rounding out the “Big 5” are JPMorgan Chase, U.S. Bank and KeyBank. Together, this quintet controls nearly 62 percent of the market share in Washington state. 
 
In that group, the biggest mover this year was JPMorgan Chase, which vaulted past U.S. Bank into third place statewide with a healthy increase of $1.7 billion in deposits. This doesn’t mean it was necessarily a bad year for U.S. Bank, which itself posted an increase of $1.1 billion in deposits. It’s just that, relatively speaking, some banks have better years than others. In fact, only one bank in the top 10 — Umpqua Bank — reported a decline (from $5 billion to $4.9 billion) in statewide deposits.
 
 
 
After the Big 5, the next five-largest banks by deposits are Washington Federal, Umpqua Bank, Columbia Bank, Banner Bank and Washington Trust Bank, which have a combined state market share of 15.6 percent.
 
Banner Bank moved into the top 10 statewide after acquiring AmericanWest Bank. Banner had been 12th in the statewide ranking in 2015; this year, it’s ninth, with $1.3 billion more in deposits.
 
The top five banks in the state are also the top five in the Seattle-Tacoma-Bellevue area, controlling 71 percent of the market. In the next tier, Columbia Bank moved from eighth to seventh and HomeStreet Bank from 10th to ninth. 
 
In Washington, no single bank may accumulate more than a 30 percent share of the state market. That figure used to be fairly standard across the country, but Congress gave states the authority to raise or lower their caps, and many in the past decade have chosen to eliminate them altogether. In the West, for instance, Oregon, Idaho, California, Utah, Nevada and Hawaii have no market-share caps.