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University of Montana football strength and conditioning coach Matt Nicholson can't help but be all smiles Friday morning while talking about the weight room at the new $14 million Washington-Grizzly Champions Center. The weight room will serve all student athletes for 15 men and women's teams. "This is a big-time game changer for us," Nicholson says.

MISSOULA — The University of Montana’s athletic department operated in the red during the 2018 fiscal year, marking the second time in four years it has done so.

Athletics reported a loss of nearly $600,000 in day-to-day operations, according to an expense and revenue report submitted by Montana to the NCAA and obtained by the Missoulian. That forced UM to dip into its reserve funds, which are down to $21,000 from a high of $730,000 in 2015.

“We bled it dry,” said Montana Associate Athletic Director for Business Operations Ryan Martin. “Our rainy day fund has been chewed down. Nobody’s going to feel sorry for us here because of that. That’s how everybody’s operating. It is what it is.”

The reserve funds were largely used to pay for anticipated rising costs in athletic scholarships and expenses for the Champions Center, which opened Oct. 13, 2017.

Total operating expenses for the fiscal year that ended last June rose by $1.3 million, from $21.2 million in 2017 to $22.5 million in 2018, the second highest UM has ever reported.

The highest spending was $23.8 million in 2015, which resulted in a $1.4 million shortfall.

While expenses rose, the athletic department’s revenue dropped $5.3 million from its record high of $27.2 million in 2017, which was fueled by multi-million-dollar contributions for the Champions Center.

The $21.9 million in revenue in 2018 was the lowest since 2014.

Montana had reported a $6 million operating surplus in 2017, but that included money earmarked for the Champions Center. So, the athletic department went into its reserves, which it expected to do, when the expenses exceeded revenue in 2018.

"We want to be as self-reliant as we possibly could be," Montana Athletic Director Kent Haslam said. "I’d hate to say it’s not a concern because that makes me look like I’m just pushing it off. But we also have cycles, we know we have cycles, and that’s why we build reserves. That’s why we do those types of things so we can make sure we can get through things."

The Champions Center accounted for most of the growth in the athletic department's debt, which grew just over $4 million between 2017 and 2018. UM still owes $5 million in loans for the center, Martin said.

The growth in athletic debt, which occurred while the rest of UM was cutting budgets, meant that athletics accounted for 14.5 percent of UM's debt in 2018, up from 9 percent in 2017.

The 2018 fiscal year ran from July 1, 2017, to June 30, 2018, and included the 2017 football season and 2017-18 basketball season.

Increases in expenses

The athletic department’s biggest expense increase came from “other operating expenses,” which doubled from about $900,000 in 2017 to $1.8 million. It also spent about $407,000 more in fiscal year 2018 for direct overhead and administration expenses.

Martin said final expenditures for the Champions Center were divided mostly into those two categories. Those costs fell in the 2018 fiscal year while revenue from contributions were in the 2017 fiscal year.

The rise in “other operating expenses” also came from one-time fees for the football team’s mobile tackling dummies, a consulting fee for the Champions Center and setup for new computer software, among other minor expenses.

Direct overhead and administration expenses included $480,000 to replace the turf on the football field, a one-time fee, and the yearly 8 percent administration assessment charged by the university on expenses, which came out to $687,000, according to Martin.

Athletic scholarships increased by about $140,000 from 2017, up to $5.43 million, which was more than the money provided by the university’s general fund and the Grizzly Scholarship Association.

That increase came even though the number of equivalent scholarships fell by about two, from 170.82 to 168.1. Martin said factors for the higher cost could include whether a scholarship covers in-state or out-of-state tuition prices, an increase in university tuition, or the number of credit hours taken by the athlete on scholarship.

Athletics also spent about $220,000 more in athletic facilities debt service, leases and rental fees in 2018.

There were also a few major declines in expenses. Montana spent about $290,000 less on team travel and about $190,000 less on fund raising, marketing and promotion. Severance payments dropped by nearly $117,000, down to $34,000.

Total operating expenses don't include athletics-related capital expenditures, which were $4.7 million in 2018, down from $9.8 million in 2017.

Declines in revenue

The largest decline in revenue came from contributions, which dropped $6.1 million from a record high $9.4 million and was expected since the 2017 contributions included donations for the Champions Center. However, the $3.27 million in contributions for 2018 were the lowest since 2014, when the athletic department got $3.25 million. Montana had pulled in at least $4.6 million each of the three years in between.

The budget shortfall came despite subsidies from the university increasing by about $426,000 from fiscal year 2017 to 2018, going from about $7.45 million to $7.88 million. The subsidies for the 2018 fiscal year accounted for 35.91 percent of the athletic department’s revenue, up from 27.41 percent in 2017. That percent remains by far the lowest in the Big Sky Conference.

Despite the increase in overall subsidies, student fees — which is one of four subsidy categories — were about $100,000 less than 2017, down to $1.19 million, as the university deals with dwindling enrollment. The student fee total has declined every year since fiscal year 2013, when the fee generated $1.58 million as it was increased from $58.50 to $71.00 per semester for full-time students because of the addition of softball.

Among other declining revenues, ticket sales were down nearly $230,000, including about $350,000 in football ticket sales, falling to $5.35 million. The basketball team also took a hit of $85,000 when it didn’t get paid its guarantee game money against UCLA because the game was canceled.

NCAA distributions dropped $500,000, but that was because of a one-time, $512,000 distribution to all schools in 2017 for new student-athlete support systems, Martin said.

Despite those declines, Montana had major revenue increases in multiple categories. Its guarantee game money increased by about $570,000, up to $916,500. It had an increase of nearly $1 million, up to $2.2 million, in royalties, licensing, advertisements and sponsorships.

Getting back into the black

With just $21,000 in reserves, there’s little room for error, and Martin said Athletics has built a budget that won’t dip into that in 2019. He and Haslam said there’s no option to ask the university for money if reserves are tapped out, although Martin said that happens at other schools.

Montana’s path to getting back into the black can be by increasing revenues, decreasing expenses or a combination of both. Martin pointed out that revenue can be raised by increasing ticket prices, but if they’re raised too much people might not buy them. He added that expenses can always be cut, but if too much is cut it could affect how good a team is, which could lead to losing seasons and affect revenue.

“The pressure is living up to the justified expectations of competitiveness while trying to be fiscally responsible,” Martin said. “That’s the pressure. It’s easy to balance a budget if you didn’t care about competitiveness and Title IX and Big Sky Conference mandatory rules. It’d be really easy. But the pressure is being financially responsible while working in those parameters.”

Haslam said there's no plan to cut scholarships or restrict coaches to recruiting in-state players.

"We want to make sure we give all of our coaches the best chance to succeed," Haslam said. "Certainly, we want to recruit Montana first because it’s great to have Montana kids on the roster and it’s also less expensive, but we also know we’ve got to be able to go out of state and recruit as well. There aren’t plans to restrict those. We work individually with coaches and build budgets. We have to make sure we stay competitive, especially in those sports that generate revenue."

When Montana makes a profit, the money can go back into the reserve fund or into a plant fund that’s used for facility upgrades, Martin said.

There will already be higher revenue in fiscal year 2019 from football ticket sales in the 2018 season, which increased by about $70,000 from the previous year.

There’s also the potential that travel expenses in future years will go down with North Dakota leaving the conference.

“It’ll be interesting to see how that affects the budget,” Martin said. “It’s hard to tell. But I know it’s going to get better because it got worse immediately when we immediately added them. It’ll be interesting.”

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Frank Gogola covers Griz football and prep sports for the Missoulian. Follow him on Twitter @FrankGogola or email him at Frank.Gogola@406mtsports.com.

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