Chair Lively and members of the Committee. For the record, I am Jayathi Murthy, President of Oregon State University.
Thank you for having us back to provide additional information on the impacts of conference realignment. It is my understanding that you would like us to provide our thoughts on what role the State should play in mediating disputes and/or overseeing decisions with statewide financial implications. I understand you would also like a more detailed discussion on OSU Athletics finances.
I will share OSU’s perspective on governance and Scott Barnes will share the athletic department’s information.
I want to start my remarks by sharing that the current public university governance structure is working well. It enables university boards of trustees to build deep and knowledgeable relationships with the university they govern and focuses heavily on their fiduciary responsibilities. This structure also allows universities to have specialized missions, to be nimble and creative and to build our unique strengths to serve our regions and the State. This kind of deep understanding and thoughtful engagement by boards is rarely true in state university systems with many boards that must oversee a half a dozen or more institutions.
However as public institutions, we should be mindful of the broader impacts of our decisions and be good stewards of the public resources allocated to us. While potentially not binding, I believe the intent of the legislature is clear and that university boards of trustees must act in the “best interests of both the university and the State of Oregon as a whole.” There is no guidance on how to best assess the interests of the State, how disputes are to be resolved and who is responsible for oversight.
It is important to acknowledge that the UO Pac-12 decision that led to immediate and dramatic financial harm to OSU was unique. First, there was simply the extraordinary size of the impact — over $40M annually, a magnitude we had never seen before. Decisions were made quickly — overnight — and with no consultation. And there was no opportunity for reversal or consideration of a different path. But this event is not typical, and remedies crafted to address it may become too heavy-handed to address far more common situations.
In looking forward, I have the following recommendations:
- It is necessary to better define what it means to make decisions in “the best interests of both the university and the State of Oregon as a whole”. One important action is to have the HECC highlight this responsibility in its new training requirements for boards of trustees under SB 273.
- It is critical that institutions consult the affected parties regarding decisions that may cause immediate and significant harm to another public university or public entity. You may wish to consider a threshold monetary level beyond which such consultation would be required.
- All institutions of higher education—including both universities and community colleges—have a variety of impacts on one another through their actions, both positive and negative. That is to be expected and even welcomed, as it is a result of the schools continually working to serve student, community and state, and workforce needs more effectively. The situations I’m speaking about are those that are the kinds of dramatic changes we’re talking about today, an action by one institution that means another—virtually overnight—now faces $40M in annual losses.
- If the entities involved cannot come to agreement regarding the impending action, a mechanism for mediation should be developed, keeping in mind the need for discretion and responsiveness.
- As much as possible, I urge you to preserve Oregon’s current independent governance structure, while holding universities and our board of trustees accountable as public institutions.
- Finally, as this Committee considers this question, please recognize that any provisions the state puts in place for future scenarios will not reverse UO’s decision. They may, paradoxically, end up constraining OSU’s ongoing efforts to deal with the situation it now finds itself in, through conference discussions. OSU needs the tools necessary to negotiate the best path forward for our student-athletes and to maintain the strength of our programs.
I will now turn it over to OSU Vice President and Director of Athletics Scott Barnes.
Chair Lively and members of the Committee for the record my name is Scott Barnes, vice president and director of athletics at Oregon State University.
I have been asked to present on specifics of OSU’s prospective budget shortfall and paths to stabilizing the university in the short term.
To put the discussion into perspective, I’d like first to give you an overview of OSU Athletics’ budget. For the 23-24 fiscal year, we are projecting $95M in revenue. You’ll see the bulk of that currently being from media and conference revenues, which will dramatically decline in FY 2025.
- Lottery proceeds are allocated through the Sports Lottery program, which sets aside 1% of lottery funds for athletic scholarships. OSU and UO are the smallest recipients of those funds, due to our previous media revenues.
- OBN stands for Our Beaver Nation, which is donor support for OSU Athletics.
You’ll see we are projecting 20% decline in some other revenue areas. We are basing this estimate on a comparison between our current revenue and those of Group of 5 schools.
I am proud of how we utilize these funds to support our student athletes in both their athletic and academic pursuits. These students are building skills that will serve them once they leave OSU. We are doing this holistically through the building blocks of professional development, leadership enhancement and community engagement.
- 93% of the student-athletes are engaged in these development program.
- 80% of student-athletes participate in community service activities.
I’d now like to share our experiences through COVID and its financial implications. At the start of the pandemic, the Pac-12 basketball tournament was underway. Health precautions shuttered the tournament. That was also our first financial impact. Between the Pac-12 tournament and NCAA’s basketball tournament, over $21M in conference revenue shares was lost.
That year, our spring sports did not play. Moving into the 20-21 season, we did not have fans in the stands. In the middle of the season, we did bring some baseball fans back midspring in a very limited capacity.
You’ll see that our revenues losses were over $38M, but we did find cost savings to partially offset these losses. This included:
- 10-25% budget strategic reductions in operations across all units
- Reduced programing for student athletes
- 25 positions reduced through re-orgs and retirements
- Salary Reduction plan put in for Athletics for an entire fiscal year
- All coaches on contract participated voluntarily
COVID did not just impact the revenue side, we also had increased costs of about $2M due to stringent health protocols we implemented to keep our athletes, coaches and staff safe. This included daily testing of our athletes, coaches and onsite staff. However, over half of these expenses later reimbursed by federal assistance.
The University did advance funds to Athletics during this time, with the understanding Athletics would pay back the COVID deficit with expected increased revenues. This was based on expectations of Pac-12’s new media deal and increased revenue due to the Reser Stadium remodel. While Reser remains a revenue generating asset, the rest of our budget is uncertain.
I’d like to share how OSU Athletics financially compares with our peers. These are FY 21-22 numbers and show a comparison between OSU and the average expenses in Power 5 conferences. As an example, for FY 21-22 the average Power 5 athletics expenses were almost $138M and the average Pac-12 athletics expenses were $116M. These lower funding levels have not impacted OSU’s level of competitiveness. We are known to punch above our weight. Our student athletes are competing at the highest level and that is partially because we are good stewards of the funds we receive.
As we compare our current funding with a Group 5 conference, you can see they are funded very differently. We’ve pulled the athletic revenue of two Group 5 schools. The bar graph compares the subsidy funding received through university and state supports. The bottom chart compares their overall revenue with OSU’s.
Moving forward, we will need a mixture of new funding sources to continue to support our athletes in their academic pursuits and to compete at the highest level and give our fans outstanding experiences. We are looking to the state for some of that support.
This is not a situation that OSU or our student athletes caused.
As we mentioned in September, we have two financial ask for the 2024 session.
First, securing support for our athletic scholarships. Currently, OSU has a $10.4M annual commitment toward athletic scholarships. Due to significant reductions conference and media distributions, the current Lottery allocation of $650,000 is requested to be expanded to meet our students athletes’ scholarship needs. OSU requests expanding the current Sports Lottery Program by 1% and dedicating those funds to OSU student athletes.
Second, one-time funds to cover the COVID deficit. Our opportunities for repayment have changed due to conference realignment. If left unpaid, this debt will ultimately be covered by OSU students through E&G funds, which consists of tuition and state funding allocations.
I want to close by assuring you that we are not only looking toward the state for assistance. We are doing our part in to find all other possible sources of revenue, but we do need assistance from the state for these two areas that directly impact students.