Media & Marketing and Sports Business

WANTED: Coach with Midas touch: IU searching for hoops leader who'll bring financial stability to athletics-and university

March 13, 2006

With a $1 billion capital campaign looming at Indiana University, athletic director Rick Greenspan is facing his biggest decision.

Many observers think the choice of basketball coach will determine not only the health of the men's basketball program, but of the entire IU athletic department-and to some extent the entire university-for decades to come.

IU officials have not yet publicly announced their capital campaign, which would allocate about $85 million for the university's athletic facilities, and likely won't until next year. But several deep-pocketed alums already have been contacted, and they cautioned not to underestimate how the choice of a new basketball coach would affect giving.

"I can't think of a single decision facing the athletic department that would be more important right now," said Clarence Doninger, an IU alumnus and local attorney who served as IU's athletic director from 1991-2001.

"At Indiana, basketball has been the driving force in terms of how much money has been generated," not only for the athletic department but for the university as a whole, he said.

Greenspan, who declined to be interviewed for this story, helped grow alumni giving by 300 percent at Army from 1999-2004. IU hired him in the fall of 2004 mainly for his fund-raising prowess. But his success on that front in Bloomington will hinge largely on how he leads the university's first full-blown search for a men's basketball coach since 1970.

"Raising contributions at Army with all the power of West Point alumni is one thing; selling IU right now is another," said David Morton, a locally based sports marketing consultant who formerly worked in sales with the IU athletic department.

There hasn't been much good news coming out of Indiana's athletic department recently. Three football coaches and three athletic directors in five years helped put the department in financial distress, and unrest has swirled around the men's basketball program since Bob Knight's firing in 2000.

It's difficult to draw a direct connection between those problems and overall giving to IU, in part because large, one-time contributions can skew the picture. But the university has seen annual contributions drop from $220 million in 2001 to $150 million in 2005.

Local IU alums say that for the giving tide to rise in Bloomington, the university must restore stability to the athletic department and the basketball program in particular. The stakes are high-alumni donations comprise more than 20 percent of the school's $38.3 million athletic department budget and are crucial to pay for athletic scholarships.

"It seems they have one issue after another pop up," said Stephen Stitle, CEO of National City Bank of Indiana and an IU Foundation trustee. "I'm still a big supporter, but what has happened over the last five years has touched every fabric of the university. That gives me great concern."

Stitle and other alumni say problems in the athletic department, particularly the basketball program, cast a pall over the entire university.

"The trauma around the whole Mike Davis situation detracts from what they're trying to do down there," said Stitle, whose family has attended IU for three generations. "It's always portrayed negatively. Never positively. I think that has a negative impact on the morale of the faculty and alumni."

Mike Davis, who replaced Knight as men's basketball coach, announced his resignation in February. His tenure will end at the conclusion of the season after six tumultuous years. Though Davis took IU to the national title game in 2002, he was criticized for his team's inconsistency and his inability to unify IU's fan and alumni base.

Financial cellar dweller

If the IU football and basketball programs merely had to cover their own expenses, they'd have it made. Last year, IU's men's basketball program reported revenue of $11.93 million and direct expenses of $3.83 million. Football reported revenue of $10.54 million and expenses of $10.11 million.

But as at any university, the big-ticket sports support other athletic programs. And at IU, where football revenue is at the bottom of the Big 10, basketball revenue is that much more critical.

The IU athletic department's revenue has not only struggled to keep pace with its expenses, it has fallen far behind that of many Big 10 schools. Ohio State, for example, grossed $88 million last year, and spends it freely on state-of-the-art football and basketball venues and training facilities for all athletes.

"This program is looking for a savior," said Richard Sheehan, a University of Notre Dame economist and author of "Keeping Score: The Economics of Big-Time Sports." "What they may need is a miracle worker."

Ticket sales for 15 or so home basketball games a year-along with ancillary revenue from parking, concessions, merchandise sales and broadcast deals-generate the bulk of the basketball program's revenue.

But tickets also are used as a hammer to drive alumni donations, said Doninger, and those tickets are a more effective fund-raising tool when the team is of national-championship caliber.

Greenspan seeks saviors

The connection between basketball success and the university's broader fundraising success puts Greenspan under the kind of pressure that a clutch shooter might understand.

"This is certainly different from any other [job candidate] search that Rick Greenspan has ever conducted," said Mike Pegram, who has operated a Web site dedicated to IU sports since 1998 and is online coordinator for Inside Indiana Magazine. "Basketball is the lynchpin to everything at Indiana. Not only does it support the other non-revenue sports, it also has more to do with the university's national image than any other sport. That's why this story has drawn national attention, and I think that makes Greenspan's job more difficult."

Several sources close to the university said Greenspan sees his football and men's basketball coaches as the keys to revenue generation. Last year, he chose the charismatic Terry Hoeppner to replace Gerry DiNardo as football coach. Now, he wants a men's basketball coach who can not only win games but also generate a level of alumni support that coach Mike Davis could never deliver.

"Mike Davis did legwork with alumni, but he wasn't the dynamic speaker who could draw in the big-time alums," Pegram said. "Regardless of what he was able to achieve on the court, I think that hurt him."

With an unsteady ebb and flow of alumni donations over the last five years, a capital campaign will put serious pressure on IU fund raisers trying to dig even deeper into alums' pockets. And the rancor associated with IU's highest-profile teams won't help.

"There's lots of fragmentation among high-ranking IU alums right now," Morton said. "IU is in kind of a delicate situation. The IU nation needs to be unified, and a basketball coach can do that."

The downward spiral of an athletic department can quickly feed on itself, said Phil Isenbarger, a member of IU's 1981 NCAA basketball championship team and a partner in the local law office of Bingham McHale.

IU's athletic facilities are more than 10 years outdated, Isenbarger said. That makes it difficult to recruit the star athletes who can keep IU basketball near the top of the Big 10 or turn around its longstruggling football program.

"Right or wrong, I think a big part of how IU is perceived is how the athletic program is doing," Isenbarger said. "I think IU is at a critical crossroads."

The $85 million sought for the IU athletic department, sources said, will be used for training facilities, locker room upgrades, coaches' offices and other improvements for IU teams.

More cash needed now

IU's more immediate concern is raising enough revenue to cover current costs.

In 1993-94, the IU athletic department took in $2.3 million more than it spent, and the IU Varsity Club-the athletic department's fund-raising arm-had a $4.1 million nest egg. That reserve ballooned to $7.7 million during the 1998-99 fiscal year.

But a 25-year-old university policy change has taken its toll. The university formerly waived scholarship athletes' tuition, but in the early 1980s, trustees phased in a policy that required the athletic department to pay for student-athletes' tuition at full resident and non-resident rates.

In addition, IU's athletic department received no financial assistance from the state or university until it enacted a $30 student athletics fee last year. Athletic departments at Illinois, Iowa, Minnesota, Northwestern and Wisconsin are all subsidized through the university.

The Varsity Club is responsible for raising enough money for student-athlete tuition, room and board, textbooks, training-table meals and tutoring. Varsity Club Director Scott Dolson and board Chairman Ron Remak did not return repeated calls seeking comment.

Even though giving to the Indiana University Varsity Club inched up over the last three years, the cost of helping more than 600 varsity athletes in 24 sports has grown even faster.

Tuition costs, which have quadrupled since the 1980s to more than $5,000 annually for in-state students and increased seven-fold to more than $15,000 for out-of-state students, have been difficult for the Varsity Club to cover.

The cushion between revenue and expenses disappeared, and by 2001-02, the school's athletic department was $3.1 million in the red. By 2005, the debt deepened to $5 million. The Varsity Club's reserves have nearly evaporated.

The Varsity Club generated $7.18 million last year for scholarships: $5.58 million in annual gifts and $1.6 million from endowment interest. Student-athlete scholarships are expected to cost a record $7.9 million this year, up from $4.25 million in 1994-95.

"Certainly, this is why [IU officials] brought in Rick Greenspan. It's his job to cure this ill," said Milton Thompson, president of locally based sports marketing consultancy Grand Slam Cos. and a graduate of IU's Law School. "With a capital campaign on the horizon, he has two sets of issues to focus on: the department's future challenges and current problems. I'm sure he's feeling that heat."

While the rising cost of athletic scholarships is the biggest reason IU's athletic department is in the red, rising department expenses also have taken a toll. The increases stem from higher employee salaries, costlier benefits, additional personnel, facilities upgrades and contract buyouts-including $800,000 for Davis.

An army of one

Though Greenspan has enacted his own private quiet period before hiring a new basketball coach, he has made it clear his main focus will be to enhance revenue.

Some alumni believe Greenspan has even succeeded in raising donations to buy out Davis' contract. The practice wouldn't be unheard of. In 2002, Seminole Boosters, Florida State University's version of IU's Varsity Club, reported in a filing with the Internal Revenue Service that it used $260,000 to "buy out coaches' contracts."

Greenspan has alumni support, and hired the likable Hoeppner at a fire-sale price. Hoeppner's $250,000 annual salary-which he can increase to $600,000 with camps and outside deals-is the lowest in the Big 10. Still, IU likely will have to pay considerably more to land a top basketball coach.

Stitle gives Greenspan the "highest marks" for his take-charge attitude.

"When he was asked about the [basketball coach] search committee, he said, 'I am the search committee,'" Stitle said. "He showed good judgment in hiring [Hoeppner], and I think he's handled the Mike Davis situation well. Sometimes I don't think group-think helps in the selection of a coach."

Greenspan has initiated a marketing blitz for football, in an effort to boost home-game attendance, which trails the Big 10 average by nearly 50,000 per game. But he hasn't lost focus on IU's Holy Grail.

Shortly after Greenspan arrived in Bloomington, IU began requiring a $10,000 donation for the right to buy a pair of basketball tickets in the sideline courtside seats. Press row was relocated to bleachers in Assembly Hall's southwest corner to make room for 72 courtside folding-chair seats. Alumni must contribute $15,000 to be considered for those, and they sold out quickly.

Once Greenspan gets his new basketball coach in place, sources said, he'll seek to raise the program's profile and revenue by reintroducing a coach's TV show, which went off the air three years ago, and launch other public relations initiatives.

No doubt, Greenspan will work quickly to put the new coach in front of the university's most influential-and monied-alumni.

"At Indiana with basketball, it's not just about winning, it's about national championships," Sheehan said. "It's the same way with alumni giving. Donations haven't declined in recent years, but at Indiana, when you make basketball the driver, so much more is expected."
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