The Ongoing Struggle To Pay Off The Stadium Debt: Q1 Of FY2014 Update

Kirby Lee-USA TODAY Sports

Let's check in with the numbers to see how things are going in the long term plan to pay off the stadium debt.

Cal recently released a news story providing a status on the CMS debt financing plan. This news story is based on reported numbers from the first quarter of FY2014 (aka July 1, 2013 to September 31, 2013). You can see that information here. This is complex stuff and a bit above my paygrade as it is, but I just wanted to try to break it down into bite size chunks. The first step is defining our universe.

Cal upgraded its football stadium and athletic facilities. To do this, Cal took on over 400 million dollars worth of debt. The concern is the ability to pay off this debt. Can Cal do it? How will Cal do it? We've discussed this issue in multiple posts.

Cal has approximately 6 different means of raising revenue to pay off the debt (ESP sales, seat sales, investment income, donations, event marketing revenue, and lease revenue), but there are two that the most important: selling expensive ESP seats and investing that money to make more money. There are a lot of numbers here, but I wanted to just give a summary real quick.

Cal appears to be slightly ahead of their "base case" scenario (where Cal pays off the debt by 2053 and has over $300 million in surplus remaining).

At the close of the 2013 fiscal year, the balance of the Fund Functioning as an Endowment (FFE) totaled $54,713,901, a figure more than $2 million above the base-case expected. The base case represents a mid-point in terms of the return on the FFE and other assumptions.

So, this is solid.  I don't need an extra $300 mil, let's just get the debt paid off.  It is sufficient and right now I think we'd all take sufficient. Sufficient will pay off the debt.  So, with that positive opener out of the way, let's dig in to the numbers.

1. Pledge Seats

The first section on raising money is sale of pledge seats (aka long term ESP seats). These are the engine that makes this plan go. It appears that in 1Q of FY2014, Cal sold 76 pledge seats to take the total sold to 1,856. However, they actually took in less money in 1Q FY2014 than 1Q FY2013:


Category

Revenue Collected in Q1 of FY14

Revenue Collected in Q1 of FY13

Pledge Seat Revenue

$797,739

$1,346,922

Premium Seat Revenue (non-pledge seats)

$422,298

$236,600

Philanthropy and Partnership Revenue

$15,800

$0

Rental Revenue

$0

$0

Investment Earnings

N/A1

N/A1

Operating Support

N/A2

N/A2

Total FY14 Model Related Revenues

$1,235,837

$1,583,522


The report argues that the payments come in on an inconsistent basis until April of that fiscal year when payments are due (if you scroll down on Cal's report, you'll see that between March 30, 2013 and June 30, 2013, they received over $10 million in revenues). Their point is that even though revenue is down about $500K (despite more seats sold), the numbers are difficult to compare. It begs the question of why provide difficult to compare numbers, but the bottom line is that a true apples to apples comparison is total FY as compared to an individual quarter thereof. This is the total info for FY2013:

Through June 30, 2013

Field Club Seats

Stadium Club Seats

Univ. Club Seats

Total FY 13

Total Seat Inventory for Sale

1,426

1,051

425

2,902

Seats Sold to Date

1,010

656

114

1,780 (1,8121)

Seat Sales in Progress

20

28

2

50

Dollar Value of Seats Sold

$53.8 million

$68.0 million

$23.7 million

$145.5 million


FY 13 Cash Received Summary

FY 13 ESP Revenue (Through 4th Quarter)

$11,213,050

FY 13 Donor Recognition Revenue (Through 4th Quarter)

$4,349,885

FY 13 Premium Seat Revenue (non-ESP) (Through 4th Quarter)

$694,994

FY 13 Event Marketing Revenue (Through 4th Quarter)

$190,068

Total FY 13 Cash Received through June 30, 2013

$16,447,997

Previous Fiscal Years Cash Received

FY 10 ESP Revenue (Full Year)

$14,367,534

FY 11 ESP Revenue (Full Year)

$13,461,021

FY 12 ESP Revenue (Full Year)

$12,910,763

FY 12 Donor Recognition Revenue (Full Year)

$714,286

Total Cash Received through June 30, 2013

$57,901,601


2013 Cal Football Season (F13) – Premium Full-Season Equivalents

Pledge Seats

1,780

Perk Season-Ticket Seats Sold

136

Premium Group Tickets Sold

422

University Club Bundle Seats Sold

42

Field Club Bundle Seats Sold

24

Total F13 Premium Full-Season Equivalents Sold through June 30, 2013

2,024


So, Cal sold approximately $11 million worth of ESP tickets in FY2013. That is the number to beat for FY2014. Cal says they should beat it, given the 86 ticket increase. We will continue to monitor their numbers (which they state will be released biannually) to check on their progress here.

2. Non-Pledge Seats.

Since the original plan for ESP seat sales was not working out as well as hoped, Cal decided to sell individual ESP seats on a bundled basis. You don't have to promise money for 25 years to buy these seats. They are just for one game or one season. The report triumphantly states that selling approximately $400K in Q1 here "set a new high for one single quarter of sales activity." The numbers are listed here:

2013 Cal Football Season (F13) – Premium Full Season Equivalents

Pledge Seats

1,856

Perk Season Ticket Seats Sold

183

Premium Group Tickets Sold

693

University Club Bundle Seats Sold

66

Field Club Bundle Seats Sold

30

Total F13 Premium Full Season Equivalents Sold through September 30, 2013

2,204

Since these tickets didn't exist more than a year or so ago, this isn't quite the triumphant result one might think. However, it is still solid. It's an extra $400K that didn't exist before, so that is good. A full seat is better than an empty seat 10 out of 10 times. Unlike the pledge seats, I don't think that you can delay paying for these seats. So, it wouldn't be like the pledge seats where we see a massive spike later on. However, in FY2013, Cal got about $885K in total revenue from this source (and had 50% of the revenue in Q1 as compared to FY2014). So, Cal is about 50% of the way to matching its revenue from this source from last year.

The second quarter of FY2014 includes the latter chunk of the season (when things REALLY went off the rails), so numbers might decrease some starting in Q2. I could be wrong. Overall, the non-pledge seats could potentially gross an extra million or so a year (in a good year?), so they are an important component, but much less than what the pledge seats could earn. Every little bit counts, though!

3. Donations And Partnerships.

Cal got $15K in donations in Q1 of FY2014, up from $0 (!?!?!?!?!??!) in Q1 of FY 2013. How did they get NO donations in an entire quarter? That makes no sense to me. Either way, Cal says to expect more donations later in the fiscal year (i.e. closer to April), so no biggie. If you look at the chart above with the 2012 and 2013 info you can see Cal got approx $700K in FY2012 and approx $4 mil in FY2013. That is quite the massive jump. I guess people loved it when she fired Tedford. People may not be quite so enthusiastic now, one year into the Dykes regime. We may not see that $4 million number at all.

This number does include "partnerships" and there is a note in the report about how the Kabam deal will begin to show dividends later in FY2014. That is not reflected right now, but we should see about $1.25 million in 2014. We'll continue to monitor this information.

4. Leasing revenue.

Cal has started leasing some facilities. There is a lab for the business school that they are making money off of and a satellite RSF at Memorial, also. No numbers are listed regarding income here. The report says that money will start coming in soon, though. We'll see.

Valued reader BandAlum tells me that there is about 8,000 square feet of available for lease and that this may bring an extra $150,000-$200,000 per year. That is not a lot of money given the $400 million target here, but every little bit helps!

CONCLUSION

This report is promising, but I think Cal is making it out to be a little more promising than it really is. From June 30, 2013 to September 31, 2013, the Department got about $1 million in revenue (i.e. total cash received). That includes the start of the Sonny Dykes era and a time when optimism would be running high. Despite increased ticket sales, they brought in less money from pledge seats than the same time period the year before when Tedford was limping to his unfortunate conclusion. You would think people would be more motivated to put in their money earlier at the start of the Dykes era. These numbers do not represent the latter chunk of the season when everything ever fell apart, which presumably would de-motivate people to pay. We'll see what happens in April.

Having said that, I'm cautiously optimistic after reading this report. It shows that the new plan has a chance to succeed and is being partially successful in early results. Cal is slightly above where they need to be to pay off the debt in a long run. They are slightly ahead of their "base case" scenario, which was defined as followed:

Taking as given IA’s forecasts for revenue and investment returns, the current funds earmarked to pay off the stadium debt will achieve this goal by 2053, leaving an additional $319 million for other uses.

That means Cal is slightly ahead of a scenario where we the plan makes an extra $319 million by 2053! Sounds good to me. But there is a lot of time between 2053 and today, so as Cal puts out financial information on this plan, we will continue to review and provide it to you guys. What are your thoughts on this? Does Cal look good here or are you concerned about how the disastrous 2013 season will affect this?

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