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The Half Century Finger Cross: Cal Releases Its Financials As Of 2Q FY 2014

Who likes to look at numbers??????????????????????

Kirby Lee-USA TODAY Sports

Time to start writing this post. Sometimes when you don't know how to start a post, you should just write how you are going to start the post. This time I'm going to be writing about how this post really needs to be started. I'll use this introductory paragraph about starting the post to actually start the post and help me move past my languidness.

What are we talking about today? Math, finances, and the almost sixty year plan to upgrade Cal's facilities and then avoid fiscal catastrophe. Yes, you heard me right, over a half century plan. It's really going to be longer than that, because the intent to upgrade the facilities has been around for a long time.  Running Wolf and Dumpster Muffin sitting in a tree, N-O-T-S-H-O-W-E-R-I-N-G. First comes tree-sit, then come's lawsuit.  Then, comes new stadium in a new stadium carriage.

The bottom line is that Cal has set a plan to pay off the 400+ million dollars worth of debt by 2053. That is our end game here.  Twice a year for the next forty years, Cal will release its financials and hopefully we will be ahead of or at the very least on track to pay off the debt by the time I'm in my 70s.  How are they going to do it?

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 are 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 as to how the numbers look as of December 31, 2013 (full numbers here).

We are treading water, but with an ominous outlook. Last time we discussed the numbers (as of September 30, 2013), Cal was a few million dollars ahead of its base case scenario, which is a situation where not only has Cal paid off the debt, but they've also made $300ish more million dollar on top of that.  So, that is great!  However, not all is rosy.  We'll get into that in a moment.

We seem to have basically the same amount of money in Q2 as Q1.  It was 59 mil at September 30, 2013 and 60 mil at December 31, 2013.  Given that we lost a few months in our quest for 2053, treading water over time is an acceptable outcome.  So, that's positive.

Cal switched over its reporting for quarterly to bi-annually.  So, they reported Q1 numbers and then Q2 numbers, meaning I have to do math to figure out exactly what happened in Q2.  I didn't go to 3 years of mediocre law school to have to do math!

Here are the Q2 numbers that we'll be looking closer at:

Category Revenue Collected Through Q2 of FY14 Revenue Collected Through Q2 of FY13
Pledge Seat Revenue $2,108,001 $2,064,874
Premium Seat Revenue (non-pledge seats) $547,963 $210,755
Philanthropy and Partnership Revenue $20,650 $0
Rental Revenue $66,540 $0
Investment Earnings N/A1 N/A1
Operating Support N/A2 N/A2
Total FY14 Model Related Revenues $2,743,154 $2,275,629

Here are the numbers through Q1, so by doing basic subtraction, you can see what Cal accomplished from 10.1.13-12.31.13:

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

Pledge Seat Revenue AKA Cal Fudges The Numbers

When I sat down to list Q2 minus Q1 and get to the bottom of things, the first thing that jumped out at me is the confusion regarding the real numbers.  The most important stat, by far, is Pledge Seat (i.e ESP seats i.e. long term super expensive 1% seats) sold.  The more of those sold, the more investment money we have to grow over time.  Of the 2.7 million of revenue at the end of Q2, 76% of it came from Pledge Seat sales.  Cal received 1.2 million worth of revenue from pledge seats in Q2.  As ESP goes, so goes 2053!

Here is the info on seat sales for Q2:

2013 Cal Football Season (F13) – Premium Full Season Equivalents
Pledge Seats 1,8676
Perk Season Ticket Seats Sold 183
Premium Group Tickets Sold 79
University Club Bundle Seats Sold 66
Field Club Bundle Seats Sold 30
Total F13 Premium Full Season Equivalents Sold by End of Season 2,225

We have to compare these with the Q1 numbers to see what happened between 9.30.13 and 12.31.13.  Here are those numbers:

2013 Cal Football Season (F13) – Premium Full Season Equivalents
Pledge Seats 1,856
Perk Season Ticket Seats Sold 183
Premium Group Tickets Sold 69
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

If you look closely at the numbers, you'll see that at the end of Q1, Cal had sold 1,856 pledge seats.  They state that as of Q2, Cal had sold 1,867.  So, that sounds great!  An 11 seat increase ( along with ten additional Premium Group Tickets out of the other four categories) over three months.  However, there is a small 6 footnote there next to the 1,867 (when I C+Ped the chart, the footnotes did not transfer over, so you'll have to look at the source document to see them).  What does that relate to?

6) Total pledge seats sold as of November 2013 close, which mirrors the timing of the end of the 2013 Cal football season. Due to seat drops after the conclusion of the 2013 Cal Football season, but before the end of the fiscal year close, total pledge seats sold stood at 1,844 as of December 31, 2013. It is best to view this metric annually over time.

So, basically Cal is fudging here.  This is not the end of Q2 number, but instead the 11.30.13 number.  Then, in the month of December, Cal went from 1,867 to 1,844, a loss of 23 seats.  This is also 12 seats lower than the 9.30.13 point.  Cal is trying to make the situation seem better than it truly is by using a high point for seats instead of the actual number at the end of Q2.  These numbers are as of 12.31.13 and it is late April, 2014 as I write this.  Have the ESP seats dropped even further below 1,844?  I'd be surprised if the answer is no.  We'll find out many, many months from now when they release the end of their Q4 FY 2014 numbers.  It took them over 4 months to release these numbers, so we may not see those numbers until the fall of 2014.

Additionally, note that they list their footnotes 6, 3, 4, 5 (the other footnotes did not transfer over, but they are listed vertically in various other parts of the chart).  They assigned footnote 6 (which shows up at the bottom of the footnote section) to the Pledge Seats, even though it it is at the top of the chart and should be 3 ( which would show up atthe top of the footnote section) based on how they vertically sort the footnotes.  That is odd to me and leads me to believe they wanted to bury the lede here.  They wanted to make it seem like they sold 11 more seats when they really sold 11 more seats and then lost 22 seats after the season ended.

This is even odder, considering that in their glowing press release, Cal quotes the 1,844 number:

Through the end of the second quarter, total pledge seats sold stood at 1,844, or 64 seats higher than the start of the fiscal year on July 1.

Why are they using this 1,867 number, then?  In the press release, they do not mention that the 1,844 is lower than the 9.30.13 number.  Instead, they note the increase from 7.1.13, which is technically accurate, but lacking full context of the sales arc.

Bottom line is that I'm not really encouraged with this performance.  We're adults, Cal.  Just give it to us straight.  Don't try to bamboozle us and flim flam us by making it seem as if things are rosier than they are.  That only decreases trust and makes us less likely to believe you.

Next, let's take a closer look at the press release.

Cal's Press Release AKA Differing Definitions Of Meaningful

I linked/quoted the press release above.  It is titled "New Revenue Streams Make Impact On Financing Plan."  The article discusses other sources of revenue, such as renting out parts of Memorial.  However, these other revenue streams are minimal compared to the ESP seats.  If you look at the chart, Cal got $66,000.00 in Q2 (and $0.00 in Q1) from rental revenue.  That is 2.4% of all revenue through Q2.  If Cal gets $264,000.00 from rental revenue per year, that is great and all.  Every little bit helps.  However, $264,000 is budget dust compared to the millions upon millions the ESP seats will bring in.

Cal touts that other rental opportunities will arise, which is great.  Even if the rental amount doubles and Cal gets $528,000.00 per year in rental income, that is still 1/4th the amount from the Pledge Seats.  If Cal gets $528K per year, the next 40 years, the would get 21 million total, which is under 5% of the total needed 440 million in debt.  It could be helpful, though if invested well.  That is if Cal doubles the current rental revenues number.

Even the non-ESP 1%er seat sales brought in about $500,000 in the first two quarters of FY 2014 (422K in the first quarter, but only $125K in the second quarter despite the second quarter including October and November of the football season).   It is unclear how many of these non-ESP 1%er seats will be sold in the winter/spring of  the year when there is no football.  If Cal brings in 500K a year from this source, that is great and all.  Every little bit helps.  The Pledge seat revenue is 4x the non-pledge seats, however.

My overall point here is that these other streams will neither make nor break the financing plan here.  They are frosting on the cake.  They can help the cake look gorgeous, but if you eat all of it at Brett Fischer's 8th birthday party, you'll feel really, really sick and then throw up all over Liz Yokayama and they'll make fun of you at school for that a lot.  Or so I've heard.

The upside is that many of these streams are winning agnostic.  If Cal continues to lose, the rental money will be there.  The press release touts the $18 million over 15 years we get from Kabam (although it is unclear to me whether all $18 million will be invested towards paying off the debt).  That exists whether Cal sells tickets or not.

Conclusion AKA I Don't Have An AKA Here But Don't Want This Header To Be A C-C-C-Combo Breaker

Cal is treading water.  Considering that we are only talking a few months difference from the last post during Cal's worst season ever seemingly, that may be a small miracle.  I fear that when we see what happened past 12.30.13 later this year, it won't be pretty.  The pledge ESP seats are where Cal's bread is buttered and we may be seeing some butterless bread.  Cal might be able to help supplement weak ESP sales with a lot of other revenue streams working in concert.

The other half of the equation is investment income.  Cal makes the millions and then invests it.  They will not release that information until the end of the FY.  So, in the summer/fall, we'll see how that worked out.  If Cal is getting a great ROI, then that can overcome weak ESP sales.

Again, the real factor is the play of the football team.  Win games and the pledge seats will sell themselves.  More 1-11 seasons and we'll see confusing footnotes hiding the real numbers.  It is not rocket science and 2053 depends on it.  Fortunately, we have a lot of time between now and then and even if the numbers take a hit in FY 2014, there's plenty of time to right the ship.  If Cal treads water during a disastrous season, then in one sense that is a good sign.

What are your thoughts?  Tell us in the comments!