ESP Financial Plan Update from Vice Chancellor John Wilton

Sept. 8, 2011

This short note is part of a renewed effort to openly communicate and share financial information regarding Intercollegiate Athletics.

On Tuesday, Aug. 23, we published the latest data on the Endowment Seating program (ESP), including more detail on seats secured and cash paid-in. We intend to publish this information every quarter as soon as we have vetted and verified data.

While the ESP program provides an essential source of revenue, it is very important to note that it accounts for only one part of our overall financial plan for managing Intercollegiate Athletics' financial commitments, including the Student-Athlete High Performance Center (SAHPC) and the renovation of California Memorial Stadium (CMS) . Other components, such as investment returns, revenues from naming rights, additional philanthropy, debt interest rates, etc., are just as important, in some cases more so. Consequently, we have developed a fairly sophisticated financial model that allows us to examine the impact of changes, both actual and potential, in any or all of these variables and thereby analyze a wide range of different "scenarios."

Our financial plans were initially analyzed 18 months ago by Calvin Moore, Professor of Mathematics, and, in order to generate an independent "cross check" on our findings, we recently asked Prof. Moore to update his analysis of our model using current data and information. After analyzing a wide range of scenarios, he is now projecting that the expected average balance in the invested funds at the end of the projection 40-year period will be in excess of $300M. Some scenarios do result in a negative ending balance, but Prof. Moore projects that the probability of this happening is below 10 percent. Other scenarios, of course, project a much larger ending balance, especially if investment returns are favorable, and ESP and philanthropic revenues are strong. The point to stress is that we are actively monitoring actual performance against what is modeled and will take corrective action if, and when, needed.

In this regard, we take some comfort in the fact that even when we construct and analyze scenarios where seat sales, additional philanthropy, naming rights and investment returns fall short of current projections simultaneously, the balance of available funds still remains positive for at least 20 years. Thus, we clearly have the time to adapt and respond with remedial action, and I can assure you we have and will retain a very proactive stance in this regard.

In addition, our efforts to secure funding for ESP have recently accelerated with the arrival in June of Darcy Heppenstall, the new Chief Development Officer for Cal Athletics. She has hit the ground running and already has plans in place for a vigorous marketing campaign that should increase exposure for the program and help ensure that it stays on track.

The central message that I hope you take away from this note is that this is a complex financial project with interacting variables framed within a 40-year time frame. The one thing we know for certain is that reality will be different from the financial plan, and it is certain to confound the predictive abilities of any given model or scenario. However, we also know that we have the capacity and intention to act in response to reality without being constrained by our initial hopes or assumptions.

Thus, you have our commitment that we will continue to update our financial projections based on the most recent data and that we will carefully and continuously examine the "most probable" outcome. You also have our commitment that we will identify whatever action is necessary to make sure that our projects are financially viable and/or to use any surplus that it generates in an open and honest manner.