Well, we are back and talking about the Simpson Athletic High Performance Center aka the new Memorial stadium. Every year Cal puts out an annual report regarding the progress made on paying off the over $400 million dollars worth of debt Cal incurred to build this gorgeous spectacle to athleticism and concussions. They put their report out just last November and I'm FINALLY getting around to writing it up. This is the new normal when you have a baby, but I guess I have until next November to write this up, so it's not a major concern. But to everybody upset that this did not go up four months ago, you have my sincerest apologies. Next time, you can watch my daughter and I'll get this post up sooner!

So, for those new to the gameplan, let me give you a quickie recap. Cal upgraded its football facility and incurred $440 million in debt. To pay this off, it created a plan based on selling 1%er seat basis and that plan almost immediately cratered. This was due partially to the high cost of the tickets, but also the general sucktitude of the football team. Also, both.

So, a few years ago they redid the entire plan and made it more balanced emphasizing more than just the super high end ESP seats. They have 5 different categories of income to hep pay off the debt. These categories are as follows:

1. ESP Seat Sales (i.e. pledge seats)

2. Other Seat Sales (i.e. non-pledge seats aka 1%er seats that you can buy on a game by game basis)

3. Philanthropy

4. Rental Revenue

5. Investment Earnings.

So, what is our bottom line after the end of FY2014? Continued growth in the funds despite missing the mark of selling the ESP seats. The report states:

BERKELEY - With four of the five revenue sources that support the financing plan for Intercollegiate Athletics facilities showing double-digit growth for the 2014 fiscal year, total proceeds for the 12 months from July 2013 through June 2014 exceeded $29.4 million - a 26.4% increase from FY13. While income from pledge seat sales declined to $9.9 million, the fact that overall revenues increased significantly shows that the revised, multifaceted approach for financing the facilities, which was updated from the original model in 2012, has helped stabilize the financial model to meet debt service payments for California Memorial Stadium and the Simpson Center for Student-Athlete High Performance.



So, this proves that their new plan is working. The main engine of growth continues to sputter (not good), yet they managed to increase money. Athletics is actually ahead of their "base case" scenario at the moment:

As a result, total cash received through June 30, 2014, was $77 million and the balance of the Fund Functioning as an Endowment (FFE), considered a key metric to the financing model, was $63.4 million, or $7.9 million ahead of the forecast base-case scenario. Should the FFE remain on track to meet forecast base-case figures through 2053, it would have a balance of $394.1 million against an outstanding principal balance of $75 million that would be due in 2112.

What does base case mean? Well, Athletics put together a variety of results on the spectrum from best case to worst case. Base case is their hopefully most realistic timeline. What that means is that if Cal hits its base case, it would have over $300 million in the bank in 2053 (when they want to be finalizing payment, despite the fact that it is apparently not due until 2112). So, their base case leaves Cal with hundreds of millions and we're actually slightly ahead of that. The overall picture is good! But here at CGB, we are not satisfied to look at the big picture, we want to dive deeper and see what is going on under the hood. So, let's do that!

Firstly, Cal has a chart that showcases FY13 to FY14, which is helpful:

Category Revenue Collected in FY13 Revenue Collected in FY14 Pledge Seat Revenue $11,213,050 $9,898,152 Premium Seat Revenue (non-pledge seats) $694,994 $885,166 Philanthropy and Other Commercial Revenue $4,349,885 $7,759,936 Leasing & Rental Revenue1 $190,068 $540,477 Investment Earnings $6,783,506 $10,285,049 Total FY14 Model Related Revenues $23,231,503 $29,368,780

Look generally at that, ESP seats are down, while individual, but still expensive tickets are up. Having said that, the difference that the so-called premium (but non-pledge) seats make here is minimal. Based solely on the tickets sold, Cal is down approximately $1.1 million from FY13 to FY14.

This is where the broader plan is starting to pay off. Donations and commercial revenue is up several million and the investments are up $4 million! In the end, there is an additional $6 million in the bank from FY14. Let's break it down even further:

1. ESP Seats

You might remember last year that Cal kind of lied to us in their report. They gave us a number as of November, 2013 instead of December, 2013 (they did their reports biannually until this time) because it had a higher number of ESP seat sales. Then, they hid that info in a footnote read by few.

This time, Cal again tried to fudge the numbers a bit. They were fairly straight forward that numbers were down in their analysis:



Pledge Seat Revenue: During FY14, IA collected $9.90 million in pledge payments, a decline of 11.6% over the comparison period in FY13. For the year-end period, total pledge seats sold were 1,664 at the close of FY14, a drop from the 1,780 sold at the close of FY13, with 113 seats in progress. A total of 116 new seats were sold during the FY14 fiscal year; however the aggregate total seats sold dropped due to seat attrition. As of August 31, 2014, after the fiscal year close, but before the start of the 2014 home Cal football season, total pledge seats sold totaled 1,737 due to additional collections of previously in progress seats.

They tried to give an extra August number (i.e. post FY close) that makes things look a little bit better. This is not as bad as before where they flat out used a different number and the August number is based on seats previously sold. However, if we are going to track this every year from now until 2053 (I'll be 72!), we need to be consistent and use the June 30 numbers on a consistent basis. We can count that August money in FY15.

This is obviously a disconcerting situation, because fundamentally this section really needs to go well for the plan to work out. The broader plan is working well, but you can see that until this year, ESP seats were the backbone of producing income. Now, the investments are above it. Hopefully, the investments will continue to go well, but we need to sell ESP tickets to have a consistent source of income here.

2. Non-Pledge Seats

Some good news here, but in the scheme of things this needs to be goosed quite a bit before it becomes more relevant:

Premium Seat Revenue (non-pledge): During FY14, IA collected $885,166 from non-pledge premium seat revenue, a 27% increase over the previous fiscal year. At the end of FY14, 1,951 full-season equivalent (FSE) seats were sold for the 2014 Cal football season, comprised of 1,664 pledge seats, 112 perk season tickets, an average of 40 premium group tickets sold per game, 101 University Club bundle seats, and 24 Field Club bundle seats. We anticipate that this method of selling seats will continue to grow to supplement pledge seats sales.



At the moment, this is the second least important aspect to success here. If the team starts to improve and we can sell out more games, this could substantially increase. However, presumably if we are selling these tickets, we are also selling ESP tickets and then that section will increase even more substantially. View this as a nice supplement, but probably not much more.

3. Philanthrophy/Commercial Revenue

Here is where the KABAM partnership (i.e. naming rights for Memorial) is starting to pay off. This improved quite considerably from FY13:

Philanthropy and Partnership Revenue: IA collected $7.8 million in philanthropy and partnership revenues during FY14, a 78% increase over FY13. This includes revenue related to the Kabam Field at California Memorial Stadium partnership, as well as revenues collected from other gifts and donor recognition elements at both California Memorial Stadium and the Simpson Center for Student-Athlete High Performance.

What is confusing to me here is that it appears donations were down from FY13 to FY 14. The FY13 data says that the contributions were approximately $26 million. The FY14 numbers (which I'll analyze sometime in 2018 for a post) has contributions at $22 million.

Of course, that is not the entire story. These are overall contributions and there may be an increase in contributions directly to the SAHPC in that overall contributions amount. Contributions seem to vary significantly from year to year (for example, when Sandy fired Tedford and hired Dykes, they spiked, but that's a rare occasion). This would be a good metric to bolster, but it is also based strongly on success. The better the team plays, the more donations there will be. Unlike non-pledge seats, it appears that this metric can increase quite quickly in relation to the other metrics, so that is promising.

4. Leasing

This one seems like the least important metric, but look for it to explode next year. We apparently did extremely well with the European soccer game in July. That is not fully reflected here (except for less than 25% of the income from the game). So, hopefully that will show great growth next year when those monies come in:

Rental Revenue: During FY14, IA collected $84,558 from tenant rental revenues at the stadium and $455,919 from event marketing revenues, bringing the total rental revenues collected during the period to $540,477, more than doubling the amount from FY13. Tenant rental revenues collected during the period came primarily from the previously announced agreements with the Haas School of Business and the satellite Recreation Sports fitness facility, which opened in November 2013. Construction continues to progress on the parking structure at Maxwell Family Field, which is expected to open during FY15, and help facilitate the hosting of new revenue-generating events at the stadium. The Real Madrid vs. FC Inter soccer friendly was held in July 2014. Certain revenues and expenses from the event (netting $.21 million) are reflected in the FY14 report, and the balance will be recognized in FY15. Additional leases are being signed, including the Center for Executive Education, the College of Engineering, the Goldman School of Public Policy, with the new tenants expected to move into the stadium during 2015. This will generate additional rental revenue.

Additionally, Cal will hopefully have more great events like the soccer game to supplement income here. That was just a one time thing, of course, but if we can make events like that a yearly occurrence at Memorial, then we will be in an even better position to pay off the debt.

5. Investment Income

The markets were up and up and up this last year and thankfully I put way too much into bonds instead of stocks to take full advantage (because I'm too conservative). But Cal did a great job and it saw approximately a $4 million jump here this year. That is great! I wish I made $4 mil last year with my investments.



Investment Earnings: During FY14, due to strong returns in the equities markets, investment earnings totaled $10.3 million, which helped lift the end of year FFE balance to $63.4 million.

Most of the metrics here are tied fundamentally to Cal success. This one bears absolutely no relationship to on-field success. Instead, it takes the steady hand of one Barack Hussein Obama to help the market explode for Cal to be benefited here. THANKS, OBAMA!

On a more serious note, the markets generally go up over time (albeit not as amazingly well as last year), but this may be inconsistent from year to year. We may have a great year like last year more often than not, but what would this have looked like in a 2007 or a 2008? This metric clearly has the ability to be very good for Cal, but we need the other metrics to be as successful as possible, because it probably has the strongest likelihood of a quick crater.

CONCLUSION

The bad news here fundamentally proves the good news. ESP ticket sales are down. They are the main engine for growth, but that engine is sputtering. Despite this, the overall plan is working well and Cal is well on pace to make hundreds of millions of dollars here in addition to paying off the $440 million debt.

In my view, the critics of the stadium upgrade have been proven wrong on an almost daily basis. they were wrong when we had the lawsuit and the tree-sitters. They were wrong when they said it was too gaudy and too much. And now they are wrong when they say Cal does not have a workable plan to pay this debt off.

What do you guys think? Tell me in the comments! And Go Bears!