A new basketball arena and major renovations to the football stadium have largely contributed to the Maryland athletic department’s debt, which currently exceeds $83 million. (Toni L. Sandys/The WASHINGTON POST)

The University of Maryland athletic department has been able to balance its finances at the end of each fiscal year using a unique arrangement, utilizing fundraising revenue kept in independent foundation accounts to pay for expenses.

But the revenue in the accounts — which surged after a number of successful seasons from the revenue-producing football and basketball teams in the early 2000s — could not keep pace with the department’s expenses. When the department withdrew roughly $1 million at the end of the fiscal year that ended June 30 to help balance its most recent budget, the reserve funds were exhausted.

On Tuesday, university President Wallace D. Loh announced the formation of a commission to examine the athletic department’s financial troubles. The 17-member group was charged with making recommendations that could create long-term financial stability.

The challenge for the athletic department in solving its financial puzzle is multifaceted. One of the most significant obstacles has been the recent struggles of Maryland’s two most profitable sports: football and men’s basketball.

Revenues for both of those teams has either stagnated or declined over the past six years, according to financial documents the athletic department filed to the NCAA. Season ticket sales have declined in both sports, department officials have said.

At the same time, the athletic department over the past decade made several improvements to facilities used by revenue and non-revenue generating sports. Two of those projects — a new basketball arena and major renovations to the football stadium — largely contribute to the department’s debt, which currently exceeds $83 million.

The department’s annual debt service payments are expected to increase significantly in the next seven years, according to documents obtained via a public records request.

Additionally, according to financial reports, the athletic department lost more than $64 million from 2005 to 2010 on the 24 sports other than football and men’s and women’s basketball. The athletic department lost more than $13 million in the fiscal year 2009-10 — the most recent report available — on those 24 sports.

In April, Maryland Athletic Director Kevin Anderson said in the past two to three years, the school’s athletic department has lost between 2,000 and 3,000 donors, adding to the department’s financial problems.

The commission appointed by Loh this week could conclude that 27 varsity sports are too many to maintain under Maryland’s current financial conditions. Although Anderson said in a telephone interview July 9 that cutting sports is “not something that we’re looking at,” a member of the university’s Board of Regents, speaking on condition of anonymity, described such a move as “inevitable.”

While the direction the athletic department will take in regard to how it manages its finances in the future remains uncertain, the path that led the department to its current, unsettled state is more clear.

“You can have quality in two different ways,” said Debbie Yow, who served as Maryland’s athletic director for 16 years before leaving in June 2010 to take the same position at North Carolina State. “You can cut 10 sports and have quality and just relax, pretty much. Or you can keep all the sports in place and push hard on the staff to continue to generate new revenue. And I will admit to you, that is a burden, that second thing. That’s tough. It wears on you. But that was the model I chose.”

A new process

The athletic department used to deposit fundraising revenue into general accounts in the University System of Maryland Foundation. But, according to a former high-ranking athletic department official, some donors were concerned about whether their contributions were being used by other areas of the school instead of the athletic department.

In 2000, former university president C.D. “Dan” Mote Jr. established the University of Maryland College Park Foundation, which set up individual accounts for athletics in addition to every academic department. The athletic department has roughly 30 accounts in the UMCP Foundation, according to the former Maryland official, who spoke on condition of anonymity. The foundation is the custodian of those accounts and only the athletic department has access to the funds in them.

All of the athletic department’s fundraising dollars are housed in the UMCP Foundation, Maryland Deputy Athletics Director Randy Eaton said in a telephone interview June 1. The department transfers money from its UMCP Foundation accounts into its operating budget as necessary, he said.

Eaton said Maryland is “one of probably a few schools in the country” that uses such a financial arrangement. The athletic departments at most schools, he said, are entirely state-funded, and are linked to a foundation that is part of the university or are tied to a foundation that is an athletic association.

“So all of their money is in their books,” said Eaton, who oversees the day-to-day operations of Maryland’s athletic department. “For me, it’s not. The only thing that hits our books is what I transfer over, so I’m able to transfer over the exact dollar amount.”

Consequently, the Maryland athletic department was able to balance its budget even during years when the expenditures in its operating budget exceeded the total revenue.

The amount the athletic department drew from its UMCP Foundation reserve fund to balance its budget each year typically varied between $1 million and $3 million.

“I can just tell you — and I’m not throwing anybody under the bus and I’m not trying to make a bad comment — but I think there has long in this industry been a philosophy of ‘Get me through the next 10 years and then it’s somebody else’s problem,’ ” Eaton said. “Things that we’re no longer doing here.”

Eaton declined to comment further when reached on Tuesday, after Loh announced the creation of the commission to look into the athletic department’s finances.

What the future holds

In April 2002, Maryland opened the $3 million Terrapin Softball Complex. A state-of-the-art facility built for the school’s field hockey and lacrosse teams debuted in 2003. Renovations on Ludwig Field, where the soccer teams play, were completed in 2006. Numerous renovations have been made to Shipley Field, home of the baseball team, within the past two years, and the Gossett Team House, headquarters of the football team, has been upgraded several times in the past decade as well. 

In 2009, Maryland completed a $50.8 million project to create 64 luxury suites and 440 mezzanine seats at Byrd Stadium, the school’s football field. 

The amount of revenue generated by the football program each year decreased by roughly $1.6 million from 2005 to 2010, according to annual financial reports Maryland filed to the NCAA. During that span, the team’s expenses rose to a high of roughly $11.7 million in 2008-09, but by 2009-10 they had fallen to roughly $9.8 million, which is slightly less than they were in 2005-06.

School officials have said Maryland fell more than $500,000 short of football season ticket sales projections in each of the past two seasons, and the 54,000-seat Byrd Stadium filled to 75 percent capacity once during the football team’s 2010 campaign.

Athletic department officials said earlier this month the school has sold 18,400 season tickets for the 2011 season, down from a little more than 19,000 season tickets a year ago.

Another looming problem stems from the naming rights agreement the school signed with Comcast Cable Communications, Inc., in 2000 for its new $125 million basketball arena. The Comcast Center opened in 2002.

The naming rights agreement, a copy of which was obtained via an open records request, called for Comcast to pay the school $25 million over the course of 10 years, but retain naming rights for 25 years. The athletic department has used those funds, which will run out in 2016, to help pay its annual debt service.

Beginning in 2016, the department’s annual debt service will increase by roughly $1.4 million, and it is projected to remain in excess of $6 million from 2016 to 2021. Comcast Center is scheduled to be paid off in 2023.

According to the former athletic department official, Maryland entered into the Comcast Center naming rights agreement expecting that new revenue sources — including a new ACC television rights deal — would become available around the time the Comcast funds ran out.

This year marks the start of the ACC’s 12-year agreement with ESPN that will pay each member institution $3.9 million more than the conference’s previous television deal, according to a conference source. The source said there is a 3 percent annual escalator on the amount paid to each school.