Frequently Asked Questions About Future of Cal Athletics UC Berkeley Intercollegiate Athletics FAQ November 29, 2010

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1 Frequently Asked Questions About Future of Cal Athletics UC Berkeley Intercollegiate Athletics FAQ November 29, 2010 The following FAQ is intended to help provide a better understanding of the process that led to the decision to reduce the size of the Cal Athletic Department and create a sustainable, long-term financial plan for its future. In addition, it attempts to answer many of the questions that followers of Cal Athletics have expressed since the campus made the announcement on Sept. 28, What were the conditions that led to the decision to reduce the Athletic Department's program scope from 29 intercollegiate programs to 24? The decision to discontinue five intercollegiate sports was driven by financial imperatives. In the last year alone, the University received a 20 percent cut in State funding, and over the past 19 years, the State's inflation-adjusted contribution per UC student has declined by more than 50 percent. On the UC Berkeley campus there have been hundreds of lay-offs, a dramatic reduction in faculty hiring, painful furloughs and a wide range of other impacts on the educational enterprise due to the severe restriction of available resources. For its part, Cal Athletics was uniquely vulnerable to the effects of the recession and the university's financial crisis. As revenues generated by ticket sales, royalties and licensing began to flatten, costs, some beyond the department's control, began to rise dramatically. A prime example is the cost associated with scholarships for student-athletes. As the UC Regents approved dramatic increases in student educational fees to counter the impact of state disinvestment, athletic scholarship expenses have risen more than 75 percent since 2004 and now account for more than $10 million in annual operating costs for the department. Developing a sustainable financial model for Intercollegiate Athletics has been a priority for Chancellor Birgeneau since he arrived on campus in And during his first few years in office, Athletics revenues experienced significant growth - annual philanthropy rose by $4.7 million through FY09, ticket sales jumped $5.4 million and, in the last three years licensing fees have more than doubled to $1.1 million annually, which ranks fifth in the Pac- 10. In addition, Cal Athletics was, and remains, highly efficient. While continuing to support the largest number of student-athletes among Pac-10 schools, Cal Athletics' spent the second-lowest amount per student-athlete in the Pac-10 ($84,123, compared to the league average of $102,221). As a result of the factors listed above, Athletics reliance on institutional dollars was limited to $7.4 million by FY That trend came to an end in FY 2009 as the recession and state actions combined to undermine the department's positive financial trends. In this context, the Chancellor determined that the campus could no longer afford or justify levels of institutional support that had climbed beyond $12 million per year, and decided that by 2014 institutional support would need to decline to $5 million per year - a sustainable level of funding that is commensurate with our peer institutions and endorsed by both the Advisory Council on Intercollegiate Athletics and an Academic Senate Task Force. The campus has funded over $25 million of institutional support for Intercollegiate Athletics the past two years and expects to fund over $10 million this year. (Note: As a matter of law and university policy, funds allocated by the Chancellor to Intercollegiate Athletics cannot be drawn from public monies or educational fees. At the same time, as a result of the campus's financial straits, the demand for access to these non-state funds on the part of other, vital campus units has grown dramatically.) Unfortunately, even after accounting for expected increases in revenue in a post-recession economy and new, aggressive steps to contain and control expenses it became apparent that meeting the Chancellor's goals would require painful steps What were the analytical and decision-making processes that led to the decision? Although creating a sustainable financial model has been a goal for Cal Athletics for some time, once the Chancellor determined that the University would reduce its annual support to $5 million, campus and department leadership redoubled their efforts and examined every conceivable option that would have precluded a need reduce the number of teams sponsored by the department. They initially focused on ways to reliably increase revenue and contain costs, knowing that any plan would need to meet the $5 million target by 2014, while guaranteeing long-term financial sustainability in order to prevent the possibility of additional cuts in the future.

2 Before the analysis was even completed the Athletic Department took difficult steps to reduce annual expenses by $2.4 million through actions that included the elimination of 21 non-coaching positions in the summer of Leadership also decided to implement nearly every recommendation for increasing revenue or containing costs presented by the Chancellor's Advisory Council, including reorganization and reform within the Athletics Development Office, department cost controls and reductions, other organizational changes and improved financial reporting. Finally, a reasonable estimate of the money a new Pac-10 Conference media contract would generate was also factored into the plan. But even after the expected impact of all of these steps were taken into consideration, there remained at least a $4 million annual gap between projected expenses and revenues that would have to be closed in order to meet the Chancellor's institutional support target by At that point, there were only two viable options - 1) Enact across-the-board cuts in scholarships, operating budgets and services that would affect every team and every aspect of the program or 2) Discontinue a limited number of teams in order to sustain the competitive ability of all of those that would remain. Campus and department leaders reached the conclusion that reducing budgets for all or virtually all teams, as well as every other aspect of the athletic program, would have a crippling affect, consigning Cal Athletics to enduring mediocrity. Very few if any of our programs would have been provided the full set of tools and services necessary to compete on a level playing field with our peers. Once it became evident that a reduction in the size of the athletics program would provide the only viable and sustainable path to meet budget requirements, the process became extraordinarily complicated. Not only would Cal Athletics have to find a way to manage its department with $7-9 million less in campus support, but it would also have to comply with federal Title IX gender equity legislation in an entirely different manner than it had in the past. The law provides universities with three options for compliance. An institution must either: Provide athletic participation opportunities that are substantially proportionate to the institution's student enrollment, OR Demonstrate a continual expansion of athletic opportunities for the underrepresented sex, OR Provide full and effective accommodation of the interest and ability of underrepresented sex. How did Title IX affect the decision and how with Cal remain incompliance with the federal law after the changes are enacted? Until now, Cal Athletics has complied with Title IX through the third "prong." However, as soon as it became clear that the financial imperatives meant at least one women's team would be impacted the first prong - proportionality - was the only one whose standards we would be able to meet in the future. The proportionality prong states that male-female participation numbers must be "substantially proportionate" to their respective full-time undergraduate enrollments. The current undergraduate gender ratio is 52.9 percent female and 47.1 percent male (Fall 2009). Together the financial and gender equity considerations demanded that the mix of impacted teams would have to simultaneously generate the required savings while resulting in participation numbers proportionate to the student body as a whole. For this reason, as the Athletic Director publicly and repeatedly stated beginning in the fall of 2009, "all options" were on the table except for those teams required by the Pac-10: football, men's and women's basketball and women's volleyball. Every conceivable configuration of teams was analyzed in a process that began with team finances, including direct costs and indirect costs that do show up on a team's ledger such as support staff required, field maintenance, sports medicine, etc. At the same time roster sizes were an essential component due to the demands of Title IX. Other criteria considered included: History of competitive success Ability to comply with Title IX and the principles of gender equity Donor impact Opportunities for NCAA and Pac-10 success

3 Contributions to student-athlete diversity Student-athlete opportunities Contributions to the Directors' Cup Contributions to the Athletic Department mission Prevalence of local and regional varsity competition Only after a painstakingly thorough analysis was a final plan presented to the Chancellor. As regrettable as it was to eliminate or reposition programs, no realistic alternative presented itself. Is there a possibility that some or all of teams could be reinstated? In the weeks following the campus announcement of sport reductions within Cal Athletics, the University received a large number of inquiries asking what, if anything, could be done to reinstate all or some of the programs that are scheduled to end their varsity-level competition at the end of the academic year. The Chancellor and Director of Athletics remain firm in their commitment to deliver a sustainable solution that will eliminate the financial uncertainty that has hovered over the Athletic Department the past year and a half and maintain a program that offers all of the necessary resources to its teams that will enable them to compete at the highest levels of their sport. To preserve the current structure with 29 teams would require the department's donor base to come forward with unprecedented levels of additional philanthropy. Any amount would need to guarantee revenue sufficient to permanently close a current $4 million gap in funding in perpetuity, a total that will only increase as expenses inevitably rise due, among other things, to dramatically increased pension costs (more than $5 million annually by 2018). A careful analysis indicated - and we believe continues to indicate - that it would be unrealistic to expect a significant number of donors to immediately increase their giving far above current levels. The present situation already relies upon considerable and growing levels of annual philanthropy in the form of annual and endowment giving, an amount that has exceeded $15 million per year recently. In addition, the department is in the midst of a major campaign to fund the retrofit of Memorial Stadium in order to comply with the UC Regents' requirement that the facility be renovated. Any effective effort to "save" teams would need to be incremental to goals currently in place and could not "cannibalize" any current endeavors. Keeping these concerns in mind, neither the campus nor department leadership believes that the Cal Athletics community is likely to be able to raise the permanent funding required to offset the expenses associated with impacted teams. To make up the difference and maintain an acceptable level of long-term support for all 29 programs would call for, at the absolute minimum, a doubling of the current Athletic Department endowment, now at just under $70 million, in a relatively short period of time. Further, over a longer period of time, the endowment would have to be increased by as much as $100 million more. In addition, due to the non-negotiable requirements of the federal Title IX law, any philanthropic campaign would have to either address the financial needs of all five impacted teams or, at the very least, create a sustainable endowment to restore the two affected women's programs. The campus is reluctant to say reversing the decision is impossible given the obvious passion and commitment of Cal's donors. It has been our view that the availability of the substantial incremental philanthropic commitments necessary to prevent a reduction in scope of our IA program is and has been quite unlikely. In the event, however, that members of the Cal Athletics community do come forward with significant incremental philanthropic commitments to provide for multiple years of operating costs for the impacted group of teams and a long-term plan for permanent funding (endowment), the campus would of course review such a proposal and consider other alternatives presented. As a pragmatic matter and in fairness to Cal's student-athletes and coaches, who are in the process of contemplating their future academic and career plans, the uncertainty around possibility of immediate reinstatement cannot be allowed to extend longer than January 31, 2011, which would be over four months after announcement of the scope reduction. What does the decision mean for rugby? In the wake of the announcement of the University's plan for Cal Athletics' future, it is apparent that a significant amount of confusion about the new status created for Cal's rugby program exists. The campus administration is already working closely with head coach Jack Clark and other rugby supporters to clarify the details of the transition and establish a structure that will ensure rugby's continued success.

4 Other than a change in reporting lines - from the Director of Athletics to the Office of the Vice Chancellor- Administration - followers and participants in Cal rugby should notice little, if any, change. As stated previously, the University is committed to restoring Witter Rugby Field to its previous condition (with improvements) once construction activities related to the renovation of Memorial Stadium are completed. Rugby will continue to have its offices in the Doc Hudson Fieldhouse, and there is the clear expectation that Coach Clark will continue to lead the program for the foreseeable future, as he has done with distinction for more than a quarter century. While rugby will need to be financially self-supporting by 2014, head coach Jack Clark and other members of the rugby community have been persuasive regarding their potential to generate the additional revenue required to fully support the program in the future. This ability will allow the program to not only compete against the same opponents rugby does now, but also afford it the opportunity to utilize the appropriate facilities and services as it historically has. Given the rugby supporters' strong fundraising capacity and expressed intent to fully fund the program to ensure its continued level of competitive and academic standards, there is optimism that a mutual agreement will be reached on a successful transition for Cal rugby. Rugby will not be transitioned into a traditional sports club program, but will migrate to a special status reflective of its commitment to high performance. Rugby players will have access to the same support services that they have become accustomed to, including admissions, sports medicine and access to training facilities. Because none of the student athletes on the rugby team currently receive scholarships there will be no impact in this regard. Rugby will also continue to play the same opponents and compete for the same national championship as it has for many years. Why is rugby's status being changed? Isn't the team financially self -supporting and does it return $300,000 per year to the Athletic Department? The decision to include rugby in the mix of impacted teams was based on the following factors: Financial: Unlike many of our other sports, rugby has a long history of generally covering its direct expenses through annual and endowment fundraising, accounting for such factors as coaching salaries, team travel, uniforms and other operational needs. However, in recent years funds previously directed to annual funds have been directed to endowment and, partially as a result, rugby has not fully covered its direct costs. Also, the team has not previously been responsible for paying for indirect costs, such as for sports medicine, that will now be passed on to the team. According to the same accounting standards and methodologies that are applied to every aspect of the Cal Athletics operation, rugby is not entirely self-supporting. Here are the data for recent years: Revenue/Expenses FY2006 FY2007 FY2008 FY2009 FY2010 Total Revenue $530,000 $540,000 $530,000 $480,000 $580,000 Direct Expenses $480,000 $550,000 $620,000 $680,000 $720,000 Net Gain(Loss) $50,000 ($10,000) ($90,000) ($200,000) ($140,000) Note: This table captures only direct costs and does not include a wide range of allocated, indirect costs generated by the team in areas such as sports medicine, procurement and computer support, among others. We estimate that these indirect, allocated costs amount to over $200,000annually. In other words, the department expects to actually save over $300,000 a year as a result of rugby's transition. Roster: With a roster of more than 60 male student athletes, rugby's transition was an essential piece of the puzzle in so far as future Title IX compliance is concerned. Competition: Unlike other teams in Intercollegiate Athletics, once moved out of the department, rugby can continue to play the exact same opponents and compete for the exact same national title even after its transition to a new status. As a result, any change in this team's status would have far less impact on student-athletes than it would for student-athletes associated with other teams in the Cal Athletics program that are NCAA-sponsored sports. We are aware of the view that "rugby returns $300,000 a year to campus." It is a fact that members of the Cal rugby community serve in leadership positions for companies that participate as sponsoring corporate partners with the Athletic Department's marketing rights company, ISP Sports. In return for their sponsorships, these companies receive a variety of valuable benefits for their businesses, including venue advertising for their firms

5 and football tickets. Income to ISP associated with such sponsorships are not included in the table above and because ISP Sports currently pays an annual guarantee to Cal Athletics for the marketing rights, dollars and services obtained from these corporate sponsors do not provide incremental income to Cal Athletics. What is the status of the proposal to elevate and privately fund women's rugby as a varsity program? In 2007, members of the Cal women's rugby club team, which was established in 1998, made a proposal to the campus University Athletics Board to be elevated to varsity status. After careful consideration and a thorough examination of the options presented by the team, the board did not grant the request due to such factors as lack of varsity competition (only Eastern Illinois sponsors women's rugby as a varsity sport), direct and indirect costs to the Athletic Department, and the ability of Cal Athletics to fully fund its existing programs. Although women's rugby is recognized as an emerging sport by the NCAA, the national organization does not sponsor a championship in the sport. Because women's gymnastics and women's lacrosse are impacted in the announced scope-reduction plan adding women's rugby without first reinstating these two sports would not allow the campus to comply with Title IX's "full accommodation of athletic interests and abilities" prong. Football is the most expensive teams to operate within the Cal program. Why wasn't its budget trimmed significantly before eliminating a number of teams? While football certainly has the highest level of operational costs, it also produces far and away the most revenue of any intercollegiate athletic program and generates proceeds that help support the entire Cal Athletics budget. From fiscal year 2005 through fiscal year 2010, football's net revenue exceeded $46 million, or an average of just over $7.7 million per year. The annual investment in football operations rose from $13.9 million in FY05 to $19.1 million in FY09 before falling slightly to $17.4 million in FY10. Correspondingly, revenues rose from $17.2 million in FY05 to a high of $27.9 million in FY08 and were $24.4 million in FY10. The need to compete on a level playing field with its opponents is essential in order to provide the best opportunities for on-field success, which in turn leads to increased ticket revenue (up more than $5 million from FY05 to FY09) and television rights income, as well as a demonstrated rise in donations (up $4.7 million). To significantly lower the investment would jeopardize these returns and could produce a devastating effect on the entire department. Still, the football program has not been immune to budget cutbacks. For example, travel expenses have been reduced by limiting the number people who travel on away trips, which has saved several hundred thousand dollars. In addition, team travel management has been taken in-house resulting in additional cost savings, the team bused to UCLA for its game in 2009, and the overall equipment budget has been lowered. Football Revenue/Expenses FY2005 FY2006 FY2007 FY2008 FY2009 FY2010* Operating Revenue $17,237,285 $18,496,045 $26,096,651 $27,930,626 $27,760,869 $24,433,652 Operating Expenditures $13,891,277 $12,590,098 $17,312,281 $15,367,990 $19,136,396 $17,407,574 Net Gain $3,346,008 $5,905,947 $8,784,370 $12,562,636 $8,624,473 $7,026,079 * Note: FY10 financial figures updated on 1/20/11 In its report, the Chancellor's Advisory Council seems to suggest a number of alternatives to reducing the size of the program. Were these options explored? Why wasn't the council's advice followed? As the Chancellor's Advisor Council noted in its final report on the topic of sport reduction: "Our charge did not call for us to make a recommendation one way or another on this specific point." Instead, the council offered several pro and con arguments regarding the future size of the Athletic Department, although it said it preferred to reduce expenses and control costs rather than eliminate teams, offering several suggestions for each. In the event that a decision was made to reduce the number of teams, the council's report provided a list of criteria to help decide which teams should be retained: record of athletic success the success and integrity of the academic programs of team members the extent to which the team is or can readily become self funded compliance with the provisions of Title IX

6 This list, along with a longer set of factors (see above), were ultimately used in the assessment of each intercollegiate program before the scope-reduction decisions were determined. Although it would have been far preferable to retain all 29 sports, the Chancellor stated that after considering and evaluating each of the ideas presented by the council - and electing to implement just about all of them - the impact on revenues and expenses remained insufficient to put the department on a financially sustainable path without discontinuing several programs. Cal Athletics data indicates that resourced for student-athletes were stretched thin before the recent decisions. Given the recent success of the department as a whole, why was this a problem that needed to be addresses and what steps are being taken to rectify the situation? There is little question that on the surface Cal Athletics has thrived in recent years with unprecedented levels of athletic and academic success. Graduation rates are at an all-time high, and Golden Bears have captured 11 national team titles since 2005 while winning a record 17 medals at the 2008 Olympic in Beijing. But these facts hide the issue that the department has underinvested in critical human and operational assets at a time when needs for institutional support have grown. As Cal Athletics has tried to meet the challenges of a difficult economic climate, it has adopted the philosophy of "doing more with less" each successive year, a maxim that acknowledges the stress and strain on available resources. This point of view is particularly relevant when comparing Cal Athletics' staffing levels to its peers, especially within the Pac-10 Conference. Cal ranks seventh in sports medicine staff per student-athlete and eighth in strength & conditioning staff per student-athlete in the Pac- 10. The department falls to 10th in the league in terms of overall staff per student-athlete. If maintained, this approach will now allow Cal Athletics to preserve or enhance its current level of achievement, especially when set against other institutions, most of which have more resources at their disposal. The campus and department are firm in their commitment to help control the so-called "arms race" in intercollegiate athletics. But to even attempt to compete within the status quo will no doubt have diminishing returns. As Cal Athletics transitions into a department sponsoring 24 sports, it will be better positioned to offer studentathletes the level of support they need to succeed, as staff-to-student-athlete ratios will shrink and become more in line with its peers. In addition, the department will also need to find ways to invest in new areas to grow revenue opportunities in order to truly become a high performance organization. To what extent were donor communities and coaches associated with the impacted teams notified that their future was in doubt? Over the past year and a half as the impact of the recession took its effect, it became widely evident that the current financial model for Cal Athletics would need to be altered. Not only did the Academic Senate take a public stand on the issue in November a vote that received national notoriety - but the Chancellor and Athletic Department leadership also publicly vowed to stabilize the department's budget and reduce the dependence on campus funding in the midst of the University's continuing financial crisis. At the same time that the Chancellor stated that the campus could no longer afford to provide $12-14 million of support for Athletics, Director of Athletics Sandy Barbour declared, both openly and in private forums, that all options were on the table - including program scope reduction - and that the only teams safe from possible elimination were football, men's and women's basketball, and volleyball, which are required for membership in the Pac-10. The topic of possible sport reductions was included in s to department coaches and staff and was discussed on various occasions at all-staff and coaches meetings since early in In addition, the subject was raised at several meetings of the Director's Advisory Board, which is comprised of representatives of the Athletic Department's donor community. Specific sports were not named in these communications since, as previously noted, department leadership was trying, until the very last moment, to avoid a reduction in the scope of the program.

7 Were there any consideration given to delaying or cancelling the retrofit of Memorial Stadium in order to preserve teams? These decisions do not affect the need to retrofit and renovate Memorial Stadium, a requirement by the UC Regents to make the facility seismically safe and preserve one of the most cherished and historic buildings on campus. Approximately 70 percent of direct construction costs for the project go towards seismic work and code compliance. The only other option would be to abandon it altogether, a move that could severely diminish what the Chancellor's Advisory Council called the level of spirit, cohesion, and unique and irreplaceable point of contact Cal Athletics has with the University's alumni and friends. In addition, the Endowment Seating Program (ESP) that is making the project possible will help provide long-term stabilization for the department's overall operating budget. Revenue from ESP payments will be invested in a fund functioning as an endowment with annual proceeds used to support Cal Athletics' operations. The endowment earnings are expected to exceed service payments on the construction bond and enhance the department's overall budget for the long term. It is this type of endowment funding that creates a sustainable model for the department's future. What is the status of funding the Student-Athlete High Performance Center and the equipment necessary to make it operational? The project is scheduled to be completed in September 2011 and was financed largely through a debt offering which will be repaid by Intercollegiate Athletics. Funding for the interest and principal payments associated with construction financing for the SAHPC will come out of Cal Athletics' operating budget. Over the course of the approximately 30-year debt repayment, that operating budget will be enhanced by revenues from earmarked ticket surcharges (approximately $50 million), returns on any investment of philanthropic donations received to date (approximately $90 million in cash and pledges) and future philanthropic contributions to the High Performance Initiative. Expenses associated with the operations of SAHPC will be approximately $1.5 million per year initially and will be paid out of the IA budget. Once construction is completed, teams and staff will move into the facility through a phased process that works with their competitive and practice schedules. The SAHPC will offer new features on top of what the studentathletes, coaches and staff already have today, such as an in-house x-ray unit, four therapy pools, an upgraded and modernized laundry, and a new kitchen and dining facility. The building has been designed for the long term, with clear opportunities to expand over time by adding specialized equipments and other high performance features.