CBpony wrote:I'm no financial expert, but isn't it hard to sock away money when you continually operate in the red?
1) Before the books are closed, SMU gives the athletic department a subsidy. It's not like our athletics department is irresponsibly not paying vendors or something.
2) a large portion of the subsidized amount is tuition and fees, paper costs that are not closely related to the true costs of serving our student-athletes. This has to do with the way accounting is done: tuition and fees are costs for those that are paying for the students, but revenue for the greater university which then uses that revenue to pay the university's operating costs.
3) Even if we were truly operating in the red, it's very possible to "sock away money" as you say. All you need is for the endowment to generate interest in an amount great enough to satisfy the following formula:
Operating Revenue + prior commitments collected upon + interest gained = operating costs + current portion of debt
That's as simple as I can make that. It's slightly more nuanced but let's not turn this into an accounting lesson
For instance, if we collect $15m in revenue this year and receive $3m owed to us from the year before, but spend $20 mil this year and owe $3 mil in interest to our creditors, then we need $5 mil in interest received. Assuming a 10% annual rate of return, our endowment would need to be $50m or just more than the amount raised for Moody.
Now, you could be given $50 mil and immediately pay out $5 mil from that, but at the end of one year, you'd only get 10% on $45m so you are left with $49.5m and have lost $500k.
It's more complicated than this because you may have to pay portions of that money earlier than the end of the year but you may also have interest compounding more often than just at the end of the year. But let's not make this a finance lesson either.
The bottom line is that the athletics endowment is a fantastic idea.
Posted: Tue Nov 04, 2014 12:30 pm