UC Berkeley officials must quickly correct for their huge financial overreach on the seismic retrofit and training center at Memorial Stadium.
The $474 million project, the most expensive facility upgrade in college sports history, will siphon funds that could go to other athletic programs and indeed the entire university at a time when students face soaring fees.
Unquestionably, the 90-year-old stadium, which sits atop the Hayward Fault, required seismic retrofit. But, based on a flawed financing scheme -- championed by Cal Athletic Director Sandy Barbour and then-Vice Chancellor Nathan Brostrom -- the university went well beyond what was essential.
Consequently, the university was saddled with $445 million in bonded debt. It will probably be able to meet interest-only payments through 2032, but after that principal payments will kick in, presenting substantial financial burden.
It's disturbing that officials opted to finance the stadium with bonds stretching over as long as, believe it or not, 100 years. For repayment, they banked heavily on sale of rights to seats in the stadium and, more recently, on new television and sponsorship revenue.
Other universities rejected similar seat-sale programs. But Cal officials ignored warnings, and misled the public and regents about lagging sales. In fact, sales have fallen way below projections, as reporter Jon Wilner recently detailed.
Three Haas business school professors and Stanford economist Roger Noll, an expert in stadium financing, warn that even revised projections are probably overly optimistic.
Meanwhile, use of television and sponsorship revenue means diversion of tens of millions of dollars that could have made the financially struggling athletic department completely self-sufficient, freeing it from university subsidies and perhaps reversing the money flow to help other departments.
Further, the entire scheme hinges on investment of money from seat fees earning returns that outpace the interest rate on the bonds. This is, as the Haas professors warned, "a risky investment" with "a possibility that it will lose money, sometimes over sizable periods."
We wish Barbour and Brostrom, now an executive vice president for the entire UC system, recognized the severe shortcomings of the scheme. Instead, they continue to defend it, even though it could severely hamper other endeavors. Those above them, and in the state Legislature, should review their actions -- and ask why no one questioned their exaggerated financial assumptions.
Meanwhile, the damage has been done. Construction is complete. The best thing university officials can do now is move quickly to shore up finances by quickly finding new money, starting with the planned leasing out of extra athletic facility space.
The sooner new revenues are generated, the less the long-term risk when principal payments come due.