How One College Program Runs The Business INSIDE LONGHORN INC.
By Roy S. Johnson Research Associate Mary Danehy

(FORTUNE Magazine) – Tom Hicks was beside himself. He couldn't sit in one place. And he couldn't stand. He couldn't even bear to watch at times, but the buoyant CEO and chairman of Hicks Muse Tate & Furst, the giant buyout firm, also couldn't afford to turn away, because this deal could go either way. I'm not talking about the company's pending $200 million bet on an Internet outfit called Teligent. That's pocket change to a business managing more than $11 billion in assets. This was really big. This was Saturday afternoons in the fall. This was perky cheerleaders flying through the air, and high-stepping marching bands. This was college football. This was Texas.

On this autumn Saturday afternoon in Austin, the University of Texas Longhorns led powerful Nebraska with only a few minutes on the clock at Darrell K Royal-Texas Memorial Stadium, the team's newly renovated home. A win would be huge. The Cornhuskers, perennial national title contenders, were big-bully conference rivals and ranked third in the nation, while the young Longhorns were like clumsy calves still finding their legs under second-year coach Mack Brown. Hicks is a proud and generous alum (Texas Exes, they're called), and he's deep into this Hook 'em Horns thing. Two years ago he flew athletic director DeLoss Dodds to North Carolina on his private plane to woo Brown to Austin personally, and he regularly counsels the coach on management matters. He also advised Dodds about pricing, financing, and amenities when Texas built 66 posh private suites at the stadium before last season. In October he hosted a charity golf tournament in Dallas during the raucous Texas-Oklahoma weekend to benefit the school's sports programs. He owns the Texas Rangers baseball team and the NHL Dallas Stars, but Tom Hicks loves the Texas Longhorns.

So it's understandable that he was a bit on edge at the Nebraska game, hosting a couple of dozen friends, relatives, and business associates in one of the glitzy new suites high above the field at the Nebraska game. Wearing a Longhorn burnt-orange shirt and surrounded by enough ice-cream bars and shrimp to satisfy an offensive line, Hicks was anxious and animated. "Hey," he yelled, "ain't this something?"

It sure is. The University of Texas athletic program is at a pretty intriguing place in college sports. With a surging young football team at its core, it is one of the most successful college athletic programs in the country, and I'm not just talking about wins and losses. This is a multimillion-dollar enterprise that operates more like a solid business than a renegade campus outfit. College sports has been a big-ticket dance for some time now, and this program is much like others at the top-tier universities, but there are a couple of exceptions: The folks making the moves in Austin function more like CEOs than like traditional athletic directors and coaches, and they're making it work.

To determine how they do it, I went back to school this fall and asked to take a close look at the books. What I found was an operation that balances the athletic department's educational responsibilities with fiscal discipline at a time when the costs of running a big-time athletic program are surging and most college athletic programs are in the red. I found a place where football pays the bills. That was no surprise, but this was: Among the beneficiaries of big-time football is a women's sports program that could be a model for gender equity.

In fact, at the University of Texas, the football Longhorns are Grade A cash cows. Athletics officials credit the team with generating a staggering 80% of the department's $45.3 million from revenues in 1999. That's $36 million from tickets, individual donations, rights fees, sponsorships, hot dogs, beer, and other sources.

The athletic department operates much like a self-contained corporation, separate and apart from the rest of the university. It has its core business (football); various auxiliary operations (other men's and women's teams); numerous revenue streams; traditional corporate functions such as finance, marketing, public relations, and HR (you know it as recruiting); and even sophisticated satellite offices--dozens of alumni chapters nationwide, through which athletics targets some 400,000 Texas Exes for private gifts. Got shareholders? You bet. More than 80,000 of them meet in the stadium in Austin on Saturdays in the fall, and they grade every move Mack Brown makes. Think chasing quarterly expectations is brutal? Try putting the success of your company in the hands of a bunch of 18- to 22-year-olds. Hate talking to analysts? Try answering Buck from Muleshoe, Texas, on a weekly call-in talk show after losing a 23-point lead in the fourth quarter.

Of course, the whole thing is complicated by the fact that while a major-college athletic program must be managed with the diligence of a public company, athletic directors don't have the luxury of shutting down unprofitable businesses--at most schools that would be every sport save football and men's basketball. And those well-paid football coaches, quite simply, must win. "If we were a business, we wouldn't have any sport but football, and we would generate a heck of a profit," says Dodds, who is among the nation's most respected athletic directors. "But we're not about that. We take the money we generate from football and use it to provide opportunities for other kids. Then we try to balance what we want to accomplish inside the institution with what folks outside the institution want us to do. It's a hard thing to do."

For more than a quarter-century, one of the most difficult challenges for college sports has been finding a place for women. You've probably heard of Title IX, the historic clause in the Education Amendments Act of 1972 that turned college sports on its ear by requiring athletic programs to offer equality for women in participation, scholarship allocation, recruitment spending, and coaching resources. The requirement forced athletic departments to essentially double their operations, which helped spark the overall growth in college sports. So whatever you think about the emphasis on college football, hey, it pays for women's soccer, okay?

The Texas athletic department's budget is among the largest in the nation--$41.2 million for fiscal 1999, which ended in August. Only four universities had fatter sports wallets that year: Wisconsin ($41.4 million), Tennessee ($45 million), Michigan ($47.6 million), and Ohio State, No. 1 by far with a whopping $64.9 million athletics budget. (If you think those who spend the most win, forget it: OSU is the only school of the group not ranked in the latest Top 25 AP football poll.)

How does UT get to its number? For starters, ticket sales and game guarantees (payments to UT by a host school when the Longhorns play on the road) generated $10.1 million in revenue last year. That category was exceeded only by private gifts, which totaled an impressive $21 million. Other significant income categories included suite-lease revenue ($3.2 million), television money ($3.9 million), payment for the team's Cotton Bowl appearance ($866,842), optional student fees ($570,000), sponsorships and advertising ($400,000), licensing revenue ($300,000), and concessions ($750,000). All told, the department generated $45.4 million in 1999.

The athletic department's expenses totaled $50.1 million. That included scholarships valued at $2.8 million for 226 men and 186 women, administrative costs ($1.4 million) for about 230 employees, and equipment purchases ($2.4 million). The costs of running individual teams ranged from $7.5 million for football to $370,000 for tennis.

What caused the shortfall? The final bills for a two-year, $93 million capital improvement effort. Remarkably, the athletic department completed the project without a penny from the university's academic funds. It raised more than $31 million in private donations in just over two years. The department also took out $48 million in bonds (serviced now by lease and ticket revenues). The bill was closed with $14 million from the university's Parking and Traffic division to fund a parking garage. So what can you get for $93 million? Take a stroll down East Campus Drive near the stadium, and you'll pass the spiffy new $28 million Mike A. Myers Stadium and Soccer Field. One block over is maybe the nicest football practice facility in the country, the newly renovated Denius Athletic Fields ($2.5 million). It was subsidized by 82-year-old World War II veteran Frank A. Denius, a longtime fan who has attended practices most every day for as long as anyone can remember.

Beyond the 66 suites at Royal-Memorial stadium, UT added nearly 7,000 new seats, renovated major sections on both sides of the 76-year-old facility, and lowered the field three feet. Why lower the field, you ask? I did too. Better sightlines, of course. The stadium renovations cost $55 million--$3.2 million to lower the field alone! The department also spruced up its main offices, now known as the Moncrief-Neuhaus Complex. (If you've got an extra million, you can get your name slapped on just about anything.) The place is Four Seasons plush. There's an impressive academic support center stocked with computers, a hangar-sized weight room that could inspire a couch potato, and an over-the-top football locker room any NFL team would envy--custom-carved benches, original art, and lockers the size of small Manhattan apartments. Mack Brown's spacious office, with a picture window overlooking the stadium field, is trimmed in warm cherrywood and decorated with mementos and collectibles, including a case of watches commemorating universities and bowl games where he has coached during his 24-year career. Photos from the Longhorn archives line the hallways, and display cases in the lobby house the school's three national championship trophies (1963, '69, and '70) and the 1977 Heisman Trophy, won by the man who is still the most powerful and exciting running back in college football history, former Longhorn Earl Campbell. Check out the intricate, hand-carved leather saddles in the cavernous players' lounge. Yep, you can sit on the saddles and watch games.

If it all seems impossibly lavish, there are reasons. The stadium upgrade generates new revenue, and the school had to build new facilities for its women's programs under requirements outlined in Title IX. But perhaps the most vital reason is recruiting. "We had to stay sexy and attractive to the kids," says Ed Goble, UT's vice president of business affairs. "You've got to provide an enhanced experience on campus to compete for the best kids."

CEO and COO would be more appropriate titles for Dodds and Brown, the UT athletic director and head football coach. Dodds, a 62-year-old former track coach, got into sports administration because he liked working with coaches. Today he has an associate athletic director who handles those duties. Dodds is too busy closing new sponsorship deals, negotiating Big 12 Conference television and radio contracts, glad-handing with boosters, serving on NCAA committees, and promoting his self-described "passion"--a college football championship tournament. Dodds believes critics of a post-season tournament for college football--the only major sport without a legitimate championship tournament--are, after years of debate, softening. If it were to happen, it would have to be approved within the next 18 months, says Dodds, a "window" before negotiations for the next round of network television contracts kick into gear. Dodds thinks a college football championship would generate about $2 million for each of the 120 or so schools playing Division I-A football. "I think that over a seven-year period a football playoff is worth several billion," he says.

In the grand scheme of the college sports industry, $2 million may not seem like much, but Dodds knows well that success comes with a price. After last season, when Brown took the Longhorns to a post-season bowl for the first time since 1990, Dodds ripped up the coach's original contract and signed him to a new ten-year deal worth $1 million annually. He added an annuity, largely funded by private donors, that will give Brown $1 million annually at age 60 should he remain another four years.

By the way, Brown does earn more than the university president, Dr. Larry R. Faulkner, whose salary is $319,400. So does basketball coach Rick Barnes, who earns $750,000. But if you're looking for the sort of acrimony between sports and academics that tears so many schools apart, you won't find much of it here. "I have a lot of respect for Dodds, his inventiveness, and his way of keeping the organization attuned to opportunities," says Faulkner. "I've certainly paid attention to that."

The football coach actually gets to "coach" about as much as Bill Gates gets to play videogames these days. His nine assistants structure and manage practices and deal with most routine player matters. Brown, like any top-level executive, is expected to be the company's outside guy. He's your COO with a whistle. Most of his hours are filled with media obligations (about two dozen television and radio stations and newspapers cover the Longhorns), fundraising (for the entire university as well as the athletic department), and trying to keep his own management team in place. (After last season, seven of his assistant coaches were offered head coaching jobs elsewhere; Brown kept them all, adding $250,000 to the department's payroll. Additionally, five coaches were granted annuities worth $50,000 to $60,000 at age 60 if they hang on with Brown for four more years.)

On occasion, Brown also telephones one of the many corporate executives who are big UT boosters, guys like Hicks and San Antonio car dealer Red McCombs, another alum and the owner of the NFL's Minnesota Vikings. Brown looks to Hicks for time-management advice and insights on coping with pressure. With McCombs he talks talent and tries to absorb some of the owner's upbeat attitude. ("Hey, you're talking to one of only two owners who're going to the Super Bowl," McCombs told Brown after an early-season Longhorn loss. At the time, the Vikings were 1-2). "One of the things that's common in both of them is that they're high energy," says Brown. "They have the ability to dream, they have a lot of imagination, and they don't get down very much." In some areas, though, Brown is on his own. "The difference between their business and ours is that they can hire and fire who they want to," the coach said one October afternoon while lounging on one of the plush leather couches in his office. "In my business, we put our paychecks in the mouths of 18- to 22-year-olds we can't fire. It's like that ugly-baby theory--we can't get rid of them. So we have to hug them and teach them better. Another thing--CEOs don't have to deal with mothers. The major difference for us is the kids."

Brown's kids were whooping it up with 80,000-plus Longhorn faithful on that October afternoon when the pop of the final gun signaled the end of the Nebraska game. Final score: Texas 24, Nebraska 20. The victory was a turning point for the young Longhorns that propelled them to their finest season in years. Going into their last regular-season game against Texas A&M, the Longhorns have their best record (9-2) since winning ten games in 1995--albeit one that ended in an atmosphere of tragedy. A week before the game 12 students were killed and 28 injured on the A&M campus while building a huge bonfire structure for a pregame rally. As FORTUNE went to press the game was scheduled to be played.

This year the Longhorns have been ranked as high as sixth in the AP Top 25, their highest perch since 1996. Their reward? A possible trip to the Tostitos Fiesta Bowl in January, a prestigious bowl game despite its name. Each team in the game receives $1.5 million. To put it another way, the Nebraska victory paid off for the Longhorns like an Internet IPO. So while Dodds appeared calm amid the post-game celebrations, he was actually more relieved than anything. "If you don't win, you're not doing your job," he said. "And you don't survive."

There have been times of real doubt in recent years at UT athletics as the program struggled to find its way back to football prominence in the '90s. But perhaps the most significant crisis occurred in 1992, when seven female athletes filed a lawsuit against the university charging that it had failed to comply with Title IX. When the suit was filed, about 37% of UT's varsity athletes were women, and female athletes received about $1 million in scholarships, well short of the $2.8 million awarded to male varsity athletes. Some executives inside the department wanted to fight the charges. Recalls Jody Conradt, UT's women's athletic director and head coach of women's basketball: "Some folks said, 'Let's have a final war right here on the University of Texas campus, and let's just see who's right!' Thankfully, DeLoss and others said, 'That's not the way. We need to sit down and come up with a solution. " Just three days after negotiations began, the university settled, essentially agreeing to all demands. Today, 43% of the department's scholarship dollars are spent for female athletes, who represent 43.7% of UT's athletes.

Dodds believes that if the esteemed founders of college sports had not spurned female athletes from the start, then the industry would not have endured the turmoil that ruling ignited. "Somebody, somewhere, made a big mistake," he says. "Somebody, somewhere, decided women didn't need to be in sports, and I don't know why we weren't smart enough to fix it sooner."

The person most credited with nudging--some say shoving--Texas in the right direction on gender equity is Donna Lopiano, a longtime activist for equity for women in sports and now head of the Women's Sports Foundation. She became women's athletic director at the University of Texas in 1975, the first woman in the country to hold an AD title at a major university. Like many advocates for gender equity, she felt the university was dragging toward Title IX compliance, but as a university official she could not openly encourage students to challenge the university. Instead she handed out Title IX manuals and complaint forms from boxes she stashed behind her desk like candy at Halloween. "Must have done it hundreds of times, for 17 years," she says, laughing at the memory. "I had boxes of manuals and more boxes to replace them. I couldn't believe it when somebody finally did it." By "it," she means filed suit.

"It took someone to be abrasive, pushy, and all the other adjectives her friends use for Donna," says Conradt. "Donna scares people. It wouldn't have happened any other way. No question, she's the most significant individual for what we've been able to achieve in women's athletics."

Today women's athletics at UT has its own corporate structure and hierarchy. It shares resources with the men in many areas, but it has its own management team, led by Conradt, who, like Dodds, reports to university vice president Pat Ohlendorf. Only a handful of Division I programs are similarly structured. "I think young women need to see women as bosses," Conradt says. "If the [men's and women's] departments merged, how would women get the chance to run any of the areas? This way we have role models for student athletes."

The women still have a long way to go before reaching parity in one critical area--fundraising. Last year gifts received by women's sports totaled only $250,000. But the women are not without their boosters, Red McCombs being the biggest. Two events led McCombs to an epiphany regarding women's sports. One came during what he described as a "good ol' Bubba" meeting about fundraising a few years back. When he asked the lone woman in the room to name the most generous donors for women's athletics, he recalls, "She looked at me like I was crazy and said, 'Mr. McCombs, there are none.'"

Soon afterward, McCombs' young granddaughter told him that she could not find a girls' softball team to join. He realized that wasn't going to change as long as the woman in the good ol' Bubba meeting was right. So four years ago he wrote a check for $3 million to the UT women's athletic program, the largest single gift to women's collegiate sports anyone can recall. Earlier this year the Red and Charline McCombs Softball Stadium opened on UT's campus.

Title IX clearly stoked the growth in college sports programs a quarter-century ago, but where will the money come from to sustain future growth? There's at least some concern that college sports is already locked squarely in corporate America's cross hairs as the next sports-marketing frontier. For years only the likes of Nike, Reebok, and other sports brands had major deals with college teams. Now high-tech companies like eBay and Nextel are lining up alongside soft-drink, financial-services, and entertainment companies to sell their products and services to your kids. Companies once worried about being called crass for slapping logos on college campuses. Today there is no shame. Take the annual Texas-Oklahoma game, the meeting of two of the most celebrated rivals in college football history. For two years now it has been called the Dr Pepper Red River Shootout, also sponsored by Southwestern Bell, Mercedes-Benz, Bank of America, Miller Brewing, and the Texas Land & Cattle Co., a local restaurant chain. It's worth in excess of $100,000 to each school. Be very afraid.

For now, corporate deals remain only a minor revenue source for most big colleges. But as TV money and ticket prices peak, and donors get short arms and can't reach their wallets (after a couple of dog seasons, you'll see what I mean), it could become the most vital source of future growth. Texas' new deal with Nike, for instance, provides UT athletics with up to $1.8 million in Nike gear, along with $850,000 in cash annually for the next nine years. That's equal to the largest sponsorship deal in college sports, and more than twice the value of the department's previous contract with Reebok.

While Dodds is mindful of the need to maintain some boundaries against unbridled commercialism, he's more concerned that some major college programs may be forced out of big-time football altogether because they can't keep up with escalating costs. Sometimes the scale of all this makes Dodds wistful. "What I'd like to do is maybe start over with this whole thing," he says, "because it's gotten to the point where you don't control it, you manage it, and it's a challenge."

Nevertheless: Texas is banking on being a leader in e-commerce for college sports. Sales through its nascent Website are almost nil. But with nearly a half-million Texas Exes out here--and Longhorn football on a roll--the upside is vast. Hook 'em, iHorns?

On that Saturday afternoon in the fall when the Longhorns grew up against Nebraska, an elderly fan in dark glasses sat quietly on the front row of a luxury box at the stadium named in his honor. Darrell Royal is still greeted as "Coach Royal" around Austin. He's in awe of his surroundings, amazed that the program he helped build has become a multimillion-dollar operation. He never had to raise funds as a coach, never had to do anything but coach--and, well, fix the place up a bit. "When I first got here in 1954, there was a broken-down old shack in the end zone," he says. "Caretaker lived there. It took a few years, but we finally got it torn down." He laughed at another recollection: He couldn't understand why fans refused to sit in an upper section of the stadium until he ventured up and realized that there were no bathrooms up there.

Coach Royal doesn't much bother Dodds with advice anymore, though he did mention one thing a while back: "I told him, 'Nothing makes Texans as happy as winning, and it's happy folks that give.'" Like any good executive, Dodds listened well.