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Deflated?

Over the last 12 years, the University of Texas has increased its merchandising royalties from $600,000 to, most recently, a one-year haul of more than $10.1 million. Not coincidentally, during that period the Longhorns excelled on the football field. This year, however, saw the team’s first losing season since 1997, ending without a bowl game. After enjoying the financial benefits of prolonged success, what will be the cost of failure? And how will it impact UT’s $3 billion capital campaign?

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Since the Longhorns won college football’s 2005 national championship, the University of Texas has topped the Collegiate Licensing Company’s annual ranking of schools making the most off merchandise sales. Between 1998 and 2010, by following the marketing and branding lead of commercially vibrant entities like the Dallas Cowboys and Apple, the university has increased its merchandising royalties from $600,000 to, most recently, a one-year haul of more than $10.1 million that was split between the athletics department and the president’s office.

Not coincidentally, during that period, the Longhorns excelled on the football field, winning at least nine games each season. This year, however, was different: The just-completed — some might say prematurely completed — 2010 season saw the team’s first losing record since 1997, ending without a bowl game.

After enjoying the financial benefits of prolonged success, what will be the cost of failure?

“That’s the big question I have,” says Craig Westemeier, UT's director of trademark licensing. He has been preparing for such an eventuality, confident that his university’s brand is not reliant on athletic success. “This will be a good challenge to see what we’ve been able to do, how we’ve been able to establish ourselves and what we can do overall as a program,” he said.

A bigger question: How will the Longhorns’ poor performance impact the university’s $3 billion capital campaign?

University officials anxiously await the answer as they brace for state-mandated budget cuts. Early indications are that higher education will bear the brunt as legislators begin hacking chunks out of a budget with an anticipated shortfall of at least $20 billion. In the fall, when the state leaders asked for 5 percent to be slashed from the current biennium’s budget, more than 40 percent of those cuts came out of higher education.

The upshot is that all university operations will be increasingly reliant on private donations — and that potentially ties back to sports, and in particular football.

“There’s no question that donors get more excited about winning, but I don’t think this past season will have any effect on fundraising,” says Red McCombs, a billionaire and former owner of the Minnesota Vikings who is one of the Longhorns’ biggest boosters. Enough confidence remains in the program, he says, to allow it to weather what he assumes will be a brief trip to the bottom of the Big 12.

Of course, that could change, McCombs says. Discussing the generosity of donors, himself included, who made possible the $176.5 million renovation project that recently added more than 13,000 seats to Darrell K Royal-Texas Memorial Stadium, he asks, “Would that have been the same if we had gone 3-and-8 the five years prior to that? Probably not.”

McCombs, who says he is far more concerned about the stature of the business school named for him on the UT campus than that of the football team, says he believes that athletic success “definitely translates” to gifts to the university.

Others do not agree. “Historically, we have not seen a correlation with a bad football season and the general giving to a capital campaign or the academic side to the university,” says John McCall, UT’s associate vice president for development. In a 2009 report commissioned by the National Collegiate Athletic Association, Jonathan Orszag, an economist, came to a similar conclusion, finding no significant correlation between athletic success and university giving.

Still, universities throughout Texas view football as an ingredient of institutional improvement. “I don’t think you have to have an athletic program to be a national research university, but having a good one validates you in some way,” says Diana Natalicio, the president of the University of Texas at El Paso, which is currently in a seven-way race to be the state’s next tier-one university.

Victor Boschini, the chancellor of Texas Christian University, currently the state’s most successful football team, the Rose Bowl-bound Horned Frogs, agrees that the benefits of a strong athletic program are indirect. “If presidents and boards were honest at every school,” Boschini says, “they would say you cannot go into athletics to make money. I just don’t think, nowadays, that it’s possible.”

But in good times, he says, the money comes back in many intangible ways — in increased applications and private donations. “My gut, from working at 11 schools, is that it makes a difference,” he says.

The Cardinals of Lamar University in Beaumont just finished their first season of gridiron play since the team was dismantled due to lack of interest in 1989. The enhancements that university officials attribute to the sport’s return include everything from record enrollments to the growth of the music program to accommodate a marching band. The number of vendors licensed to produce Lamar merchandise has doubled and sales of Lamar gear increased by 550 percent in the last year. All of that money currently goes back into the athletics department.

“That may change once we start making more,” says Larry Acker, the university’s assistant director of public relations.

Or it may not. In August, the NCAA released a report on revenues and expenses in Division I programs around the country that found athletic departments are increasingly reliant on university subsidies.

UT is the exception, with one of the few self-sustaining athletic departments in the nation. Anyway, McCall says, the sense among Longhorns is that “people aren’t jumping off the ship” just yet, despite a disappointing season.

“This is a blip at this point,” he says. “It’s not a trend.”

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