KNOXVILLE, Tenn. (AP) -- Tennessee's athletic department posted a $3.98 million deficit for the2011-12 fiscal year that forced it to use a substantial portion of its financial reserves, department officials acknowledged Monday.
Although the athletic department made $106.5 million in revenues, it had $110.5 million in expenses. Those expenses included hefty buyouts to former athletic director Mike Hamilton, football coach Phillip Fulmer, men's basketball coach Bruce Pearl and baseball coach Todd Raleigh. When Hamilton resigned in June 2011, he received a $1.3 million buyout over three years. Fulmer received a buyout of $6 million over four years after getting fired in 2008.
Tennessee also has more than $200 million in outstanding debt related to the construction and renovation of various athletic facilities on campus.
The deficit, first reported Monday by The Sports Animal radio station in Knoxville, caused the athletic department's reserves to dip to slightly below $2 million.
New athletic director Dave Hart indicated he is evaluating all aspects of the athletic funding process to create a ''sustainable financial model'' that would build a reserve while drawing down debt service. Hart noted that Tennessee's current reserve amount falls well below that of its rival schools, and he believes the department's current financial model isn't sustainable in the long term.
''It is critical that our athletics program be financially healthy and that its budget is sustainable,'' Tennessee Chancellor Jimmy Cheek said in a release. ''We are committed to having premier athletics programs at the University of Tennessee, and to do that, we must develop a financial model that pays for these programs while also building up the necessary reserve funds. I support Dave Hart's efforts and commend him for the work that has already been done to get us on more sound footing.''
Steps toward rectifying the shortfall included the school's decision to consolidate the men's and women's athletic departments earlier this year.
One of the issues under evaluation is the minimum gift of $6 million the athletic department provides to the university each year. The athletic department spends a total of about $21 million within the university each year. That total also includes scholarships for student-athletes, usage fees for Thompson-Boling Arena, fees paid to the campus parking authority for athletic event parking passes and athletic licensing revenues that are used for university programs.
Athletic officials also noted that Tennessee's athletic department pays higher tuition and fees for athletes than many schools because 80 percent of its student-athletes are from out of state, whereas only 10 percent of the general student body is from outside Tennessee.
Tennessee officials also say they're the most heavily taxed athletic department in the nation. The tax rate of 14.25 percent on tickets for football, men's basketball and women's basketball games include a 9.25-percent state sales tax, a 4.5-percent city tax and a 0.5-percent county tax. That added up to a $4.6 million tax bill during the 2011-12 fiscal year.
As part of the athletic department's long-term plan to build reserves and draw down its debt service, any new revenues from Southeastern Conference distributions will be allocated to the athletic budget. School officials also are evaluating what future financial commitments the athletic department will make to fund non-athletic scholarships at the university.
Also, in the past, licensing revenues have been shared between the university and the athletic department. Athletic officials are seeking approval for a plan that would allow the athletic department to receive a greater percentage of those revenues.