Characterizing the financial state of University of Hawai'i athletics as "very fragile," athletic director Jim Donovan yesterday for the first time publicly held out the possibility of cutting a sport.

"I would sort of describe it as I'm trying to save the ship from sinking and then I'll start thinking about winning the war," Donovan told the Board of Regents' committee on university audits.

Ironically, the dire talk followed discussion of an independent auditor's report that will show the athletic department had a surplus from the 2007-08 fiscal year (ending June 30, 2008) when the audit goes to the full board today for approval.

Only a $4,385,555 payment for the football team's appearance in the 2008 Sugar Bowl kept the department from a deficit for the year. Even with the Sugar Bowl, which produced a $300,000 surplus, UH has a net deficit of $5.4 million built up over the past five years, officials have said. The $300,000 was used to pay down the deficit from $5.7 million.

The report, by Accuity LLP, said "we believe the financial condition of UH athletics is fragile. It requires close scrutiny and monitoring both at the department and campus (levels)."

With UH looking at the possibility of a $3 million deficit for the current fiscal year that ends June 30, Donovan, who replaced fired Herman Frazier last March, described the department's finances as "very precarious."

Donovan said cutting a sport would be a last resort if the economic picture doesn't improve. Under questioning by UH President David McClain and board members, Donovan said that men's swimming and diving, baseball, men's tennis or men's volleyball would be leading possibilities.

UH last cut a sport when it dropped women's track and field in 1985 to add softball. The last men's sports cuts were track and field and wrestling in 1977.

UH currently has 19 NCAA sports, 11 for women, seven for men and co-ed sailing.

Because of NCAA and Western Athletic Conference requirements, "Only one men's program (can be cut) and it can't be football or men's basketball," Donovan said.

The NCAA has a formula for a minimum number of sports a school must offer to retain Division I membership, and UH could not have fewer than six to meet it. UH can't drop a women's sport until it comes into compliance with Title IX, the federal law on equality in education.

The WAC requires members to field teams in football, men's and women's basketball and women's volleyball. Baseball and tennis are WAC sports but not required. Men's volleyball and swimming and diving compete outside the WAC.

The contract of men's volleyball coach Mike Wilton expires June 30.

It is unlikely that baseball would be dropped except under the most calamitous circumstances because of the strong affinity to the sport here and the investment in the 4,312-seat Les Murakami Stadium. Though no baseball figures for the just-completed fiscal year were given yesterday, previous audits have shown the sport spending $600,000 to $900,000 more than it brings in.

Men's volleyball, until recently, was a money maker, turning a $233,114 profit in 2004-05 and $29,144 in 2005-06. Figures were not available for 2007-08. Figures also weren't provided for swimming or tennis, where expenses traditionally exceed revenue.

Donovan said there are limited places where UH can cut, with nearly $25 million of its nearly $30 million current operating budget committed to salaries, travel, scholarships and athletes' welfare.

"If you look at our operating expenses, it is fairly difficult to for us to make horizontal cuts. We would, potentially, make a vertical cut," he said.

Donovan said sliding revenues from ticket sales, which have been in decline in several sports for years, have been exacerbated by the worsening economy.

Asked by McClain how he would characterize UH's financial condition in comparison to the rest of the nine-member WAC, Donovan said, "Through June 30, 2008, we're probably in the middle of the pack. Looking out over the next 18 months, we might be there in the hunt for the worst."

Donovan said UH's current operating budget of $29.5 million probably "puts us at one or two (in the WAC and), a lot of the schools like Idaho, Utah State and New Mexico State are probably around $13 million to $15 million, so they don't have as far to fall and won't be able to build up the net deficits that we'll be able to."

McClain said NCAA President Myles Brand told him that the manner in which the school subsidizes athletics at UH is the "normal rather than abnormal" model in college athletics today. McClain said that only six of more than 100 Division I programs operate on their own dime.

McClain said "it is too early to tell" if the school will have to drop a sport. He said the university is bracing for a $30 million cut in the $725 million it gets from the state but the figures could change, based on the economy.

Athletics generates about five-sixths of its operating budget, with the school underwriting scholarships and lower campus operations.

"I think we'll know (the financial picture) better sometime in April, probably near the close of the Legislature," McClain said. "What Virginia (UH-Manoa Chancellor Virginia Hinshaw) will be doing is figuring out what she's able to do for the athletic department from the central administration, and, at the same time, Jim is already taking action on his own looking for revenues and cutting expenses."