Tuesday, August 18, 2015

University of Minnesota Athletic Debt on Steroids

 Athletic Accounting Part II

From the 2014 U of M annual report to the NCAA:

The "athletically related facilities annual debt service" for fiscal year 2014 was $17,663,000.

The "athletically related outstanding debt balance" for fiscal year 2014 was $201,395,000.  See p. 2 of the 2014 annual report. 

Part of that debt is for the $137 million in special purpose bonds issued by the University in 2006 to pay a portion of the cost of construction of TCF Bank Stadium.  The principal and interest on those bonds will be paid by the citizens of Minnesota to the tune of $10,250,00 per year for more than 20 years.

It appears that the Regents are poised to approve the plans to construct a $150 million "athletic village." (The scope of the project has been temporarily reduced from the original plan at a cost of $190 million.)  The cost of financing the project will increase the already staggering amount of athletic department debt.

The policy of the University is that 80% of the cost of a project must be raised before starting construction.  See the statement of policy by U of M CFO Richard Pfutzenreuter in the February 8, 2015 Star Tribune report on U's Athletics Project. So the Regents will have to disregard the policy of the University to approve the start of construction as the athletic department is far short of raising 80% ($120 million) of the current cost of the project.

Why should the athletic department get a pass on compliance with University policy?  Especially when it already has athletic debt on steroids?

There is a solution that would enable the University to disentangle itself from the big business of the major revenue sports while allowing the games to continue.  The football and basketball teams should be organized as separate corporations.  The University would grant a license to those corporations to use the University name for the teams.  The license fee would be a percentage of the revenues generated from ticket sales, broadcasting rights, advertising, etc.  The license fee would be used to support the non-revenue sports the University decides to retain, such as track and swimming.

This is a solution that would enable the sports fans (including the U of M president and the Regents) to continue to enjoy the games.  Of much greater significance, it would enable the University to focus on education, research, and public service--the reasons for its existence.

Michael W. McNabb

University of Minnesota B.A. 1971; J.D. 1974

University of Minnesota Alumni Association life member

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