Posted at 12:52 pm on December 7, 2017

The $50 Million Question | Examining LSU’s “historic,” expired fund transfer policy, and its cloudy future amid uncertain financial times

Photo by Sean Richardson
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By CODY WORSHAM | Tiger Rag Editor

Editor’s note: This story appears in Tiger Rag’s “Money Issue,” on newsstands across Baton Rouge next week and available for purchase online here

Joe Alleva had much on his mind a year ago.

He was on the verge of hiring a football coach to replace the winningest, by percentage, in program history, whom he had fired only months before. He was soon to fire his basketball coach and embark on his replacement, too. Add in the day-to-day grind of keeping one of the nation’s highest-earning athletic departments firmly in the black, and Alleva’s plate was plenty full when he sat down for an interview with Tiger Rag last November.

Something, though, lingered on his mind, a $50 million question quietly looming on the horizon.

A year later, the time to address that question has arrived, and answering it could be one of the most important and least discussed deals Alleva makes all year, a decision that, amid turbulent financial times, will impact the future of LSU athletics – and the university as a whole – for the foreseeable future.

IN SEPTEMBER 2012, higher education in Louisiana was treading water – and barely. The state was in the very center of the Bobby Jindal administration, an eight-year period in which government funding for Louisiana’s public colleges dropped dramatically and tuition costs skyrocketed similarly. According to a February 2016 story in The Advocate, state aid to higher education dropped by 55 percent under Jindal, the largest cut in the nation in that timeframe, while tuition costs essentially doubled, the biggest price hike in the country. Everywhere, money was tight – except in the LSU Athletic Administration offices.

Thanks to the expansion of college athletics television deals, annually sold-out football tickets, and increasing donations from boosters, among other factors, athletic departments nationally have been awash in revenue. LSU’s athletics department, meanwhile, has remained, financially, a soundly run, profitable enterprise under Alleva, consistently in the black – and by a good margin.

Part of Alleva’s acumen has been controlling expenses as much as expenses can be controlled, and in September 2012, his team developed “a policy believed to be unique in major college sports,” according to a department release, that would help address two issues: unpredictable costs for the athletic department, and shrinking revenues for the university.

Historically, LSU has benefitted financially from its athletics, in ways easily quantified and otherwise. Alleva is always quick and rightful to note his department is one of a very small few nationally that takes no state funds or student fees. It also has a tradition of giving back to the university, one Alleva continued upon his 2008 hire and also sought, four years later, to stabilize.

In a September 2012 memo to LSU’s board of supervisors, the athletic department set out its plan to add “certainty and predictability” to its past contributions, which the memo described as “a series of ad hoc agreements…instituted by LSU over the course of decades.” Those “ad hoc agreements” included (with FY 2011-12 figures in parentheses): a five percent Overhead Administrative Charge dating back to the early 1990s which began at 1.5 percent and increased to 5 percent by 2009-10 ($4.7 million); a Chancellor’s Discretionary Fund dating back to the 1980s ($217,000); a Classroom Building Fund ($500,000); a Campus Environmental Fund ($480,675); a Donation to Fund the Business Education Complex ($640,000); and the Academic Center for Student Athletes ($1.5 million). The department also covered its student-athletes’ tuitions, which it expected to increase by $1 million per fiscal year amid the budget crisis.

Other athletic contributions included a $1 million transfer of an SEC Network signing bonus, a $3 million assistance for the construction of a new band hall, and a continued 50/50 share of its trademark licensing revenue – essentially, the money LSU makes off every t-shirt, hat, and otherwise branded item sold – which, the memo noted, “increased significantly over the past decade in large part due to the success of the football program.”

If that was difficult to read, imagine how difficult it was to account for annually in a budget. That’s why the athletic department proposed a five-year deal in which it would transfer at least $7.2 million per year – $36 million in total – back to the university, replacing the “ad hoc” costs accountants loathe with a more predictable, round figure. In addition, LSU Athletics would share its profits over $3 million with the university and continue its 50/50 trademark licensing revenue share and coverage of tuition hikes.

The policy, of course, passed with unanimous board approval and praise, with several board members calling its institution “historic.”

“This proposal is a win-win for both the university and the athletic department,” Alleva said at the time. “I think it will put LSU in a position of envy among all the universities in the country.”

“It speaks well for the football program because… (that) is where the money comes from,” then-board athletic committee chairman Stanley Jacobs said in 2012. “From an academic standpoint, we’re very pleased.”

 

FIVE YEARS LATER, there’s plenty for the university to have been pleased about – and it’s time to re-evaluate the deal.

Between the board’s approval of the policy in 2012 and its expiration this past summer, athletics sent $48.3 million back to LSU as a whole, $12 million more than the $36 million guarantee, thanks to its profit-sharing mechanism, not including the revenues generated directly (trademark) and indirectly (game day foot traffic, “free” advertising of the university during nationally televised broadcasts of games, etc.) by Tiger sports.

Breakdown: Athletic Department Contributions to LSU since 2012-13

FY13$11,686,345
FY14$7,383,015
FY15$10,050,000
FY16$11,115,876
FY17$8,073,113
Total$48,308,349.00

* Figures Courtesy of LSU Athletics

Last November, before the deal was up, Alleva was already laying the groundwork for its successor: the department would like to keep supporting the university, but it also wants to remain competitive with SEC rivals who aren’t forking over millions annually to other parts of their campus.

“We’re lucky that we’re able to do it,” Alleva told Tiger Rag in November 2016. “I think, down the road, we’re not going to be able to do it as much as we’ve been doing it, because expenses keep going up and things change.

“The more money you give back to the university, it’s great for the university, but if other schools we’re competing against are not doing that, it puts us at a competitive disadvantage, because that’s money they’re plowing back into their programs. I don’t know if we’re going to be able to keep doing that down the road as much.”

Robert Munson, LSU’s recently-hired Senior Associate Director of Athletics for External Affairs, confirmed the policy has expired and that the department is “talking with the university on what that’s going to look like moving forward.”

“Over the last five years, we’ve contributed over $48.3 million to the university,” Munson said. “Can we do that in the next five years? It doesn’t look that way. The economics have changed.”

For one, costs continue to rise. According to an NCAA report from November 2016, FBS athletic department total expenses increased by 128.7 percent from 2004 to 2015. At LSU, athletic department expenses increased by about $1 million from 2014 to 2016. Add in a constant and consistent facilities arms race, a growing salary bubble for coaches, and ever-increasing costs for tuition, room and board, meals, and other student-athlete needs, and that number is sure to continue its steady upward creep.

Don’t forget fan experience, either. The improving quality and availability of television broadcasts means more fans are comfortable watching from the couch, demanding investment from athletic directors in enhancing game day atmospheres, whether that’s building parking garages or filling stadiums with high definition scoreboards and televisions.

“The economics are changing in collegiate athletics,” Munson told Tiger Rag. “Every dollar matters in terms of the experience we can offer our student-athletes and fans. We account for every dollar and have always done that and will always do that. This is a very successful department financially and that’s a result of sound management from the top.”

Joe Alleva honored Rep. Steve Scalise (R-La.) at LSU’s homecoming game against Troy earlier this season after Scalise was shot at a Congressional softball practice this summer. Scalise, the House Majority Whip, championed the tax bill that could portend devastating financial consequences for LSU Athletics by eliminating the tax code’s 80 percent deduction on collegiate football season ticket purchases. A Scalise spokesperson told The Advocate the “bill will put more money back in the pockets of people in Louisiana, who can choose to spend it how they want, whether it be on football tickets, or anything else.” Alleva worries it “could be disastrous” for LSU Athletics’ revenues. Photo courtesy LSUSports.net

There are also unpredictable, unseen costs hovering on the horizon that could transform that steady creep into a terrifying leap. Take, for example, the new tax bill passed by Congress that could be potentially disastrous for major collegiate athletic departments. As of press time and before the bill’s reconciliation in the House, the overhaul of the tax code passed by both the House and Senate included the removal of the 80 percent deduction for purchase of tickets to college athletic events. About 45,000 tickets for LSU football games require a donation (plus more for some seats in the club and suite sections), ranging from $200 to $3,000 per year, according to a story in The Advocate, to LSU’s Tradition Fund. In the past, that donation has been tax deductible, but under the passed, pre-reconciliation tax bill, it no longer would be.

According to The Advocate, Munson estimated the removal of that deduction could cost the department as much as $50 million annually; Alleva said “it could be disastrous.” Without the tax deduction, they fear, the Tradition Fund could shrink drastically.

Or, it might have no impact at all.

“Every person could come back and spend the exact same on season tickets, and half of them couldn’t,” Munson said. “We just really don’t know.”

LSU’s hope, however realistic, is that perhaps rather than be eliminated entirely, the deduction be reduced from 80 percent to 60 percent or 50 percent. There’s also a hope for it to be phased out over several years, rather than drop from 80 percent to zero on January 1, 2018.

“We certainly have to plan for the possibility that the full impact will be felt,” Munson said, “even though we can’t predict.”

In that context, the near $50 million the department has given back to the university over the last five years suddenly seems like a valuable and needed source of funds. Higher education funding stabilized in Louisiana in 2017 under new Gov. John Bel Edwards; the state actually turned in a budgetary surplus, thanks, in part, to temporary sales tax hikes.

But next year’s budget projects another billion-dollar shortfall, as those sales taxes expire. The university will almost surely, once again, face the cuts with which the state’s restrictive constitution disproportionately burdens higher education and health.

Meanwhile, the new tax bill, if signed by President Trump as it was passed through both the House and Senate, and the other ever-increasing costs of running a multi-million dollar athletic department, mean Alleva’s once-overflowing coffers could soon require even stricter management.

“If the school counts on us giving them money to help balance the budget, in the long run I think it can be (a problem),” Alleva said. “I don’t think we can afford to keep giving them as much as we have been.”

For now, the future of a once “historic,” now expired policy remains unclear. What is certain is the $50 million question will get its answer. What is uncertain is when –and what – that answer will be.

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