UGA administrators defend and set $30 million limit on use of reserve funds

UGA-Athletic Board-meeting

ST. SIMONS ISLAND – UGA’s administration spent a good deal of time Thursday explaining and defending its policy on its reserve funds – while also setting a hard limit of $30 million on how much of it could be spent.

The occasion was the annual spring meeting of the Athletic Board, and for around 40 minutes school officials, including president Jere Morehead and athletics director Greg McGarity, justified holding its reserves, calling it sound fiduciary policy.

The administration established that it will not allow reserves, set aside in the school’s foundation, to fall below $30 million annually, or to spend more than 4 percent annually on the money that is set aside (currently around $34 million) in the UGA foundation.

That money is separate from the reserves held by the athletic association itself, which was about $47 million as of the end of March. That money is available to be dipped into.

While there has been intense criticism from the fan base about the reserve fund, there was none evident inside the board room at the King and Prince hotel and resort, where the board was meeting.

There were many follow-up questions, most of clarification,  but there was no real dissent from the board. Board members spoke up to compliment the school for its fiduciary policy.

David Shipley, the school’s faculty representative, asked if there was a sense among the 65 programs in the power conferences, that Georgia was in comparably great financial shape.

“It is my understanding that only a handful have a financial picture as good as ours,” Shipley said. “And that many, many programs are running deficits, are having to up student fees, are having to go to the academic side to fund the program. Is that an accurate understanding that I have, Greg?”

“I think you’re right. That is the situation a lot of institutions are in now,” McGarity said. “Their reserves have either been depleted or their debt service is so high that future occupants of athletic director chairs is going to make it tough for what they have to do extending 20-to-30 years out. I think it’s a story that’s not very popular in college athletics. It’s a great story.”

“Most programs are not operating as cash cows, as the perception might be,” Shipley added.

Ryan Nesbit, the school treasurer, spent a good deal of time explaining the reserve fund and justifying the need to keep it. He pointed to the need for “sound financial planning and fiscal management,” and “capacity for other unforeseen needs.”

“We’re really trying to build an athletic association that has sustainability for the future,” Nesbit told the board.

The reserves in the UGA foundation, previously untouchable according to the administration, can now be dipped into at a limit of 4 percent annually. So why are they allowing themselves to tap into those foundation reserves now, unlike a year ago, or before?

“Because it finally reached a level where we felt comfortable that we could start pulling from it,” Morehead said. “We were letting it grow and develop as a fund. Now we felt comfortable that we could start tapping into it. And we also need to tap into it, because of revenue is not growing as rapidly as expenses in this intercollegiate athletic environment that we’re in today. We’re looking for new sources of revenue, which is why we’re out fundraising so much.”

It was clear that UGA’s administration had heard and was concerned about the criticism over the use of reserve funds. It was the most discussion it had received in a board member in recent memory.

“This presentation has been done in large part to address all the questions that have been raised about reserve funds in athletics,” Morehead told the board at the outset.

Nesbit also mentioned the need for a good credit rating, which for example allows them to get a favorable line of credit for the west end zone project. (They plan to fundraise $53 million out of the $63 million for the project, but in the meantime begin construction and get a line of credit to do so.)

Morehead spoke up later to make another point, that they were still depending on donors to provide $53 million out of the $63 million budget for the Sanford Stadium west end zone project. Nesbit said it would be “ill-advised” to go beyond the $10 million set aside by the school for the west end zone project.

“We’re depending on our donors to pay for that project, or otherwise our position changes dramatically,” Morehead said. “We need that project to be funded by our donor base so then we can then look to the future related to other projects that we will naturally want to do.”

Another board member asked what “unforeseen” events would be that would necessitate keeping the funds. Morehead pointed to the SEC revenue, and whether it will be that much 10 years from now.

UGA’s budget is set at $127.6 million, an increase by more than $4.5 million. The budget is a rough estimate for expenses in the upcoming fiscal year, based on what is expected in terms of revenue.

Here’s a further breakdown of that. First, the changes in revenue:

  •  The distribution from the SEC is about $40.6 million, an increase of $3.9 million.
  • An increase of $1 million due to a new licensing and sponsorship agreement.
  •  An additional $400,000 due to multi-media.

And projected increases in spending:

  • An additional $1.6 million in the operating budget due to operating costs – listed as recruiting, supplies, team travel, and the football game at Notre Dame. (The Redcoat band will be making the trip, along with other road games.)
  •  $900,000 in additional meals for student-athletes, due to being allowed to under NCAA autonomy.
  •  An unspecified amount due to compensation “related to modest merit increases, changes in staff, and budgeted bonus compensation.”
  • And “other increases due to normal and customary increase in operations.”

 

NextSpecial Report: Is the UGA Athletic Board a paper Bulldog?
Leave a Comment