ATHENS – Two weeks ago, Georgia raised ticket prices to football games. Athletic director Greg McGarity defended the move by saying it was to pay for raises for Kirby Smart and his football staff, and painted a dire picture if ticket prices weren’t raised: Cuts would have had to be made elsewhere.
“We had to do this to make ends meet,” McGarity said in a later interview.
He had the same response to at least one fan who e-mailed: “Please understand it is not a money grab,” McGarity wrote to the fan, “but a way for us to fully fund our entire athletic operation at a championship level.”
It begged the question: Is that actually true? Did Georgia have to raise ticket prices to make budget?
DawgNation undertook an examination of the finances of the UGA athletics department, using available data, information gathered over the past year and insight from an independent financial analyst.
The overall picture
UGA athletics had a surplus of $11.2 million in the most recently completed fiscal year, which ended July 31, 2017. That was according to a treasurer’s report filed at the September board meeting, which noted expenses of $119.1 million and revenues of $130.3 million. (The athletics department gives $4.5 million of that back to the school each year for academics.)
What about this year? There’s no sign of the revenue stream slowing down: The SEC payout to each of its schools remains about the same ($40.9 million, an increase of $500,000), and the football team’s run to the National Championship Game only can help the financial coffers.
“Overall revenues are higher when compared to the same period last year,” states the UGA’s treasurer’s report, handed out at the most recent board meeting on Jan. 30. “This increase is primarily due to an increase in football ticket sales, football contributions and multi-media receipts.”
The same report stated that “most expense categories are on target and within spending expectations at this time in the fiscal year.”
Raising ticket prices from $50 per game will generate about $6.6 million in additional revenue. (In a phone interview, McGarity said he didn’t think it was “quite that high,” but school officials later clarified that it was.) The dollar amount of raises for Smart and his staff is not yet known. They are due just over $2 million in bonuses earned last season.
Perhaps those figures end up adding up to $6.6 million. Still, could the money have come from somewhere else, rather than the pockets of fans?
The reserve fund
Georgia’s “reserve fund” is a source of contention between the fans who say UGA is hoarding the money it has available and school officials who say it’s not that simple.
The exact figure in the fund, as far as can be deduced, is about $80 million. UGA reported having $47.7 million in its coffers at the most recent board meeting, in addition to the money set aside in the UGA Foundation for “general support,” which was about $34 million as of last summer. That latter figure can only be dipped into at a 4 percent rate annually and must never fall below $30 million, according to a bylaw the Athletic Board voted to add last year.
The UGA Athletic Association, like many of its kind, is a nonprofit. That means it enjoys a tax-exempt status, or that it can make a profit and not pay taxes on it. The concept is any money made is reinvested into the reason for your existence. In the case of athletics departments, that’s education. So programs take their profits and return it to the schools for academic scholarships.
Last year, in defending the reserve fund, McGarity said it was a “rainy day fund.” He listed a number of possibilities to plan for, just in case. But when presented with increased costs in coaching salaries this year, Georgia athletic leadership did not dip into the reserve fund. They chose to raise ticket prices, much to the consternation of fans such as Rebecca Phillips, whose research criticized UGA for not looking at donations required for the right to buy season tickets.
Michael Brochstein, author of the popular fan blog “Get the Picture,” wrote last week: “The message sent here is that regardless of the circumstances, if the athletic department finds itself needing more money — which is for all intents and purposes a permanent state of mind now — it’s going to hit up our wallets and scrape up whatever justification it can invent to suit its immediate need. I suppose that’ll work as long as it works. But what a way to treat your fan base.”
UGA has defended its stance on the reserve fund with a two-pronged argument.
The first is its debts, which were around $90 million as of last summer, attributed to bonds taken out in the past. Those bonds have stipulations that UGA must have cash equaling at least half of its debt. Still, UGA treasurer Ryan Nesbit downplayed that part of it.
“I wouldn’t say that we’re holding that level of reserve exclusively because the bond covenants require it. That’s another requirement,” Nesbit said. “I think the more fundamental point is having the appropriate level of cash to be able to be managing your finances.”
A fiscally sound status, in other words. To that end, UGA officials point to keeping reserves equal to three to six months’ worth of operating expenses. That’s the “what if” scenario and planning for the worst.
But what are the chances that actually would happen? Georgia and SEC football seem to be a fairly safe revenue stream right now.
Bruce A. Seaman, a professor of economics at Georgia State University, has studied nonprofits. He confirmed that there is “some consensus” on keeping up to six months’ worth of operating expenses in reserve. But that’s not a one-size-fits-all standard, Seaman added.
“Having such reserves would be very legitimate for individuals facing considerable risk of unexpected job loss or health crises, and regarding nonprofit organizations, some do indeed face considerable business cycle risk,” Seaman said. “High-profile athletic programs such as UGA, and in particular its football program, would seem to face quite limited risk of this nature, and indeed its fan base appears relatively immune to either financial variables or even to team performance regarding its willingness to support the team. …
“The irony is that any financial risk faced by UGA athletics linked to its football program is now even lower than ever, which would make any such purely voluntary ’emergency fund’ even less needed than before. For these reasons, I am somewhat skeptical about their explanations.”
The bottom line
During the Athletic Board meeting last May, McGarity, prompted by a leading question from a sympathetic board member (“Most programs are not operating as cash cows, as the perception might be?”) opined that UGA was in an unusual position.
“That is the situation a lot of institutions are in now. Their reserves have either been depleted or their debt service is so high that future occupants of athletic director chairs are going to make it tough for what they have to do, extending 20 to 30 years out,” McGarity told his board. “I think it’s a story that’s not very popular in college athletics. It’s a great story.”
That said, a report last year showed that every SEC program ― at least the 13 public schools whose financial information is made available ― is making a profit. The Advocate (Baton Rouge, La.), using financial reports from the 2015-16 academic year, showed that the lowest profit margin in the SEC was Kentucky, which still brought in $4.9 million in profit that year. (Vanderbilt, as a private institution, was the only SEC school not to provide its financial data.) Georgia’s profit margin that year was $9.1 million, the third-lowest in the SEC. In other words, 10 other SEC programs made more money than UGA, which last year increased its profit margin by more than $2 million.
That data, of course, does not show whether some of those programs do have debt service or a low amount of reserves. And it is true that other schools have debt.
Alabama’s athletic department has debt totaling about $212 million, according to Al.com, as of the most recent filing. That hasn’t stopped Alabama from spending $158.7 million in the last fiscal year. The Crimson Tide reported revenue of $15.6 million. There was no immediate available data on its reserve fund.
South Carolina as of last summer had debt totaling $186.3 million, according to The State newspaper, which said the university expected to pay $12.9 million toward that debt last year. The school had about $26 million in reserve funds, athletics director Ray Tanner said at the time.
Those schools are keeping up with the facilities arms race. South Carolina is building a $50 million football facility, fundraising for about $20 million of it and floating a bond for the rest. Florida is building a $100 million facility and fundraising for half of it, taking out a bond for the rest.
“I think we feel really confident in our revenue streams right now,” Florida athletics director Scott Stricklin said at the 2017 SEC meetings.
Stricklin had to alter his budget a bit last season when he bought out coach Jim McElwain and hired Dan Mullen to replace him. There are indeed unforeseen expenses.
In Georgia’s case, it’s the coming raises for Smart and his staff that have yet to be revealed. Publicly, they may be the reason for raising ticket prices. But Seaman said he suspects the real reason is simple economics.
“Since nonprofit organizations often behave quite similarly to for-profit firms, even given their legal requirement of not distributing any ‘profits’ to ‘owners’,” Seaman said, “this UGA behavior is quite consistent with standard profit-maximizing behavior in response to demand increases.”
In other words, it’s simply supply and demand. From Roquan Smith … to Adam Smith.