Dead money, or why we can’t blame everything on Greg McGarity

Back in the twilight days of Mark Richt’s Georgia tenure, I took a lot of grief in certain quarters here for suggesting that the enthusiasm of some for firing Richt ought to be tempered by the realization that even were the head coach to be removed, the rest of the athletic department would still be in place, meaning that the problems facing Georgia football were more than just Mark Richt’s management.  I don’t think subsequent developments have rebutted my argument.

It’s probably a wise lesson to be applied today, as I hear much the same from a lot of people about Greg McGarity.  While I’m obviously no fan of his management, once again it’s hard for me to see how his departure would change things much.  Doubt me on that?  Well, let me give you an example of what I’m talking about.  It’s something that Seth Emerson mentioned yesterday, but Jason Butt spells it out in a little more detail here:

Much has been discussed about the large amount of money sitting in Georgia’s operating reserves. The worry is that millions of dollars that could be used toward athletics facility upgrades is going to waste.

During Thursday’s annual spring UGA Athletic Association Board of Directors meeting at the King and Prince Golf and Beach Resort, the topic was broached during an hour-long presentation. In essence, Georgia preached a fiscally responsible approach to its spending. The money in the operating reserves has multiple purposes, such as maintaining projects, being prepared for unforeseen events and to maintain good standing with lenders.

But one point the UGA Athletic Association hadn’t made clear before is what some of the money is actually tied to. On Thursday, Georgia reported an uncommitted balance of $36.9 million in its operating reserve. But that money can’t simply go toward new facilities at a rapid pace without facing financial consequences.

UGA vice president of finance and administration Ryan Nesbit said that a portion of the $36.9 million in its operating reserves is tied to bond-related covenants related to other projects. While the Georgia athletics program is able to take some money out, it won’t allow the reserve to drop below $30 million. UGA must uphold previous bond agreements that state a specific amount of untouched cash is available without use.  [Emphasis added.]

That’s a lot of money to be sitting there.  And while McGarity may be tasked with defending that proposition,

The Athletic Association reported an Aa3 credit rating provided to it by Moody’s, which is the lowest level of the credit rating agency’s “high grade” description. This has led to favorable bond and interest rates, the ability for future re-financings and the possibility of obtaining a low-interest line of credit for the West end zone project.

But the Aa3 rating is only one notch away from an A1 designation, which is considered “upper medium grade.” Nesbit said Georgia wants to avoid dropping into this category.

Georgia athletics director Greg McGarity stated other collegiate programs are willing to take on additional debt without the means of replacing it in a sound manner.

“That is the situation a lot of institutions are in now,” McGarity said. “Their reserves have either been depleted or their debt services are so high that future occupants of an athletic director’s chair is going to make it tough 20-to-30 years out. I think it’s a story that’s not very popular in college athletics.”

… I have a hard time believing that’s his call to make in the first place.

During the board meeting, UGA president Jere Morehead expressed the need for the program’s donors to come through with the $53 million for the project. If Georgia has to dip into its reserves for it, the bond-related covenants and credit rating could be affected.

Let me say, before anyone tries to lob a stupid accusation my way, that it’s entirely admirable for Georgia’s athletic department to behave in a fiscally prudent manner.  You read stories about the out of control finances at schools like Cal and realize bad management can easily lead to awful problems.

However, frugality is only a means, not an end in itself.  The end, need I remind you, is putting competitive sports programs on the field.  Banking money isn’t winning; it’s banking money.  It’s questionable if McGarity’s bosses recognize the difference.

While Georgia claims it is more financially stable than its counterparts, it still remains to be seen whether this will translate into winning. Georgia’s athletics programs had one of its worst runs in quite a while during the 2016-17 season.

… It’s hard not to notice that the losses that have piled up play a part in the notion that the athletics department isn’t spending money on upgrading facilities at a fast rate. And until the wins start adding up, fans will be wondering what more can be done to fix the situation Georgia athletics has found itself in.

“I know our program is not reaching its full potential,” McGarity said.

Seeing that is the easy part.  It’s knowing how to remedy the situation that’s the challenge.  Especially when your priorities run in a different order.

The new spending initiative the UGA Athletic Board passed allows for athletics to spend four percent yearly of a reserve fund currently set aside in a bank account. Its about another million dollars a year, which will ultimately get swallowed up in the $127 million budget the board passed Thursday.

To be sure, the spending measure is a new thing. UGA president Jere Morehead told reporters after the meeting concluded that only now did UGA feel comfortable enough financially to start the new spending from their rainy-day funds.

“It finally reached a level where we felt comfortable that we could start pulling from it,” he said. “We need to tap into it because 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.”

Ryan Nesbit, Vice President for Finance and Administration at UGA, gave a nearly one-hour presentation attempting to explain Georgia’s position as it relates to bond covenants (which is just an agreement about how much money UGA must show each month in its accounts in order to comply with the financing provided by the bonds), reserve accounts and how all those millions of dollars work (or don’t work as some would argue) at UGA.

The morning meeting was a stark reminder that at Georgia few things are an irritant more than money. The perception of having too much of it, and not spending it to win has a dragging effect of those leading the institution. Money is something the higher ups keep a keen eye on, and its something fans (and some inside of the athletic department) use as a constant was to criticize those in charge.

At no point did any leader in the room give more than a passing comment on why UGA is struggling so much in the field of play…

(As an aside, with all the money rolling into the athletic department, note that it still feels the need to collect $3.24 million in student fees this coming fiscal year.  Were I a student, or a parent paying the bill, I would be infuriated by that.)

I am not an accountant, nor do I play one on TV.  I’m also not a college sports administrator.  What I can’t help but wonder, though, purely as a dumbass fan on the outside looking in, is how programs like Alabama and Ohio State manage to succeed without maintaining enormous reserve accounts.  Morehead and McGarity are clearly versed in certain college athletic departments’ financial train wrecks.  Have they bothered to inquire into how the winners have managed to stay afloat?  Are there no positive lessons to be learned from the way those programs are run?  More relevantly, if there are, would anyone calling the shots at Butts-Mehre care?

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UPDATE:  One more example of what I’m referring to in this post can be found in Emerson’s piece today about Georgia’s master plan (or lack thereof).

Georgia’s football team has one of the smallest weight rooms in the SEC. Bulldog football players also don’t have easy parking, so star players move around campus on scooters.

All the while, the program’s rivals, which had indoor facility and new locker rooms well before Georgia, are continuing to add their own projects. It’s the facilities arms race.

UGA has dipped its toe into it, with the indoor facility ($30.2 million) opening earlier this year, and construction on the Sanford Stadium west end zone project ($63 million for new locker rooms and a recruiting area) beginning this summer.

For now, that will be it. When asked to pinpoint any future projects, McGarity declined to pinpoint anything.

“Oh, we are totally focused on the west end. We don’t want to get ahead of ourselves, all our efforts are west end,” McGarity said. “We’ll talk about that when the west end zone is well underway.”

You can’t think forward about projects when you’re bound by a mindset of pay as you go.  Not to mention that when you’re behind in the race from the start, it’s a strategy that’s doomed to keep you there permanently.