One day, we’re gonna need a bigger umbrella.

If you will recall, earlier this year we were treated to the news that Georgia was sitting on a reserve fund of almost $35 million.  Why so much?  Well, chalk it up to you never know:

Another board member complimented UGA’s fiduciary policy, and then Jere Morehead spoke up to make another point.

“We’re depending on our donors to pay for that project, or else our position changes dramatically,” Morehead said. “We need that project to be funded by our donor base so then we can move on to other projects.”

Nesbit said it would be “ill-advised” to go beyond the $10 million set aside for the west end zone project.

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.

This, of course, followed on the heels of a series of rationalizations as to why the athletic department needs to maintain such a sizeable reserve — the gist of which boils down to “donors, pay no attention to why we need to raise more money from you” — topped by my favorite McGarity Moment ever:

McGarity pointed to unforeseen expenses that have already occurred: Paying off previous head coach Mark Richt and his staff. That amounted to about $7 million. As for the future, there are still NCAA lawsuits in the system, McGarity pointed out, related to student-athlete pay and concussions. He also pointed to the NCAA in the last couple years allowing schools to pay athletes for cost-of-attendance and for increased meals.

“There are a lot of assumptions that people are making, that this revenue stream is going to be there forever,” McGarity said. “If we end up having to pay student-athletes down the road, where is that money going to come from? … There are a lot of unknowns, and what this allows us to do, and the right way, is to have a buffer there that allows us to cover the unexpected.”

So what’s going on now?  If you predicted the future weather looks even rainier, give your bad self a big cookie.

The athletic association had about $48 million in reserves, money not designated for a particular use, as the fiscal year ended, Nesbit said.  [Emphasis added.]

That’s one helluva bump there.  The underlying math, as you can imagine, is a little bit fuzzy.

Operating expenses were $119.1 million, leaving the association with an “operating income” of $11.4 million, according to financial documents Nesbit shared with the board. As UGA vice president for finance and administration, Nesbit is also the athletic association’s treasurer

Notable expenses included athletic scholarships ($13.2 million), “general and administrative” ($18.4 million), plant operations and maintenance ($10.9 million), women’s basketball ($2.9 million), men’s basketball ($5.6 million) and football ($28.7 million, down from $31.3 million in fiscal year 2016).

The athletic association also had net nonoperating revenues of $18.9 million, including millions donated for projects such as the ongoing $63 million reconstruction of the west end of Sanford Stadium, where UGA’s football team plays its home games, minus deductions such as $4.5 million turned over to the university for discretionary academic-related spending.

The scholarship spending isn’t really an outlay as much as it is a paper transfer from one department to another, but in any event, the real story is that the UGAAA is rolling in money.  It’s McGarity’s job to sell raincoat futures, though, so expect stories of college football’s hypothetical apocalypse to keep flowing.  They’re good for business.  Not to mention they help take donors’ minds off the department’s current mediocrity.

49 Comments

Filed under Georgia Football, It's Just Bidness

49 responses to “One day, we’re gonna need a bigger umbrella.

  1. Hogbody Spradlin

    Greg McGarity would make a good treasurer of a gated community HOA.

    Liked by 1 person

    • W Cobb Dawg

      Meh. If Greg Mediocrity were running an HOA, I imagine the common areas would be going to hell, like Sanford’s restrooms and concessions.

      Money is a tool. Hoarding it – and that’s exactly what BM is doing –
      serves no useful purpose. It’s not like Warren Buffet amassing reserves so he can buy undervalued businesses. BM is hoarding cash for no logical reason, unless one believes Greg Mediocrity’s b.s.

      Like

  2. mg4life0331

    Whats your end game senator? Do you want less in reserves? More spent on facilities? Or just directing displeasure with the AD?

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  3. 79DawgatWork

    Again, in an environment where (1) all schools in the NCAA have to pay players or (2) all schools in the SEC lose $X million per year, all our reserve fund gets us are avoiding ticket price hikes for a couple of years. That is, if their expenses go up or revenues go down, all our peers will be left with two choices: get out of big-time college athletics or raise prices. If they get out, we won’t have anyone to play against us – guess the reserve fund can pay for two teams. Or if they raise ticket prices, are we really not going to follow and dip into the reserve fund for a couple of years so we can crow about not having to hike prices as much as our neighbors? While in a free-market system, this would result in price-sensitive customers becoming Georgia fans/customers, price is one of the least important factors in college athletic fandom (where you/your family went to school, where you grew up, etc. are obviously much more important!). So again, I ask, what does having massive reserves really get us in the end???

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  4. Mayor

    Putting all BS aside, isn’t the UGAAA a tax exempt entity and aren’t tax exempt entities limited about how much money they can hoard? I’m thinking: “Where is the IRS in all this?”

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    • Hogbody Spradlin

      As long as the reserve fund, and the earnings from it, are eventually spent on the exempt purpose, they can keep the money. However there is such a thing as too much reserves, and the IRS can penalize or revoke the nonprofit status.
      For comparison, look at the billions and billions in college endowment funds. About the same thing.

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    • The other Doug

      Add in that the economy is rolling and a lot of the wealthy donors would like a write off. McGarrity and Co. are just shaking them down when times are good to have cash for when times are bad.

      I don’t blame McGarrity, but I question the intelligence of the people making the donations.

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  5. UGA'13

    In due fairness Senator, you’ve made posts on this site envisioning an end to CFB as we know it. With the changes in television contract revenue concomitant with the growing popularity of streaming services, the health concerns leading parents to second guess their sons’ participation, the “inevitable” playoff expansion watering down the regular season and the likelihood of a win for student athlete compensation, is it so wrong to keep a reserve on hand?

    If the university’s #1 cash cow is in any danger of failing, and I would suggest that the enormous sums of money being thrown around are an indication of risky business practices with little to no governance, why not store up some of the revenue for the impending fall?

    I’d love to see the Dawgs win as much as anyone, and I won’t argue that there haven’t been gross misappropriations of revenue and a lack of focus on the fan experience, but it’s hard to see a strong reserve as foolhardy, even if it doesn’t align with my interests as a football fan.

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    • How much do you think UGA would have to spend on player compensation, if that day ever came?

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      • 79DawgatWork

        The real point is that even in an environment where we have to pay players, our reserve fund gets us very little. It maybe delays the ticket prices increases that our competition will be invoking immediately, for 3 or 4 years at most – give yourself a pat on the back Georgia Athletic Board….
        Do people think that its going to be a totally free agent market, like international soccer, and we’re going to be like PSG with our Oil Reserve Fund which we use to sign Neymar (insert next 5-star QB here) so we are able to beat Madrid or Barcelona or Bayern (Alabama, Ohio State, etc.) in the Champions League (CFP) for a couple of years? Once Neymar’s 4-year contract (eligibility) is up, we are in the same boat as everyone else (i.e., no Neymar and no reserve fund)….
        Of course, if we are in a salary-cap market like all American sports, our reserve fund gives us zero ability to outspend anyone else, because our competition is not going to unilaterally disarm and not race right to the max….

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        • The other Doug

          Do you think there is currently room to raise ticket prices?

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          • 79DawgatWork

            When I see the face value of my Notre Dame ticket at $135, the face value of Auburn, Tech, Tennessee and South Carolina in nosebleed sections at triple digits, the cost for a decent seat at the Chick-fil-A game last year being $150+, $300+ tickets being sold out at the new Braves and Falcons stadiums, etc., I would have to say yes…. Of course, other than STP, all those charge “donations” too, although perhaps not as robustly as the Hartman Fund. A lot of people would probably be turned off overnight if our tickets went to $100 face value (without a corresponding drop in the Hartman requirement or without a significant upgrade to the amenities), but a lot of people probably wouldn’t bat an eye, particularly if there were more club-like amenities for larger sections of the stadium….

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            • The other Doug

              The face value on the ticket is just a portion of the ticket price. UGA uses the Hartman Fund contribution to adjust to the market, and I can’t see McGarrity and Co. leaving money on the table.

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      • UGA'13

        Difficult to say, although with some schools allegedly offering 6 figures under the table I think the recruits are being made aware of their worth. Not to suggest player wages will approach those values, but if the argument for paying players is based on how much revenue is generated by their efforts, it could be argued that those efforts are worth a percentage of that revenue. In addition, evidence would suggest that coaches/boosters may devise a signing bonus scheme to win over key recruits.

        Disregarding conjecture, even minimum wage for a 6 hour workday 6 days a week for 45 weeks clears a million/year

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        • UGA'13

          For reference, that’s ($7.50/hr)(6 hr/day)(6 days/wk)(45 wk/yr)(85 players) = $1.03M

          Purely a back of the envelope calculation, but perhaps still a useful estimate

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          • They could pay that out of petty cash. 😉

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            • UGA'13

              True enough, but that’s looking at it in isolation. When you consider the possibility of decreased overall football revenue, increased competition for a smaller number of total recruits, and ballooning salaries for coaches and assistants, the ratio of money in/out of the football program gets smaller. I’m no economist, but if athletic departments are going to be run like a business it’s hard to argue against future proofing.

              Morehead and McGarity may not have any idea how to make fans happy, but Georgia is better protected against a potentially radical change in the profitability of college football than many universities. You’ve written and linked to articles on this blog that allude to a sea change in the world of CFB, and my gut tells me that the rampant wage inflation and the signing of new, multi-million dollar television contracts in the face of declining viewership are hallmarks of stubborn and possibly unscrupulous leadership squeezing every last dollar out of an unsustainable market. UGA’s rainy day fund may be key to its survival when the bubble bursts.

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              • You are making a host of assumptions here that none of us can claim will happen with any certainty. This isn’t about the athletic department being run like a business; it’s excuse making to keep chasing money. I guarantee you that the last person reading this blog for ideas on how the sport is evolving is Greg McGarity.

                McGarity might as well be making plans for how Georgia football will survive in a nuclear holocaust era.

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                • 79DawgatWork

                  He is essentially making plans for a nuclear holocaust because that’s what the tv money running out and/or paying players is for college sports: it is a sea change that affects all schools, not just one or a few. If all our competitors are annihilated in the nuclear holocaust (because they either decide they can’t afford to run a big-time sports program without tv money or they can’t afford to pay the players), our huge reserve fund will allows us to put on a G-Day game 12 times a year – enjoy ya’ll!

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                • First off, “the tv money running out” is an exaggeration. As long as there are people willing to watch college football, there will be a broadcaster willing to pay for the privilege. You might as well say one day nobody will want to watch college football.

                  As far as paying the players go, there’s no way to know how things turn out if schools lose in court. Maybe the NCAA gets an antitrust exemption. Or maybe they follow the pro model, allow players to organize and negotiate a compensation agreement with the union.

                  The point here is that McGarity’s not doing any planning in the real sense. He’s just coming up with hypotheticals to justify socking away money while asking donors to pony up for capital projects.

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  6. paul

    Scholarships cost the school exactly nothing. Do they have value? Of course. But in terms of what they cost the school,they cost nothing. Literally. One hundred percent sunk costs.

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    • Normaltown Mike

      that’s the stupidest thing I’ve heard today. Maybe the stupidest thing I’ve heard in weeks. Congratulations!

      I guess you believe that housing, food, as well as compensating the University faculty and staff is paid for with a magic money tree?

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      • Unless the faculty and staff are being paid by the head, those scholarship costs are largely paper transactions.

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        • Normaltown Mike

          I’m not sure I follow but maybe we’re talking about 2 different things. The athletes take a slot that would otherwise be paid for by a tuition paying student. The transfer from the AA to UGA thus pays for those costs. It’s an opportunity cost.

          BTW Paul – I was trying to be funny but my post sounds more dickish on reading it – apologies.

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          • The athletes take a slot that would otherwise be paid for by a tuition paying student.

            How do you know that’s the case? Not trying to be snarky here, but adding 85 players to a campus enrollment of 30000+ doesn’t have to be a zero-sum game in my mind.

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            • Normaltown Mike

              There is more scarcity than you would realize in the hours offered vs hours needed by students. Each department has an amount of hours they have to teach, how large the classes are and the amount of faculty they have to fill it Every additional student upsets that balance.

              This year, UGA has its biggest freshman class ever (5,830). The result is that students are living in family housing on East Campus (doubled up in bunk beds). To add some perspective, we enrolled that number off of 24K applications.

              Georgia (and Tech) would like to grow enrollment every year but we are constricted by the BOR. All of the smaller schools in Georgia struggle for enrollment so they’re very defensive and don’t want to see our grow.

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            • mg4life0331

              Well Richt never really had 85 scholarships so he was saving money? Zing? Rimshot? Ill see myself out…

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    • Chris

      One could argue there is an opportunity cost associated with those 85 scholarships. I’m sure it’s a drop in the bucket for the university, but 85 × yearly tuition is a forgone revenue potential.

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      • Chris

        Mike beat me to the punch…

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      • paul

        Opportunity costs? The University of Georgia publishes the following cost of attendance figures : Tuition and Fees $30,392, Living Expenses $11,432, Other Expenses $2,157, Total Cost $43,981. So 43,981 X 85 = 3,738,385. Not quite 3.5 million. Remind me again how much money the football program brings in? I have worked for the University System of Georgia for almost twenty years. Those scholarships cost the school nothing. Even if the football program brought in zero dollars it does not cost them one cent more to run the university with 85 scholarship players than it does without 85 scholarship players.

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        • Normaltown Mike

          There’s over 600 student athletes at UGA. Divide 13 M by 600 and you’re around 20K per student athlete. Not an outrageous amount to feed, house and educate 600 kids (some get partials, others are charged out of state tuition).

          If the athletic associations disappears tomorrow, those 600 seats are immediately filled by tuition paying students. The University is going to get their fees one way or the other.

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          • paul

            But all 600 of those scholarships are paid for by football and basketball. The 85 football scholarships pay for the other 515 scholarships and then some. Without football and basketball NONE of those 600 scholarships ever get offered. Remind me again how much money the football program brings in? By their own admission, at least enough that they can keep almost $50 million dollars in a so called ‘reserve’ fund. That’s AFTER they pay for everything else, including millions of dollars to various coaches in salaries and incentives. These scholarships cost the school nothing and they produce enormous amounts of cash. There’s a reason Athletic Association board members can’t even get an agenda item on their OWN agenda without permission from the administration. Football is the cash cow.

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        • Chris

          As a recipient of a scholarship for the Terry College of Business, I just wanted to point out the argument could be made. Besides, when else can you talk about opportunity cost in real world application?. Business schools are such a joke.

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  7. 81Dog

    “unexpected expenses like CMR’s buyout”….

    how much money does McGarity figure he needs to have in the reserve fund to cover HIS buyout? I cant figure which Churchill quote about Clement Atlee best describes our dashing AD:

    A modest little man, with much to be modest about.
    A sheep in sheep’s clothing.
    An empty taxi arrived at (Butts Mehre), and when the door opened, (GMG) got out.

    Personally, I lean towards 3. I like 1, but it’s almost too subtle. 2 is nice in its casually dismissive tone, but 3 really drives home the empty suit concept.

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  8. Faltering Memory

    Exceptional historical reference. The empty taxi does have an impact but 1 is my favorite.

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  9. Bright Idea

    The reserve fund seems excessive but even if UGA spent every dime I’m not sure the teams would improve under the current administration. Just not enough competitive fire there IMO. I think McGarity is more proud of being able to say to the heavy hitters that he’s responsible than he is of the actual numbers.

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  10. Ward Robinson

    A thick reserve fund and a donations-only capex policy make it much easier to justify continued pay increases up and down the admin side. When you can always ensure that future operations never really depend on previous year’s net income, life is good and austerity measures non-existent. His surbordinates probably love him.

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  11. Ant123

    This is the one area that I think McGarity has it right. I think the revenue stream will drop significantly over the next ten years. Who knows what expenses will do.

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    • 92 grad

      It might. if espn sets itself a max bid fox, hbo, cbs, NBC, Netflix, Amazon, will absolutely outbid them. It would take years to run down the rights bidding because every one of these companies and more will go “all in” just for the chance of airing football all day Saturday, Thursday night, and whenever else they decide to add games.

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