The EADA Chronicles, a continuing saga

To recap quickly:

  • I read the data AirForceDawg assembled at a message board site and reported on it here, along with a few editorial comments.
  • I received a pat on the back about it from Jeff Schultz.
  • Seth Emerson ($$) linked to it in this piece from Thursday.

Yesterday, Greg McGarity responded with certain details about the economics from Georgia’s perspective at the AJ-C.  His main point is this:

“To read that EADA report one would think we had a $52 million profit,” McGarity said. “But that’s simply not accurate because the numbers provided in the EADA report aren’t inclusive of all of our expenses.

“A more thorough review of our finances reflects a balanced budget.”

He lists three specific items not addressed in the EADA data.

Payment to university ($4.5 million)

“Our payment to the university was $4.5 million,” McGarity said. “It’s money that’s used at the discretion of the university, with a lot of it going to scholarship assistance or to endow academic professorships throughout the university.”

Debt service ($9.9 million)

“That’s the payment on the amount of money we owe, which is currently $105 million,” McGarity said. “

That money is from the bonds purchased for projects prior to 2010, which included the 2009 Butts-Mehre expansion, Stegeman Coliseum renovation, and the Reed Plaza expansion on the north side of Sanford Stadium.

“We have a payment of $9.9 million to service that debt we owe.”

Projects ($38.2 million)

“That’s money spent on paying for current and future projects,” McGarity said, “which includes the West End Zone expansion and renovation, as well as money being spent on golf, soccer and several other ongoing projects.”

That, in turn, raises a whole bunch of questions for me.  First, let’s start with the most obvious one.  Who, or what, is responsible for preparing the data and submitting it to the U.S. Department of Education?  According to its website, it’s the schools that compile and furnish it.

The Equity in Athletics Disclosure Act requires co-educational institutions of postsecondary education that participate in a Title IV, federal student financial assistance program, and have an intercollegiate athletic program, to prepare an annual report to the Department of Education on athletic participation, staffing, and revenues and expenses, by men’s and women’s teams. The Department will use this information in preparing its required report to the Congress on gender equity in intercollegiate athletics.

So, that being the case, is Georgia following a rigid format that all schools must follow, or is it more that each school chooses what information to include in its calculations?  Before answering that, here are the official definitions of expenses and revenues:

All expenses attributable to intercollegiate athletic activities. This includes appearance guarantees and options, athletically related student aid, contract services, equipment, fundraising activities, operating expenses, promotional activities, recruiting expenses, salaries and benefits, supplies, travel, and any other expenses attributable to intercollegiate athletic activities.
All revenues attributable to intercollegiate athletic activities. This includes revenues from appearance guarantees and options, contributions from alumni and others, institutional royalties, signage and other sponsorships, sport camps, state or other government support, student activity fees, ticket and luxury box sales, and any other revenues attributable to intercollegiate athletic activities.

I don’t know about you, but I find it hard to see how each of those could hardly be more broadly defined.  If the three line items McGarity cites were omitted from Georgia’s reporting, was that at the school’s choosing or by the feds’ bidding?  The reason that question matters is simply because I am skeptical that Georgia was the only school where facility improvements, payment to the university and other things weren’t figured into the expenses total.

If the former turns out to be the case (each school picks and chooses), then the data is essentially meaningless or needs to be significantly fleshed out in the government’s database.  If it’s the latter, and all schools are playing by the same reporting rules, then the basic point of my post stands and Georgia is returning a greater profit on its athletic department’s finances than any other school in the conference.

That’s the first level of questions.  The second level is simply to ask whether McGarity’s methodology in calling for those three items to be included in expenses is appropriate.  I’m going to outsource the answer to that to Andy Schwarz, who responded to the AJ-C piece with a series of tweets that are thought provoking, to say the least.

And that’s before you get to things like the reserve fund and the value of the assets purchased with the funds that Georgia pays debt service for.

Now, to be fair, I don’t think McGarity is pleading poverty in the AJ-C.  What he does seem to be insisting, though, is that any suggestion Georgia athletics is a hugely profitable operation is misleading.  Or, as Mike Griffith unquestioningly writes, Once those numbers are factored in, Georgia’s athletic department budget appears balanced.”  (If you’re looking for a textbook case of lazy journalism, look no further than that.  But I digress.)

What do y’all — particularly those of y’all who review a business’ books for a living — think?  Has the AD made a convincing case that everything’s been accounted for, nice and neat?  Is this nothing more than a matter of semantics?  Or is it valid to question the athletic department’s priorities in how its revenue stream is utilized?

I’ve got a feeling there’s more to come on this.


Filed under Georgia Football

40 responses to “The EADA Chronicles, a continuing saga

  1. stsbms

    It still seems like the reporting of revenues and expenses is university dependent. There were several schools who reported $0 in profit. Are we to believe that they neither directed a portion of their funds to the university nor made capital improvements? In today’s arms race, the latter seems ridiculous to consider. I seriously doubt Florida failed to make one single facility improvement over the year.

    The IRS needs to either make reporting uniform, or as you said, the report is meaningless.


    • Tony Barnfart

      I know this much. All of the ones with exactly $0 profit are essentially operating at a loss… subsidized by “capital contributions” (counted as revenue) in the form of student fees (bet they get a great return) and general funds from the university. This is actually the most shameful of operations.


  2. Ugajeff

    First, I have run my own mom/pop business for 20+ years, and worked in a non profit admin for 10+. Yes it is partly a matter of semantics, but I still take issue with Shwarz and some of his characterizations. I’ll grant him the earnings distributed to grandma and grandpa analogy. That is profit distributions. But reinvesting in further expansion? Servicing debt? In the business world, we call that expenses, and it does affect your tax bill! Your question senator about how that is required to be reported by other schools is the real issue here. Otherwise…meaningless data, as you said. Last, my overall opinion on ADGMs answers were not to mislead the public. His point was to explain to the public that Uga didn’t just sock away $53MM in the reserve fund. And that’s the ultimate responsibility of a non profit to the IRS: don’t hoard the cash…spend it.


    • FlyingPeakDawg

      Spot on. Accounting is more art form than science which does take years of experience to fully grasp. A tax return does not reflect the economics of a business (tax-exempt or for profit) and a valuation report is not the same as reading a P&L. The reporting by journalists on the information is good and valid, but they should stay out of trying to explain basic accounting.

      Requiring public universities to provide a report with specific standards would be a good thing for transparency, but the requests for exceptions, recharacterizations, etc. would make the rule book look like our US Tax Code in no time I’m sure.


    • I don’t see where Schwarz addressed debt service.


      • Ugajeff

        Mcgarity referred to the $9.9MM debt service. That is most likely principal and interest. And the interest portion of course would be an expense in a for-profit venture. Still in the non profit world, paying interest and retiring debt is an acceptable use of the surplus. Again, That beats socking it away in the mysterious and misunderstood “reserve fund.”


    • Former Fan

      You don’t get to claim all the reinvestimate in the business in one year. For instance, if a business did a “stadium improvement” (otherwise known as capital investment in a building), it could only deduct that over a 39 year period. A few things can be expensed, but not permanent building structures.


  3. South FL Dawg

    Well as a CPA and since you ask – it appears that McGarity is talking in terms of net cash flow, not profit.

    Facility improvements require cash but they are not expenses; they are assets which go on the balance sheet. Paydown of debt is not an expense either; it goes on the balance sheet to reduce the liability. The amount given to the university sounds like it is a transfer to a restricted fund; it is still sitting in cash on the balance sheet but not in the “operating” cash account.

    In short, it’s profit but it’s not free cash.

    Better questions – how much did the reserve fund increase year over year? And which expenses increased (especially which ones that are not tied to higher revenue)?

    Liked by 2 people

    • Normaltown Mike

      The transfer to UGA is a charitable gift and is over and above what they transfer over for student athlete support (Hartman fund does that). This goes back to the hissy fit Mike Adams through about 10 years ago where he purposefully did NOT clean up campus after several games to show that the AA was not a good “partner” and that they were retaining too much $$ and need to give back. Since then, you’ll typically see an announcement after AA annual board meeting that they have made a gift to endow a new professorship etc.

      The transfers to the building project are restricted by the donors – when donor gives 25K to Magill, they are opting for points but restricting the gift to a fund that is specific for building projects.


  4. Aladawg

    While I am not an accountant I ran a $100 million a year business unit. When we reinvested in our business there were very strict rules on what we could “expense” and what we had to capitalize and depreciate. Accelerated depreciation had even stricter rules, all designed to keep you from burying profits that are taxable. Now I don’t know what rules University’s play by but UGA and all other big schools athletic departments are cloak and dagger profit units. This response from McGoofy is another affirmation of the sneaky reporting and back pedaling, he and the Athletic Association have accomplished like the 90 day FOI rule.
    Just another nail in the coffin for transparency.


  5. TimberRidgeDawg

    I don’t believe there is any news here. Schools have used different methods to break out athletic revenue and expense reporting for years. I believe the revenue end has always been pretty consistent across schools as are the particular items that are specifically stated for athletic expense. Reporting of capital infrastructure expenses and debt service can be and is accounted for differently and that is where you see the broad swings between schools as would be monies distributed back into the UGA general fund.

    Not to put too fine a point on it but Andy Schwartz is probably full of crap on this one. He’s overloading his mouth on well established accounting principles that he doesn’t understand. There’s not any big secret here. UGA had $52M dollars excess based on yearly athletic revenue and expense operations but there were buildings to be built and loan debt to be services. That is not an annual athletic operations expense as defined by the reporting requirements, strictly speaking, but it did exist and is reported by other means. It’s not like we stuffed $52M in an offshore account and are playing fantasy football on DraftKings with it.


  6. ATL Dawg

    They always have an excuse for everything, just like Liberty Media and Braves executives.

    Liked by 1 person

  7. Athens Townie

    Posts like this are why I come to this blog. Interesting takes, smart analysis, good questions, etc. (And even the reader comments sometimes meet those descriptions.)

    Liked by 1 person

  8. If only there were governing bodies to address this.

    Great journalism btw.


  9. ASEF

    $9.9 mill debt service on $105 mill in bonds?

    Where do I sign up to loan McGarity money?


    • I am sure that is principal and interest, not just interest – which makes its characterization as an expense questionable – the interest portion is an expense, the principal repayment is not.


  10. practicaldawg

    There’s a reason for all the accounting regulation faced by the financial sector, especially publicly traded companies. Universities are outside that domain, and have probably enjoyed the lack of scrutiny as their balance sheets and income statements have ballooned in the last 30 years. A day of reckoning may be coming.


  11. I always assume these reports aren’t the whole truth and that each school reports differently. You have schools in that report whose expenses were, to the dollar, exactly what they generated in revenue. It looks and sounds responsible but I don’t believe Tennessee has done that and their history doesn’t back it up.

    Admittedly, programs handle and distribute their money differently, and I’m not privy to the details, but the history of some of these programs doesn’t exactly match what is on paper.


  12. McNease

    Legitimate business expenses are tax deductible, so Schwarz is wrong about the deductibility of the building expenses such as the west endzone project. The transfer though to the university is stupid. And so is the use on scholarships and other sports.


  13. 81Dog

    Shorter McGarity: we spent it all, we don’t have 53 million laying around in a drawer.

    What you choose to spend the profits on does not mean you didn’t make any profits. Like the 4.5 million kickback to faculty/UGA. Or new capital projects. Pull the other leg, Greg, it’s got bells on it.


  14. Malcolm X

    Oh for Christ’s sake. Andy Schwarz is right. When I left law I went into “bidness” where I had the supreme delight to meet bean counters and “finance” wizs. They would start mumbling all sorts of accounting mumbo-jumbo. I would stop their yammering and ask a simple question. Is the dollar going in my pocket or going out of my pocket. So the 38 million is being spent, yes all sorts of accounting crap issues, but you spent 38 million from revenues asshole. You chose to spend the 38 million from the pot of money that only comes from REVENUES. Now there are all sorts of tax rules and accounting rules…which doesn’t distract from the fact that you TOOK IN 38 MILLION AND THEN SPENT IT. To even have this conversation is clear asshole Greg needs to be fired for being confusing and obsfucating truth.

    Liked by 1 person

  15. Malcolm x

    And of course the 38 million is NOT EXPENSED IN ONE YEAR from revenues. AN ASSET IS NOT EXPENSED, BUT DEPRECATED. there are all sorts of accounting rules…like different depreciation for different assets over years. So a whole bunch of that 38 million would be coming from profit, liable for tax if it was a business. If I sold widgets and took 38 million profit and bought a building I would not have zero profit. I would have a shit pile of profit to pay tax on with a small depreciation deduction.

    Liked by 1 person

  16. Hobnail_Boot

    In the simplest sense, McGarity is correct.

    Until and unless we have clarity on how/if schools are using the same financial guidelines, this is all offseason puffery.


  17. MGW

    It’s fine. They’re not crooks or anything. They’re just calling us stupid. Specifically they’re calling donors stupid. That’s what is frustrating. It isn’t technically dishonest; it’s disingenuous.


  18. Gurkha Dawg

    Every business has 3 sets of books: 1 for the public, 1 for the IRS, and 1 for internal use that only the guys that run the business see. Guess which one is accurate.

    Liked by 1 person

    • Otto

      All 3 are accurate for their given purpose and any who doesn’t isn’t maximizing their chance for success.


  19. popedd6

    I find all of the info really interesting, but my only thought is that I couldn’t give a rip what’s an expense or what’s revenue as long as there is a Natty during my lifetime.

    Liked by 1 person

    • DawgPhan

      How do you think that you get a national championship?

      The answer is you buy one. And they cost way more than Greg McGarity is willing to spend.

      So keep wishing for your deathbed Natty and Greg McGarity will continue categorizing the money needed for that Natty as an expense that is needed elsewhere.


  20. 79Dawg

    This information is being reported to the IRS on an “information only” basis – that is, there are no consequences to screwups (whether real or intentional), and so everyone has their own interpretation of how to respond. As others have alluded to above, the numbers in their businesses’ annual P&Ls are almost certainly very different that what’s on their tax returns because of the difference between tax and financial accounting (and these IRS forms are likely some blend between the two, making things even murkier/more subject to interpretation). As such, trying to compare them is not an apples-to-apples comparison; there is a LOT of potential for fluff, recharacterization, etc.
    As a result, using these numbers as anything other than rough approximations of operating cash flow statements could potentially give you a very warped picture of their financial position.
    What would be more helpful, would be for someone to Open Records Act/FOIA the various Athletic Association’s audited financial statements that (should be!) prepared in accordance with GASB standards, and thus uniform! Of course, that also requires more effort, more analysis, and more nuance from the MSM and doesn’t allow them to piggyback off bloggers/commenters to write their clickbait headlines and tweets!


    • 79Dawg

      Excuse me – US Department of Education forms – an even bigger joke making non-compliance even less penal…


  21. MDDawg

    I’m no expert, but I think this info is really fascinating. As I was scrolling down through the article, my impression was the same as Schwartz’ take on it. You made the profit, then you spent the profit. No, you don’t have $50 mil sitting in a pile somewhere, but you still took in $50 mil above your expenses (and then claimed that you had other expenses not accounted for in what you’d previously reported as expenses? Hmmmm.)

    I’m sure they have different ways of parsing these numbers too, depending on their audience. When they’re trying to impress someone, it’s “look how much money we brought in!”; when it’s time to show the tax man it’s “look how we only broke even!”


  22. Bulldog Joe

    2017-2018 SEC Total Expenses Men’s Basketball:

    UK $18,571,056
    MS $12,547,833
    TXAM $10,391,815
    UALA $10,276,123
    SC $9,969,479
    AUB $9,446,382
    UARK $9,195,260
    UF $9,018,168
    LSU $8,618,878
    UGA $8,539,387
    MO $8,387,295
    UT $8,386,526
    VU $7,761,696
    MSST $6,835,070


  23. Bulldog Joe

    2017-2018 Total Expenses Women’s Basketball:

    SC $8,497,345
    TXAM $5,819,165
    UK $5,589,939
    VU $5,511,406
    MSST $5,500,367
    MS $5,338,894
    UARK $5,016,553
    UT $4,873,207
    LSU $4,513,182
    AUB $4,362,024
    UGA $4,156,331
    MO $3,777,261
    UALA $3,737,069
    UF $3,468,662


  24. Bulldog Joe

    2017-2018 Operating Expenses Baseball:

    MS $2,848,039
    UARK $2,063,966
    UF $1,590,814
    TXAM $1,500,791
    MSST $1,417,860
    UALA $1,198,074
    VU $1,137,111
    SC $1,130,530
    LSU $1,093,562
    AUB $943,618
    UGA $867,386
    UK $784,360
    MO $704,116
    UT $594,348


  25. Bulldog Joe

    2017-2018 Operating Expenses Softball:

    AUB $906,128
    UF $833,032
    TXAM $828,955
    LSU $747,271
    MS $706,394
    UARK $660,945
    MSST $649,117
    UALA $575,858
    MO $556,206
    UT $555,702
    UK $539,461
    UGA $515,055
    SC $450,052
    VU N/A


  26. Bulldog Joe

    2017-2018 Average Expense for Sports Listed Above (non-football):

    UK $6,371,204
    MS $5,360,290
    SC $5,011,852
    VU $4,803,404
    TXAM $4,635,182
    UARK $4,234,181
    UALA $3,946,781
    AUB $3,914,538
    LSU $3,743,223
    UF $3,727,669
    UT $3,602,446
    MSST $3,600,604
    UGA $3,519,540
    MO $3,356,220


    • Chi-town Dawg

      Nice job Bulldog Joe – Maybe the above is largely to blame for our deterioration in the Sears/Learfield Cup standings over the past several years/decade. Just like in business, if you don’t reinvest your profit in the company, it eventually catches up with you.


  27. 79Dawg

    (Maybe) To Bulldog Joe’s point above, the best way to compare these numbers – and the most apples-to-apples comparison they are probably able to provide – is breaking it down by expense per sport.
    To my point above, the items like SG&A (i.e., centralized overhead, interest, etc.), debt repayment and whether the “surplus” is expensed or not, are some of the greyest areas that can be manipulated/subject to varied interpretations/reported.


  28. Bryan Ramsey

    It could also be the difference between CAPEX and OPEX. Cap Ex would be long-term investments in the future that typically might be depreciated on the balance sheet. Op Ex is the Every day stuff. That doesn’t explain the University Gift or the Debt Service, but would explain the largest chunk with projects.