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:

Expenses

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.

Revenues

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.

In case you don't understand what I mean, let's look at what the Georgia AD says is NOT profit, no, no, no, but is actually an expense.

First there is money they send to the University central fund. pic.twitter.com/5tXuBqtaW8

— Andy Schwarz, sponsored by Envelopes of Cash (@andyhre) June 29, 2019

Mom & Pop tell the IRS that the store didn't make any money because they sent $4.5m of profits to the owners… which is Grandma and Grandpa.

Um, no, you made $4.5mm and then you distributed your profits to your shareholders.

— Andy Schwarz, sponsored by Envelopes of Cash (@andyhre) June 29, 2019

As for Retained earnings, these are how profits are accounted for when the first chooses to not distribute those earnings but instead to fund new projects. So, using our corner store analogy…

— Andy Schwarz, sponsored by Envelopes of Cash (@andyhre) June 29, 2019

let's say Mom & Pop made, oh, $38.2 million but used that money to expand into the storefront next door and open a little bistro. Do you think the IRS is not taxing them on that profit just because they used it to grow the business? No, that's (generally) a taxable profit. pic.twitter.com/mXObm77wxT

— Andy Schwarz, sponsored by Envelopes of Cash (@andyhre) June 29, 2019

save for retirement, I had to buy a car, take my wife and me on a vacation, and then of course buy a bunch of obscure board games, I really don't make any money as an economist.

That's pretzel logic. I made money and then I spent it.

— Andy Schwarz, sponsored by Envelopes of Cash (@andyhre) June 29, 2019

What you do with profit is immaterial. It's profit. The fact that a nonprofit finds ways to use all the profits generated by a wholly-owned subsidiary doesn't mean the subsidiary did not profit.

But we're supposed to believe Georgia athletics is broke. Yeah right.

— Andy Schwarz, sponsored by Envelopes of Cash (@andyhre) June 29, 2019

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.