CRAWFORD | Louisville Foundation audit reveals hidden spending on athletic facilities, salaries
An audit released by the University of Louisville on Thursday showed that the school's foundation made major purchases on behalf of its athletic department.
LOUISVILLE, Ky. (WDRB) – The section of the 135-page University of Louisville Foundation forensic audit that deals with the school’s athletic association is only 11 pages long. But it packs a lot of money into a short space.
These are complicated matters. And everything in the audit will have to be digested and reported. In fact, school officials said they would not speak at more length on the document until they have more time to review it, and that was after three hours in executive session with the report on Thursday.
But as a starting point, I want to examine a single item, which is indicative of the concerns this audit raises, and indicative of how one deal merged with other deals until the whole resembled a giant knot, a knot that in some ways the university, its attorneys and accountants will be trying to untie for a while.
I happen to remember this starting point because it includes the first actual event I covered for WDRB in 2012, a U of L athletic board meeting.
In April of 2012, headlines praised the Louisville athletic department for stepping up to provide $2 million from its Hickman-Camp Endowment Fund to pay modest raises for U of L faculty and staff after state appropriations cuts left the university in a budget hole.
“The University of Louisville athletic budget is in about as good a shape as can be,” a story in The Courier-Journal said, and there was little reason to question it, because the department passed a budget of $71.5 million, the largest in school history. The budget presented was balanced. Athletics had cash on hand.
At the time, U of L athletic director Tom Jurich said, “It’s our pleasure to do it. This didn’t come out of our profits; it came out of our endowment. . . . It's one university in good times and in bad times.”
Behind that transaction, however, were some things that weren’t said.
The audit released Thursday showed that in exchange for that $2 million, the foundation bought two properties on Floyd Street (at a cost of $2.645 million, one of which was $250,000 above the appraised value and the other for which no foundation approval could be found) for the express purpose of the athletic association building a soccer stadium. So it wasn’t exactly altruism that motivated the athletic department to kick in money for faculty and staff salaries. It was pay-back.
If that exchange stood on its own, it would be one thing. It doesn’t. There was, it appears, an attempt to steer the public toward an interpretation of events that was less than accurate. In an April 2012 letter to U of L executive senior associate athletic director Kevin Miller, Kathleen Smith, Ramsey’s chief of staff, wrote, “In regard to recognition, for various internal political reasons, we need to announce that Athletics has come through for us in one of our darkest hours. We will be very general in comments, but we must say the fund source was Athletics stepped up to help us make this possible.”
And that’s how it played out. A feel-good story. Athletics to the rescue.
At the end of that letter from Smith to Miller was a troubling passage: “This note is between you, Tom, Dr. Ramsey and me,” Smith wrote. “I do not want it on the email where we have very little control. Please destroy your earlier note to me. I have done the same here.”
Destroying records is never a good look.
WHAT'S THE BIG DEAL?
So the university foundation and the athletics department worked a deal and spun it to look like athletics was doing a favor for university employees. So what?
The problem is that deals like this get messy and difficult to track. In fact, today the university and the athletic department don’t agree on who actually owns the soccer stadium land. The foundation says it is leasing the land to the athletic association. The athletic association says it paid for the land with the $2 million transfer and discounts on donations for tickets to men’s basketball and football game.
Wait, what? Tickets? Yes, there’s more. Read on.
One deal would be one thing. This wasn’t just one deal. This single transaction was part of a much larger set of agreements, in which the foundation not only purchased the land for the soccer stadium, but a handful of other properties. One of those, the Cardinal Golf Club in Simpsonville, was financed by the foundation with $3.8 million in liquidated university endowment funds – part of an overall $42 million liquidation of endowment funds above the spending limits set for the six years the audit took place.
These agreements, which began with a memorandum of understanding between the foundation and athletic association signed by Ramsey and Jurich in January of 2010, saw the athletic department sell 78 football and 510 men’s basketball tickets to the foundation. The 10-year commitment on those tickets would’ve been $18.6 million, had the foundation paid cash for the required donations. Instead it promised to undertake special projects on behalf of athletics -- outside of the athletics annual budget -- at a cost of $8.5 million. For that athletics knocked $9.6 million off the various ticket donations.
But there still was the annual cost of the seats – about $800,000 per year, which the foundation paid to athletics. Add in tickets to bowl games and other events for the use of the president’s office, and the price tag was up to $1 million annually. Ramsey’s office paid for that from a presidential fund that often was over budget, meaning that the cost came out of the excess endowment liquidation mentioned earlier.
And what were those projects the foundation paid for? Two had to do with land acquisition and demolition of structures. One was constructing a parking lot. And one was a “reorganization of football staff.” That’s an interesting way of saying that the foundation was paying Steve Kragthorpe not to coach the football team in 2010, 2011 and 2012 after he was fired in late 2009. He had gone 15-21 in three seasons at Louisville, including 4-8 in 2009. The foundation, not athletics, paid him $1.1 million in 2010 and 2011, and $1.8 million in 2012 for a total of $4 million – even though Kragthorpe’s employment contract had been with the athletic association and not with the foundation.
So for that 2010 memorandum of understanding, the foundation spent $15.1 million on behalf of the athletic association, but got back only $11.6 million.
And this brings us to another matter. Compensation. Some of this isn’t new. We knew that Jurich received a separate salary from the foundation. This has long been reported. What we didn’t know was how much his total compensation has grown to be. The audit report says that in 2016, Jurich had a total compensation from the university of $5.350 million.
It’s a staggering amount for an athletic director. The audit doesn’t clearly break out what various streams make up that salary, whether it is deferred compensation or life insurance or other factors. That’ll be left for foundation officials to explain. Jurich did not make more than $3.5 million in total compensation in any prior year.
Nor is it a surprise that former basketball coach Denny Crum was paid by the foundation as a special assistant to the president, per the agreement he made with the school when he retired. The amount shown as his total compensation, $5.67 million from 2010 to 2016, is larger than the $338,000 annual salary listed for him. Crum received a salary from the foundation, but also $3.388 million in other compensation that is not specified.
One more name appears among those receiving foundation pay – Mark Jurich, son of the athletic director, and associate AD for development. His university salary disappears after 2012 and beginning in 2013 he is paid almost exclusively through foundation funds. From 2010 to 2016, he was paid $767,208 by the foundation, out of a total of $934,812 total compensation.
Immediately after the audit was released Thursday, U of L sports information director Kenny Klein told WDRB's Chris Otts that the athletics department had been unaware that the foundation was the source of any of Mark Jurich's compensation.
Klein said athletics officials understood that Mark Jurich's salary came through the Office of the President because of the nepotism appearance issue.
All together, the foundation from 2010 to 2016 paid $5.9 million in compensation for people auditors deemed to be athletic association employees. It should be noted that Crum’s office was in the University Club and that he worked for many areas of university fund-raising and public relations that had nothing to do with athletics. And Tom Jurich, as a university vice president, could be paid in that role.
One more transaction linked potentially to athletics was reported outside the section on athletics. In June of 2015, the foundation’s financial authority entered into a contract with UB Louisville, owner of 93.9 FM and 680 AM radio in Louisville, to produce a daily program at an annual cost of $300,000. There has been some speculation that the program in question was hosted by John Ramsey and Mike Rutherford (beginning in January of 2015 and running through this past April, when it ended abruptly). An open records request by WDRB shortly after the program went off the air turned up no connection between that show and this purchase, only one produced daily by the university and hosted by university spokesman Mark Hebert. The audit says that the foundation’s financial authority is working with the station to renegotiate the contract, believing it to be “not a reasonable price” for the program.
FOUNDATION BOARD IN THE DARK
Foundation board members interviewed by auditors said they were not aware of the memorandum of understanding between the foundation and athletics, or the later letter from Smith to Miller, until Smith was placed on administrative leave in September of 2016. It was unclear to auditors whether the foundation board members had pertinent details on land acquisition from athletics, such as appraised value, source of funds, or even what the property would be used for.
In the case of the land for the soccer stadium, foundation board meeting minutes make no mention of the board paying $250,000 above the initial appraisal. Board members interviewed said that sometimes, real estate transactions were too far along for them to vote no. When the foundation put the Cardinal Club Golf Note (loan to acquire the golf course) up for a vote of its executive board on Dec. 17, 2013, it was several days after the deal had closed.
In the end, the audit recommends that “all future exchanges between the (foundation) and (athletic association) be transacted in an arm’s length manner.” Moreover, it says the president’s office should develop a formal process to track ticket purchases, including cost and sale of tickets, who received tickets and who purchased them, along with any cash receipts.
In response to issues raised by investigators, the university already has begun to review the athletic association’s properties with the goal of determining potential lease payments to be paid by athletics in the future. It also has eliminated a significant portion of the ticket purchases by the president’s office.
At best, what went on here was reckless. At worst, it was designed with enough complication to evade all those but the people who designed the deals. The audit made no judgment on criminal action.
The shame of all this is how much money the foundation blew through and lost that could have been used, effectively, in more productive pursuits (if not always more lucrative pursuits). The old saying, “a million here and a million there pretty soon adds up to real money,” is quite applicable.
We’re talking about real money.
SYMBOL VS. REALITY
Think about the symbol versus the reality. The symbol of an athletic department giving the university $2 million to fund small faculty and staff raises. The reality of a foundation spending $4 million over three years on a fired football coach.
Instead of a self-sustaining athletic department, the picture of athletics that emerges in this audit is of a department that leaned heavily on the university’s fund-raising arm for some salary and facilities needs so that it could continue to spend more each year on its own operations, even as the university itself struggled to cope with shrinking state appropriations.
Now, I know the defense. Athletics is an investment. It’s a powerful tool when it comes to raising money, more powerful still in a market for college sports like Louisville, Ky. At least, convoluted as the deal may have been, the university wound up with a soccer stadium in this case, and a golf course, and didn’t simply money down a foolish black hole investing in start-ups with no hope of success (there’s plenty of such activity elsewhere in the audit).And yes, the foundation paid a lot of money to Mark Jurich. He also has raised a lot of money for athletics, and has been the lead fund-raiser for the Thornton's Athletic Center ($18.5 million) and the new football stadium expansion ($63 million).
Louisville’s athletic department has delivered the school membership in the Atlantic Coast Conference, a Heisman Trophy winner and a slew of positive publicity, from HBO to ESPN.
Still, that doesn’t justify liquidating endowment funds.
It also has embarrassed the university with a sex-for-recruits scandal in men’s basketball and using stolen game plan information in football. If the university is facing declining enrollments next school year, image problems from athletics have to shoulder a percentage of that responsibility.
College athletics is an arms race, with no way to get off the gas. The athletic department at U of L has risen more meteorically than most. Look at the facilities. Look at the coaches’ salaries. In the wake of this audit, we now see part of the reason why that has been possible. It hasn’t been working alone.
Friday at noon, Louisville will play Kentucky in an NCAA Baseball Super Regional on campus. The Cardinals will take the field with one of the five highest paid coaches in college baseball. The national player of the year will be playing first base.
It’s all fun and games until somebody shows up with a bill. For the U of L athletic association, life as it has been appears to be about to change. Using the foundation as a financial safety net no longer is going to come without consequence, nor will the department’s facility spending go forward with only minimal oversight from university leadership.
If that’s the only fallout the athletic department sees from this, it should count itself fortunate.
Copyright 2017 WDRB Media. All Rights Reserved.