University of Louisville athletics reports $11.2 million deficit, but cash is still flowing
Tim Sullivan, Louisville Courier Journal Published 5:08 p.m. ET Jan. 24, 2020 | Updated 5:11 p.m. ET Jan. 24, 2020
Common accounting practices and a pair of uncommon expenses help explain the $11.2 million deficit the University of Louisville athletics department reported last week to the NCAA.
Though former U of L football coach Bobby Petrino and pizza mogul John Schnatter are being paid off over a period of years, the university is counting the full cost of Petrino’s $14 million buyout and Schnatter’s $9.5 million naming rights settlement in its 2018-19 fiscal year. As a result, U of L has reported its first deficit since a new set of NCAA’s reporting guidelines took effect for the 2004-05 fiscal year.
And while USA TODAY's database showed only 11 larger deficits in more than 3,100 annual reports made by Division I schools through fiscal year 2018, U of L’s issue appears to be more a matter of bookkeeping than budgeting.
Cash continues to flow. Capital improvements continue to be made. Since most of U of L’s obligations to Petrino and Schnatter have yet to come due, their impact on day-to-day operations has been somewhat muted.
What appears on the balance sheet as a big loss is probably not really all that big a deal.
“We have the expense hit,” athletic director Vince Tyra said Friday. “But we don’t have the cash crunch or the implication of it. ... We’re in a really sound spot.”
Based on the figures submitted to the NCAA on Jan. 14, calling U of L’s financial posture “sound” might even qualify as sandbagging. The university’s athletic programs reported record revenues of $139,955,824 in 2018-19, with record ticket sales, record licensing income and a 12% increase in contributions.
Short term, Petrino’s severance from his 2018 firing and Schnatter’s settlement, which followed the 2018 decision to rename Papa John's Cardinal Stadium after the pizza chain founder used a racial slur, were responsible for a lot of red ink. Longer term, U of L’s financial picture is tinted green.
“We’re doing well,” Tyra said. “If you asked our university CFO (Dan Durbin) — I got another note last night — they’re happy and they think we’re doing a great job of cash management. We were in a great position at the end of the calendar year in cash.”
Responding to a request for comment through a university spokesman, Durbin said “the negative bottom line turns positive” by excluding the Petrino and Schnatter payments to be funded by future revenues. He recommended “focus on the word cash,” noting that the department had increased its cash position by about $6.2 million during fiscal year 2019 (to $29.8 million), and expressed gratitude for "its prudent management."
Tyra’s goal is to manage the department prudently enough to reduce the need for university subsidies and to eliminate student fees that have already been cut in half (from $50 per semester to $25).
“It’s always going to be a talking point or a tenuous situation,” Tyra said of subsidies. “I’ve watched the stress and strain of other universities related to what they pull as a subsidy from the university, whether it be student fees or from foundations. ...
“The intention there is to be self-sustainable. I’d like to get down to zero (subsidies).”
Eventually, Tyra would like to replenish endowment funds that were depleted by the buyouts that brought coaches Chris Mack and Scott Satterfield to campus and the financing of former AD Tom Jurich’s settlement. But until Petrino and Schnatter have been paid off, discretionary funds may be scarce.
Because Petrino’s Louisville contract contained no offset provision in the event he obtained another job after being fired, Missouri State’s new head coach is still due another $5.2 million from U of L, payable in quarterly installments through the end of 2021.
The $8 million still owed to Schnatter may eventually be offset by a new naming rights deal, but the university has yet to begin the formal process of requesting proposals to rebrand Cardinal Stadium.
Though Schnatter’s settlement was not announced for more than three months after the 2018-19 fiscal year ended, Durbin said it was recorded as a contingent liability under Generally Accepted Accounting Principles because it had become probable and its value could be estimated. On that point, Tyra said, the university administration was insistent.
“If this was a company that I’ve run in my past versus an athletic department at a public university ... you’d have liabilities that we would take and put on the balance sheet in the year you actually disburse the cash,” Tyra said. “Here, that full liability got expensed right away.”
Basically, it comes down to bookkeeping.
Bottom line: The bills are still getting paid.
Sullivan: If Louisville basketball's banner deserves an asterisk, so does the Astros'
USA TODAY's Steve Berkowitz contributed to this story.
Tim Sullivan: 502-582-4650, tsullivan@courier-journal.com; Twitter: @TimSullivan714. Support strong local journalism by subscribing today: courier-journal.com/tims
Tim Sullivan, Louisville Courier Journal Published 5:08 p.m. ET Jan. 24, 2020 | Updated 5:11 p.m. ET Jan. 24, 2020
Common accounting practices and a pair of uncommon expenses help explain the $11.2 million deficit the University of Louisville athletics department reported last week to the NCAA.
Though former U of L football coach Bobby Petrino and pizza mogul John Schnatter are being paid off over a period of years, the university is counting the full cost of Petrino’s $14 million buyout and Schnatter’s $9.5 million naming rights settlement in its 2018-19 fiscal year. As a result, U of L has reported its first deficit since a new set of NCAA’s reporting guidelines took effect for the 2004-05 fiscal year.
And while USA TODAY's database showed only 11 larger deficits in more than 3,100 annual reports made by Division I schools through fiscal year 2018, U of L’s issue appears to be more a matter of bookkeeping than budgeting.
Cash continues to flow. Capital improvements continue to be made. Since most of U of L’s obligations to Petrino and Schnatter have yet to come due, their impact on day-to-day operations has been somewhat muted.
What appears on the balance sheet as a big loss is probably not really all that big a deal.
“We have the expense hit,” athletic director Vince Tyra said Friday. “But we don’t have the cash crunch or the implication of it. ... We’re in a really sound spot.”
Based on the figures submitted to the NCAA on Jan. 14, calling U of L’s financial posture “sound” might even qualify as sandbagging. The university’s athletic programs reported record revenues of $139,955,824 in 2018-19, with record ticket sales, record licensing income and a 12% increase in contributions.
Short term, Petrino’s severance from his 2018 firing and Schnatter’s settlement, which followed the 2018 decision to rename Papa John's Cardinal Stadium after the pizza chain founder used a racial slur, were responsible for a lot of red ink. Longer term, U of L’s financial picture is tinted green.
“We’re doing well,” Tyra said. “If you asked our university CFO (Dan Durbin) — I got another note last night — they’re happy and they think we’re doing a great job of cash management. We were in a great position at the end of the calendar year in cash.”
Responding to a request for comment through a university spokesman, Durbin said “the negative bottom line turns positive” by excluding the Petrino and Schnatter payments to be funded by future revenues. He recommended “focus on the word cash,” noting that the department had increased its cash position by about $6.2 million during fiscal year 2019 (to $29.8 million), and expressed gratitude for "its prudent management."
Tyra’s goal is to manage the department prudently enough to reduce the need for university subsidies and to eliminate student fees that have already been cut in half (from $50 per semester to $25).
“It’s always going to be a talking point or a tenuous situation,” Tyra said of subsidies. “I’ve watched the stress and strain of other universities related to what they pull as a subsidy from the university, whether it be student fees or from foundations. ...
“The intention there is to be self-sustainable. I’d like to get down to zero (subsidies).”
Eventually, Tyra would like to replenish endowment funds that were depleted by the buyouts that brought coaches Chris Mack and Scott Satterfield to campus and the financing of former AD Tom Jurich’s settlement. But until Petrino and Schnatter have been paid off, discretionary funds may be scarce.
Because Petrino’s Louisville contract contained no offset provision in the event he obtained another job after being fired, Missouri State’s new head coach is still due another $5.2 million from U of L, payable in quarterly installments through the end of 2021.
The $8 million still owed to Schnatter may eventually be offset by a new naming rights deal, but the university has yet to begin the formal process of requesting proposals to rebrand Cardinal Stadium.
Though Schnatter’s settlement was not announced for more than three months after the 2018-19 fiscal year ended, Durbin said it was recorded as a contingent liability under Generally Accepted Accounting Principles because it had become probable and its value could be estimated. On that point, Tyra said, the university administration was insistent.
“If this was a company that I’ve run in my past versus an athletic department at a public university ... you’d have liabilities that we would take and put on the balance sheet in the year you actually disburse the cash,” Tyra said. “Here, that full liability got expensed right away.”
Basically, it comes down to bookkeeping.
Bottom line: The bills are still getting paid.
Sullivan: If Louisville basketball's banner deserves an asterisk, so does the Astros'
USA TODAY's Steve Berkowitz contributed to this story.
Tim Sullivan: 502-582-4650, tsullivan@courier-journal.com; Twitter: @TimSullivan714. Support strong local journalism by subscribing today: courier-journal.com/tims
