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Iowa State's $135 Million Gamble
To Compete in Big-Time College
Cyclones Are Betting That Upgrading Sports Facilities Now --
and Taking On More Debt -- Will Pay Off Later
Des Moines Register
July 9, 2006
[Note: This material is copyright by the Des Moines Register, and is reproduced here as a matter of "fair use" for non-commercial, educational purposes only. Any other use may require the prior approval of the Des Moines Register.]
The multimillion-dollar question: Can the university pull it off?
Iowa State athletic director Jamie Pollard acknowledges the possibilities of charging more for football and basketball tickets, requiring increased contributions to maintain top seats at athletic events, and asking students to continue contributing about $400,000 in fees now used to pay off the original bonds for Hilton Coliseum.
Potential rewards from upgrading
Hilton and Jack Trice Stadium over the next five to 10 years are substantial.
|So are the challenges.
The university continues to pay on the Jacobson Athletic Building - the athletic department's last major facilities endeavor - after using more than $2 million in public money and extending financing nearly five years longer than originally planned, according to a Des Moines Sunday Register examination of records.
Cyclone football and men's basketball teams, the two major revenue-producers, each own near-.500 records the past five seasons. Football has qualified for four bowl games, but has a 30-32 overall record. Basketball has a .538 winning percentage in that span, with one NCAA Tournament appearance - but is 31-50 against Big 12 Conference competition.
The state Board of Regents
has given school officials approval to move forward on the facilities upgrade,
while demanding that no additional public or school money be involved.
A financial feasibility study has been required, too.
STUDENTS’ CONTRIBUTIONS: $400,000 in annual fees to pay off Hilton Coliseum would continue. It remains unclear whether the school would add more fees.
TICKETS: Prices for football and basketball games will likely rise. The average football ticket price could go to $47, from $40.
TOP SEATS GO UP: Fans likely would need to pay more to keep key football and basketball seats.
Good plan? Or too much?
Get a closer look at ISU’s
"I share the belief that we don't want to be a drain on the institution," Pollard said. "The regents clearly have a goal that they would like all the athletic departments to be self-sufficient. I think we can work toward that goal and achieve it over time."
More contributions, higher ticket prices
When Pollard arrived as Iowa State's new athletic director last November, he said one thing was clear: The Cyclone athletic department needed to go deeper into debt to improve competitively and, hopefully, financially.
"There is no right amount of debt, but at Wisconsin and Maryland, we owed a lot more than we owe here right now," said Pollard, who previously worked on athletic department staffs at those two universities. "As I looked around and saw the condition of our major facilities, it was clear to me we needed to be more aggressive on facility improvement so that we can be more competitive athletically and grow financially."
As a result, Pollard has prescribed a massive dose of debt - initially at least $70 million and eventually as much as $135 million.
The University of Iowa's athletic department, by comparison, has a $117 million debt, largely attributable to the near-$90 million Kinnick Stadium renovation. Northern Iowa's athletic department, meanwhile, has an $8.5 million debt for its share of the cost on the McLeod Center now under construction.
Wisconsin currently pays about $12 million annually on its debt, Pollard said, compared with Iowa State's estimated $1.7 million for the 2006-07 fiscal year. Iowa State's annual obligation would increase to about $6.3 million in 2009-10, Pollard said, depending on interest rates under the proposed plan.
Where will the money for the largest capital project in Iowa State athletic history come from?
Pollard's initial financing plan calls for $2.1 million annually from suite and club seat leases, $1.5 million in large donations and increased annual contributions to the National Cyclone Club, as well asking for the $400,000 annually in student fees now being used to finish off Hilton's remaining debt.
Higher ticket prices and increased contributions to the National Cyclone Club to maintain current seats for football and men's basketball also are likely steps.
"Right now, the average price for a football ticket in the Big 12 is $47, but we charge an average price of $40," Pollard said. "If we raise our ticket prices to the conference average, that's an additional $1.4 million."
Those estimates account for $5.4 million - more than the near-$4.5 million of new annual debt they're proposing to take on.
Athletic fundraising at Iowa State has proved challenging over the years, unlike at the University of Iowa, which raised $100 million almost immediately for the Kinnick Stadium renovation.
There are only 6,000 members of the National Cyclone Club, despite 175,000 living alumni. Cyclone booster support, estimated at $4 million this year, has grown by about $1 million over the last five years.
Michael Gartner, regents president, said a key element to the project is that no money from the school's general fund be used, because that money is needed for other educational purposes.
The general fund is the school's financial backbone and is funded with student tuition, taxpayer money appropriated by the Legislature, and other income generally used for operational expenses.
"When I looked at the plans, I was very impressed with them and what they can do to enhance Iowa State's athletic programs," said Gartner, who owns the Iowa Cubs triple-A baseball team. "But I told them that all of the money has to come from private sources, like contributions and suite revenues. There can't be any public or other school money involved."
"The state can't afford it and the school can't, either. We understand that reality," he said.
Alicia Edwards, a lifelong Cyclone fan and former president of the Ankeny Cyclone Club, said she is willing to pay higher ticket prices and increase her financial support to the athletic department.
"If we want to compete against Texas and Oklahoma and Nebraska, we are all going to have to give more," Edwards said. "That is just a fact."
Edwards said, however, that she still isn't sure about other Cyclone fans.
"Winning a few more important football games would help," she said. "Right now, I do wonder if there are enough fans who are willing to pick it up like I am. I hope there are."
Former Iowa State athletic director Max Urick suggested to university officials in the late 1980s that they should consider adding luxury suites for football and basketball fans. Urick lost the argument because faculty opponents believed luxury suites weren't necessary and would represent over-commercialization of Iowa State athletics.
"It's all about timing," said Urick, who later oversaw a major expansion of Kansas State's football stadium that included construction of 34 luxury suites and a club seating section for 2,200. Now, KSU Stadium has 53 suites that have been sold out since construction.
Suite sales at other Iowa venues have been largely successful.
University of Iowa officials have leased all 45 of the new suites and nearly all of the 1,280 outdoor and indoor club seats that will debut in September. Officials at Wells Fargo Arena in downtown Des Moines, meanwhile, have only two of 36 suites available, no loge boxes, and 200 of 602 club seats available less than a year after opening.
Suite revenues become one of the department's steadiest revenue streams, Urick said.
"Revenues from suites are like season tickets," Urick said. "Even if things go south on the field, the last thing to go will be suite leases. It is the last thing people will give up."
Jacobson Building provides a lesson
Pollard's promise not to use public money would be contrary to how Iowa State financed its last major athletic project.
Iowa State's financing strategy for the Jacobson Athletic Building, approved by former president Martin Jischke and former athletic director Gene Smith, forced the school to spend more than $2 million from the general fund after costs escalated, records show.
Warren Madden, the university's vice president of finance, said the project's costs jumped because officials decided to add square footage to the building. In addition, he said, officials wanted to move athletic offices from on-campus buildings to the athletic complex.
As a result, Madden said, Jischke decided to pull $2 million from university coffers to complete the financing. He said part of the subsidy was to provide better athletic facilities for female athletes.
"It was a combination of adding onto the project, as well as coming up with additional contributions," Madden said.
Madden said the $2 million came from interest earned off of the school's investment of operational funds - a fund that averages about $200 million annually and provides $2 million to $4 million annually for spending purposes. Madden said those funds are used at the discretion of the university president, but are traditionally used for building renovation, repair, and expansion.
Records show that the administrative building had been scheduled to be paid off in 2001, but a tight athletic department budget and a favorable borrowing arrangement with the Iowa State Foundation, in terms of better interest rates, prompted officials to refinance the remaining $900,000 debt.
Foundation officials provided the loan through the foundation's building pool fund, according to records.
Cyclone boosters contributed more than $9 million to the Jacobson project - $3 million more than originally anticipated - but that wasn't not enough to cover a project that grew to $11.8 million after initially projected to cost $8 million, records show.
Bruce Van De Velde, former Iowa State athletic director, said the refinancing agreement extended the athletic department's obligations until 2009, but also gave the department some necessary breathing space during challenging financial times.
In 2001, Iowa State dropped three men's sports - swimming, diving and baseball - because of a projected $1.4 million budget deficit.
"We just didn't have $900,000 in our budget to pay off the building," Van De Velde said. "It just made financial sense to extend it and make sure we had some breathing space on our day-to-day spending."
Pollard says it's time for 'dramatic' work
The Iowa State athletic department's challenge, Pollard said, is like the one faced by former president James Hilton in the late 1960s when Iowa State built Hilton Coliseum for basketball, as well as the football stadium, which now seats 50,000 fans.
"Dr. Hilton knew something dramatic had to be done then, just like I know something has be done now," Pollard said.
A Register review of facility projects at Big 12 Conference universities shows that Iowa State's football stadium and basketball arena have had the least amount of expansion and renovation among conference members over the past 10 years.
Pollard's plan calls for construction of an additional 24 luxury suites and new club seating at the football stadium, as well as eventual "bowling" of the south end zone. Total cost of those two football projects is $35 million, but the suite and club-seating project, which would cost $10 million, is the first priority.
Pollard also has proposed two major upgrades at Hilton Coliseum: construction of separate practice facilities for men's and women's basketball and volleyball, along with suites within Hilton and expansion of the coliseum's concourse at a cost of $60 million.
To pay for it, suite and club seat holders will be expected to provide about $2 million annually for 25 years and big contributors will need provide $1 million annually for the same length of time.
Pollard said he is willing to sell the naming rights to any new or existing athletic facility, except for those bearing names already.
Urick, the former Iowa State athletic director, said the facilities project is overdue.
"To have any vision other than what's proposed would be shortsighted," said Urick, who retired in 2001 after nearly nine years as Kansas State's athletic director. "I applaud Jamie for doing it. It is absolutely necessary and the quicker his constituencies realize this, the better off they are going to be for the long term."
Pollard looks ahead with more excitement than apprehension.
"It is ambitious and we all understand that," Pollard said. "But I don't look at as a risky proposition, but instead something we have to do to stay competitive in the Big 12 and that we are capable of getting done."