Fund transfer policy makes sense for athletic department

Joe Alleva jumped into a totally different situation when he became LSU Director of Athletics four years ago.
Alleva had spent his entire professional career at Duke University, a private school. The structure of a large state school is far different from that of a small private institution.
Moreover, Alleva took over control of the LSU athletic department at a time Louisiana Governor Bobby Jindal was ordering budget cuts in higher education throughout the state. The Tigers athletic department, which is financially self-sufficient, was already being asked to help out the university.
The problem over the last few years involved the amount of the contribution from the athletic department to the university. That figure would fluctuate from year to year. Not surprisingly, the athletic department's financial help to the university was increasing each fiscal year.
This past summer, Alleva worked on a plan which would help the athletic department know the amount of its contributions to the university far in advance. The new Athletics Fund Transfer Policy, developed by Alleva, was approved by the LSU Board of Supervisors last week.
Over the initial five-year term of the policy, the LSU athletic department will provide $36 million to the university -- $7.2 million per year. In years in which the athletics department generates a surplus, a portion of it would be transferred to the university.
Now, Alleva knows exactly how much money the athletic department will transfer to the university. Long-term budgeting will become an easier task.
"In the past, the decision on the contribution had been on an ad-hoc basis," Alleva said. "We didn't know what was expected. We were unable to build our reserves. In the past, we would build our reserves and then the university would take it away."
An example would be what took place for the current fiscal year. After the athletic department budget had been determined, the university requested a transfer of an additional $4 million to offset a shortage in its budget.
The athletic department also assumed financial responsibility for the Academic Center for Student-Athletes for $1.5 million. The athletic department already was transferring about $6 million for services from the university, the Chancellor's Excellence Fund, and campus building and beautification funds.
So, the athletic department was actually being asked to contribute approximately $11.5 million with almost half of that amount being determined at the last minute.
"We now have a plan in place so that we know how much money we will contribute to the university," Alleva said. "So, we know exactly how much money we must transfer. Also, we can have financial reserves for emergency situations."
According to the new fund transfer plan, the first $3 million of a yearly surplus will go to the athletic department. For any yearly surplus between $3 million and $5 million, the athletic department will receive 75 percent and the university will get 25 percent.
Then, any yearly surplus of more than $5 million will be split equally between the athletic department and the university. The policy will not affect the current sharing of LSU trademark licensing revenue, which is split equally between the athletic department and the university.
The athletic department will continue to pay for the tuition of all scholarship student-athletes, utilities and other direct services provided by other parts of the university to the athletic department.
Let's use the 2011-12 fiscal year as an example for how the new policy will work. The athletic department had a $10 million profit. The athletic department keeps the first $3 million. Out of the next $2 million profit, the university will get $500,000.
From the remaining $5 million surplus, the university will get $2.5 million. So, the athletic department would transfer $10.2 million to the university - the predetermined yearly amount of $7.2 million and an additional $3 million from its $10 million surplus.
"This policy sets the stage for the academic mission of LSU to benefit from some future developments involving athletics," Alleva said. "There are some promising financial developments on the horizon for universities that participate in major college athletics.
"These developments include potential new television revenues and additional revenues from a revised Bowl Championship Series (four-team playoff) which begins in 2014."