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University plans to take out loans to pay for new arena
Complexities of project funding raise doubt over UO's current and future debt level
by Ryan Knutson | Senior news editor
Even though Nike founder Phil Knight's recent $100 million donation to the athletic department enhanced the spotlight on the basketball arena project, none of his money will actually be used to build it.
Instead, the University plans to take out one of its largest loans to date - $200 million - to pay for the facility, then use revenue from the arena to pay it back. Taking out such an enormous bond will place the University near its borrowing capacity.
It's a plan, which is still in preliminary stages, that's so complex it makes some faculty uneasy. But administrators are sure it's sound.
"We're not going to do anything that puts the University or the athletic department at a financial risk," said Vice Provost for University Advancement Allan Price. "On the other hand, it's prudent to be good stewards of resources."
And that's just what the University hopes to accomplish, Price said: to build an arena that can raise more money for the athletic department and make it more self-sufficient.
"Even the most conservative assumptions that we're using, we should be cash flow positive by several million dollars," said Athletic Director Pat Kilkenny.
The athletic department doesn't rely on money from tuition or state support, only what revenue it generates from donations, concessions and ticket sales. And it just about breaks even every year.
But it's the complexity of the arena's plan, and the uncertainty of many of the plan's details that has faculty concerned.
"I think the University Senate needs to be educated on the issues so that it can make a thoughtful decision about whether it thinks it's a good idea or not," said biology professor Nathan Tublitz. "We need to be absolutely convinced that the plan is conservative, and it's workable, and it does not negatively impact the academic side."
Last July, roughly a dozen senior members in the athletic department and other industry experts met for two days and mapped out how much revenue they expected the estimated 12,500 to 15,000 seat arena to generate. Their conclusion: between $8 and $14 million of net income each year.
Their projections are larger than a 2003 report by consultant firm CSL International, which said a 13,500- to 15,000-seat arena could generate between $6 million and $8.6 million each year.
But athletic department officials discredit those numbers because the models have changed.
"Forget that report," said athletic department spokesman Dave Williford. "It's obsolete. We're not taking into consideration that report because we're conducting a new one with the current variables."
The University is also planning major renovations to the residence halls, and by 2010 it might take out $60 million more in bonds, bringing the University close to its borrowing capacity.
The Oregon University System says that a university may not dedicate more than 7 percent of its annual expenditures to repaying loans, and by the time phase one of the University's housing plan is underway, the University could be dedicating about 6.5 percent of its expenditures to paying off debt.
The University already carries $188 million in debt. Add in the arena and the first phase of the housing plan and it will reach $522 million, said Frances Dyke, vice president for finance and administration.
But that shouldn't be a concern, she said. "We should always be vigilant about things," she said. "But the benchmark is out there because that's a comfortable place. We've historically been below that."
The University should be able to manage all of its project goals and stay below the 7 percent benchmark, she said. Even if it doesn't, she said, it can borrow money against another institution's debt capacity.
Instead of making a public request for companies to bid on managing the arena's development, the University of Oregon Foundation, a private non-profit organization dedicated to University advancement, established National Championship Properties LLC to manage the project.
NCP has hired the development firm JMI Sports, whose most recent project was PETCO Park in San Diego, to develop the arena.
"It's really being done to facilitate being able to move quickly and to make sure we have a cap on the University's responsibility," Price said.
Congressional hearings in recent years have challenged the tax-exempt status of donations to athletic departments. If athletic donations someday lose exemption status, it could affect the level of donations.
"The season ticket buyers who are going to be asked to pay higher Duck Athletic Fund contributions, if they could no longer write off those donations, they might not be willing to pay as much," said University Senate President Gordon Sayre.
"But we really don't know what the likelihood of that is. These are just some examples of additional risks and uncertainties as we head into this project."
Administrators, however, see the real risk as not building an arena.
"The athletic department is almost totally dependent upon revenues from football right now," Kilkenny said. "Our basketball facility has run its course."
rknutson@dailyemerald.com
Instead, the University plans to take out one of its largest loans to date - $200 million - to pay for the facility, then use revenue from the arena to pay it back. Taking out such an enormous bond will place the University near its borrowing capacity.
It's a plan, which is still in preliminary stages, that's so complex it makes some faculty uneasy. But administrators are sure it's sound.
"We're not going to do anything that puts the University or the athletic department at a financial risk," said Vice Provost for University Advancement Allan Price. "On the other hand, it's prudent to be good stewards of resources."
And that's just what the University hopes to accomplish, Price said: to build an arena that can raise more money for the athletic department and make it more self-sufficient.
"Even the most conservative assumptions that we're using, we should be cash flow positive by several million dollars," said Athletic Director Pat Kilkenny.
The athletic department doesn't rely on money from tuition or state support, only what revenue it generates from donations, concessions and ticket sales. And it just about breaks even every year.
But it's the complexity of the arena's plan, and the uncertainty of many of the plan's details that has faculty concerned.
"I think the University Senate needs to be educated on the issues so that it can make a thoughtful decision about whether it thinks it's a good idea or not," said biology professor Nathan Tublitz. "We need to be absolutely convinced that the plan is conservative, and it's workable, and it does not negatively impact the academic side."
Revenue expectations
Last July, roughly a dozen senior members in the athletic department and other industry experts met for two days and mapped out how much revenue they expected the estimated 12,500 to 15,000 seat arena to generate. Their conclusion: between $8 and $14 million of net income each year.
Their projections are larger than a 2003 report by consultant firm CSL International, which said a 13,500- to 15,000-seat arena could generate between $6 million and $8.6 million each year.
But athletic department officials discredit those numbers because the models have changed.
"Forget that report," said athletic department spokesman Dave Williford. "It's obsolete. We're not taking into consideration that report because we're conducting a new one with the current variables."
Borrowing capacity
The University is also planning major renovations to the residence halls, and by 2010 it might take out $60 million more in bonds, bringing the University close to its borrowing capacity.
The Oregon University System says that a university may not dedicate more than 7 percent of its annual expenditures to repaying loans, and by the time phase one of the University's housing plan is underway, the University could be dedicating about 6.5 percent of its expenditures to paying off debt.
The University already carries $188 million in debt. Add in the arena and the first phase of the housing plan and it will reach $522 million, said Frances Dyke, vice president for finance and administration.
But that shouldn't be a concern, she said. "We should always be vigilant about things," she said. "But the benchmark is out there because that's a comfortable place. We've historically been below that."
The University should be able to manage all of its project goals and stay below the 7 percent benchmark, she said. Even if it doesn't, she said, it can borrow money against another institution's debt capacity.
The role of NCP
Instead of making a public request for companies to bid on managing the arena's development, the University of Oregon Foundation, a private non-profit organization dedicated to University advancement, established National Championship Properties LLC to manage the project.
NCP has hired the development firm JMI Sports, whose most recent project was PETCO Park in San Diego, to develop the arena.
"It's really being done to facilitate being able to move quickly and to make sure we have a cap on the University's responsibility," Price said.
Other concerns
Congressional hearings in recent years have challenged the tax-exempt status of donations to athletic departments. If athletic donations someday lose exemption status, it could affect the level of donations.
"The season ticket buyers who are going to be asked to pay higher Duck Athletic Fund contributions, if they could no longer write off those donations, they might not be willing to pay as much," said University Senate President Gordon Sayre.
"But we really don't know what the likelihood of that is. These are just some examples of additional risks and uncertainties as we head into this project."
Administrators, however, see the real risk as not building an arena.
"The athletic department is almost totally dependent upon revenues from football right now," Kilkenny said. "Our basketball facility has run its course."
rknutson@dailyemerald.com
Viewing Comments 1 - 2 of 2
Marvin McConoughey
Marvin McConoughey
posted 10/18/07 @ 11:26 AM PST
As a taxpayer, I will object to bearing even the slightest degree of risk for this adventuresome #200 million dollar loan by an education institution to further the corrupt and corrupting business of professional commercial college sports. (Continued…)
tomstevens55
Thomas W. Stevens
posted 10/18/07 @ 3:08 PM PST
I agree with Marvin.
I think it too early to predict the future.
A year from now, when the Bushies are removed from power, we could find investors and other business leaders in a deep suicidal depression. (Continued…)
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