So, as many of you already knew, Virginia is planning to build an indoor practice facility. In today’s print edition, we took a closer look at the process behind gaining approval for such a project. Here are a few extra nuggets we didn’t have space for in the story, but that some of you may still find interesting:
Early in the story, we establish that the university’s Board of Visitors approved in September the concept of a plan to build a 78,000-square foot field house structure that is expected to cost up to $13 million. That freed the athletic department to form specific designs for the facility and to aggressively pursue potential donors for the project.
University practice mandates 50 percent of a capital project’s cost be in hand and the other 50 percent be present in the form of guaranteed pledges by the start of construction, a goal Jon Oliver, the school’s executive associate athletic director, said in this case must be met by January or February in order to break ground on the facility early in the summer 2012.
“That’s a means of saying we want some confidence that you’re going to be able to raise this,” said Michael Strine, U-Va.’s executive vice president and chief operating officer. “Because if not, what doesn’t get fulfilled, you’re going to end up having to figure out how to pay for it.”
Indeed, financial concerns and location were two of the early stumbling blocks to the project. While the idea for an indoor practice facility had been kicked around for the past decade, Oliver said, a concrete plan wasn’t formed until shortly after Mike London was hired to replace Al Groh as Virginia’s football coach in December 2009.
At the time, Oliver said, the Board of Visitors already had approved a plan for an air-supported structure – more commonly known as a “bubble” – to be built on the parking lot adjacent to Onesty Hall, an athletic department facility near the football team’s headquarters. But every parking spot removed would have to be replaced, an expense Oliver estimated would have added $2 million to $3 million to the project’s cost.
In the event the athletic department cannot meet the board’s pre-construction financial requirements, it will take out from the university an internal loan that would be paid back within five years, the time by which all the pledges had come in.
Oliver said the athletic department would not apply for an internal loan until the fundraising process is complete and the amount needed is finalized. However, the athletic department has filed paperwork for a credit analysis, so that the process for obtaining the internal loan can be fast-tracked.
“They’re going to have to have 50 percent of the funds raised by the start of construction,” Strine said. “And then 50 percent of the value of the building, plus interest value, they would be financing over that period until they got all the pledges in. And they have built into (the athletic department’s) 12-year (budget) plan paying the debt service on that interest until the term would end.”
Over the summer, the athletic department began reaching out to potential donors and secured a $5 million pledge. But fundraising efforts were limited by the fact the project had not yet been made public.
On Aug. 8, a day after a thunderstorm forced the football team to finish practice inside John Paul Jones Arena, Athletic Director Craig Littlepage sent Strine an email that read in part: “Based on the coach’s focus, the media curiosity/how that is impacting our donors and friends, and what our goals are for the overall program we need for this project to gain traction,” Littlepage wrote.
A few hours later, Strine responded with an e-mail that read in part: “I understand the strategic importance in the competitive race, but am always open to more time to discuss and learn. The key here to me is to balance our ambitions and competitiveness on this and the other identified areas for investment with our capacity to absorb the costs both short and long term …”
The pace at which the athletic department desired the project to move forward – and the amount of financial planning that still needed to be done – concerned Strine, and so on Aug. 10 he sent Leonard Sandridge, Virginia's longtime chief operating officer before he retired and was replaced by Strine in July, an e-mail in which he described the September Board of Visitors meeting as having the potential to be “a contentious, anxiety-producing moment and potentially a conflictual matter within the board.”
Stine said in a recent interview the board meeting in September ended up being “in many ways a non-event” because those anxiety-producing moments were had “internally” beforehand.
Those moments centered on the athletic department’s revised 12-year budget plan and how it would incorporate revenue from the ACC’s most recent television deal, which goes into effect this fiscal year. Oliver said that in August the department still was finalizing its new financial model in regards to how it would cover the costs of the indoor facility.
“I was telling (Littlepage), ‘I not only want to understand the model, I want to understand what happens if ticket sales don’t improve or ticket sales actually further decline, what are the alternatives by which we would manage those funds and manage this project?’” Strine said. “So it really is me trying to say to (Littlepage), ‘Help me try figure out how to
say yes when the board asks me is this fiscally sustainable?’”
The athletic department had to address how it could afford to pay the operational costs for the new indoor facility, especially when university administrators were concerned about declining football season ticket sales and the fact athletics lost just more than $1 million* in operating revenue in the last fiscal year.
* Oliver noted that the athletic department transferred funds from the $7 million it had in cash reserves to cover the $1 million deficit.
It turns out the ACC’s new television deal was something of a savior for the Virginia athletic department in that regard. Revenue from the conference’s TV deal – which will go into effect this fiscal year – initially will provide each school with roughly $13 million. That payout will increase by 2.5 percent each year during the 12-year life of the television contract, Oliver said.
The Board of Visitors asked Oliver and Littlepage to submit a new* 12-year budget plan taking into account the additional resources from the ACC TV deal, and they were able to show the Board a model that included several operating reserves that were not present before.
* The last time Oliver and Littlepage submitted a budget plan to the Board was in 2008. When they presented the new budget plan to the Board, their presentation began with a PowerPoint slide that read “In 2008, we presented a budget to the Board of Visitors that was fundamentally unstable in the long term …”
The new 12-year budget plan includes the creating of an operating reserve designed “to reduce the dependency on donor support to address contingencies, such as coaching terminations and ticket revenue declines.”
In football, for instance, season ticket sales declined by 12,301 from 2006-10*, a drop attributable to a down economy and to the fact the team went a combined 26-35 during that span. In 2011, though, season ticket sales are up by 3.14 percent.
* Here are the football season ticket sales numbers during that five-year stretch: 2006 – 39,876; 2007 – 39,522; 2008 – 35,538; 2009 – 30,507; 2010 – 27,575.
The new budget plan also allowed for the athletic department to meet the Board of Visitors’ reserve policy related to facilities maintenance. The current overall value of the buildings the athletic department runs is roughly $275 million, according to Oliver, and under Board policy, 1.5 percent of that amount (a little more than $4 million) must be put away each year to handle facilities repair and replacement issues.
“Up until the new ACC TV agreement, from a budget standpoint, that would have been very difficult for us to do,” Oliver said.
Aside from the maintenance reserve, the athletic department also had to take into account the operating costs of the indoor facility. Oliver said the current estimate for the annual operating cost of the building is between $400,000-500,000.
“I’m not trying to keep that thing at 72 degrees at all times,” Oliver said. “It doesn’t have to be completely comfortable. Sixty degrees in the winter is probably going to be fine. In the summertime, keeping it at 80 or 85 is probably fine.”
The good news for Oliver is that with the imminent arrivals of Syracuse and Pittsburgh to the ACC, the conference soon will have an opportunity to renegotiate the terms of its current television contract. Oliver said his assumption is that the renegotiation will lead to “some additional revenue” for each ACC school.
Oliver estimates that operating the facility will cost no more than $500,000 per year, an expense he said was built into the department’s revised budget. Also included was a maintenance reserve that sets aside roughly $4.065 million per year for the purpose of fixing the campus facilities the athletic department oversee, should such a need arise.
The athletic department needs to select an architect for the project, and the Board of Visitors must approve that architect at their November meeting. Approval is contingent upon the project’s fundraising status.
Oliver said in an email Tuesday that “roughly $8.5 million has been committed to the project and approximately $800,000 is in hand.”
Should everything proceed as planned, the Board of Visitors would need to approve the schematic design of the indoor facility at their February meeting.
“We’ve talked about being cautiously optimistic throughout this whole process,” Oliver said. “We’re not going to act like this is a done deal. Listen, we can’t kid ourselves. This is going to be a very difficult effort to raise this amount of money in a short period of time to get this done.”