Opinion: Money Complicit in Louisvilles Rise — and Fall

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The Salt Lake Tribune


The first basketball practice was days away, and in Louisville the expectations were high. Although the University of Louisville Cardinals had lost several top players, they had an influx of new talent, especially Brian Bowen, a highly regarded prospect from Saginaw, Michigan.

In the preseason polls, the team was ranked in the top 20. Two years earlier the basketball program had suffered an awful scandal-an assistant coach had been exposed for hiring strippers to entertain recruits and players-but the furor had died down. Now the fans were mostly concerned with whether the NCAA would lessen the sanctions it had initially imposed.

At the KFC Yum! Center, the city-owned arena where the Cardinals play, ticket sales were brisk. Lacking a professional sports team, Louisville was all in for the Cardinals, as always. Three days before the team's first practice, however, disaster struck.

On Sept. 26, the FBI arrested four assistant coaches from some of the nation's top college basketball programs and a handful of others, charging them with bribery and other crimes. One of those arrested, James Gatto, was a marketing executive for Adidas.

In competing with Nike, Under Armour, and other athletic wear companies for branding opportunities and bragging rights, Adidas had made Louisville its marquee university. A month earlier, in a deal Adidas negotiated with Louisville's hard-charging athletic director, Tom Jurich, the company had agreed to pay a staggering $160 million over 10 years to supply uniforms and shoes to the school's 23 teams.

This was Adidas's largest shoe deal ever. Obviously, for that kind of money, Adidas expected Louisville's basketball team to go deep into the NCAA tournament, year after year, so that tens of millions of basketball fans would see the Cardinals wearing its sneakers.

According to the government, Gatto had agreed to pay Bowen's father $100,000 if the high schooler would attend Louisville for at least one year before jumping to the National Basketball Association. The feds also claimed that at least one unnamed Louisville coach knew about this blatant violation of NCAA rules. The government was calling it a bribe. Gatto has pleaded not guilty. Bowen's lawyer didn't respond to requests for comment and has said his client was cleared by federal investigators.

Rick Pitino, the team's $7.7 million coach, professed to be shocked by the allegations. Within 24 hours he was reported to be one of the unnamed coaches who was alleged to be helping with the scheme. Although he continued to protest his innocence and hasn't been charged, he was placed on leave without pay and soon fired.

It's a decent bet that five or six years ago the trustees would have kept their Hall of Fame coach despite the scandal. After all, he'd brought a national championship and helped make the Cardinals the most profitable team in all of college basketball. And the university had looked the other way twice before when Pitino acknowledged in 2009 that, after a one-night stand, he'd paid for a woman to have an abortion (she eventually went to jail for extortion); and when Louisville decided to absolve him of blame for the stripper scandal, after he claimed ignorance.

But this time the university was in no mood to be lenient. A few days after Pitino's firing, the board of trustees fired Tom Jurich, the school's athletic director who turned Louisville into an athletic powerhouse, with nationally ranked teams in half a dozen sports and state-of-the-art facilities up and down the campus. Jurich hasn't been accused of knowing about the bribery scheme, and his lawyer called his termination "a character assassination of a man who has done so much for Louisville."

The board had also forced the resignation of the university president, James Ramsey, another key person in the school's transformation, who's become embroiled in a scandal of his own. Ramsey's lawyer also denied any wrongdoing.

A few days after the firings, still furious over his humiliating dismissal, Pitino gave an on-camera interview to ESPN. "To me, this board of trustees, locking me out of my office, telling me I'm dismissed before the facts come out," the coach said, "they're not the University of Louisville I know."

He's right about that It's not the same. The basketball team, which is currently coached by a former Pitino assistant with little or no reputation outside of Louisville, has had problems early in the season, and there are fears the scandal may damage recruiting for years to come.

There are many who believe the FBI arrests will mark a turning point in college sports writ large, especially if arrests continue and eventually lay bare the depth of corruption and greed in college sports. Even if they stop with Louisville, the scandal ranks as the worst since college basketball players were caught shaving points for gamblers in the 1950s.

But the events have already imparted to Louisville a sobering truth. For years the basketball team served as the university's fulcrum-and its engine of economic growth. Now the school must question the degree of its dependence on its basketball team. College sports are immensely important in many communities, of course, but too often they can get in the way of things that ought to matter more. That's what Louisville was finally awakening to.

One of the ways universities justify having big-time sports programs is by claiming they serve as the school's front porch. Think of the way Penn State and Notre Dame morphed into major research institutions on the backs of football success. Or the way Gonzaga and Butler rose from obscurity thanks to their basketball teams. For all the problems with college sports, the success of a nationally recognized football or basketball team can increase the quality of applicants, the size of donations, and the happiness of students and alumni.

For a long time, though, the Louisville Cardinals basketball team played a different role It was a kind of Potemkin Village, not so much elevating the university as hiding it. Louisville was a commuter school with a reputation so lackluster that a professor once told the Courier-Journal, "When I have a really first-class undergraduate, I tell them to transfer."

A 1904 bronze cast of Rodin's The Thinker stood outside the administration building, and the law school was named for its most famous alumnus, Louis Brandeis. But as far as prestige went, that was about it. It's said that when Junior Bridgeman, one of the school's greatest players, was being recruited, he was brought in during the dead of night because the Louisville coaches didn't want his first impression to be one of the campus.

As for the city of Louisville, it was just as basketball mad as the rest of basketball-mad Kentucky. Going back to the days of coach Denny Crum, who led the program from 1971 to 2001, "nobody in Louisville planned a dinner party or a charitable event without checking the basketball calendar," says Rep. John Yarmuth, a Democrat whose district includes Louisville. "Otherwise there wouldn't be a lot of people there."

Season tickets were treasured, handed down through the generations. Played in 18,000-seat Freedom Hall, a 1956 structure built by the state, the Cardinals' games were often in the top five for attendance among college basketball teams.

Surrounded by the larger cities of Cincinnati, St. Louis, and Nashville, Louisville often felt like a stepchild, fighting for respect. Basketball helped. But even there, the Cardinals for years played second fiddle to the mighty University of Kentucky, which treated its cross-state rival with such disdain that it wouldn't even schedule a game, not even after Crum in 1980 won his first of two national championships.

That only changed in 1983, after Kentucky was forced to play Louisville in an NCAA tournament game-which the Cardinals won, much to the city's delight. The legislature had to pass a resolution urging the two schools to start playing before the matchup became a regular event.

By the time Jurich was named Louisville athletic director in 1997, Crum was about to hit the worst patch of his Hall of Fame career, bottoming out with a 12-19 record in 2001. Jurich, a former athletic director at Colorado State, told a few members of the hiring committee they were "sitting on a gold mine." First, though, he needed a winning basketball team. So he jettisoned Crum before the 2001 season ended, arranging for a $7 million severance payment and for the university to pay him more than $300,000 a year to act as a part-time glad-hander.

Then Jurich brought in the charismatic Pitino, who in the 1990s had revived a troubled University of Kentucky program. Back then Pitino was a hated man in Louisville, but once he started winning at Louisville, the city embraced him. Jurich was in business.

He sought out sports-loving donors who could underwrite the facilities he began building, not only a football and baseball stadium but also a natatorium and a field hockey center. He hired a football coach with a relationship with Adidas and started working to claim the relationship for the entire athletic department. Although the first deal was laughable-a 20 percent discount on every third pair of shoes-it would lead to far more lucrative deals.

He upgraded many of the coaches and established several new women's teams. He poured resources into football until the Cardinals became one of the top-ranked teams in the country. Perhaps his most lasting accomplishment was to maneuver Louisville through the shoals of various conference realignments, ultimately getting it into the Atlantic Coast Conference, one of the five conferences that share most of the spoils of college athletics.

In 2002, with his ambitious agenda outpacing the department's revenue, he got the university to sign a contract obliging it to earmark money for athletics-money that came from student fees. In the 2015-16 school year, the institution and its students supplied $7.4 million of the athletic department's $112 million in revenue. Some wealthy athletic departments, such as the University of Florida's, made annual contributions to academics; because of Jurich, the money at Louisville flowed in the opposite direction.

He did all this with surprisingly little input from the university. Trustees remember that they rarely saw him and were expected to rubber-stamp his budget. He was given the title "university vice president," meaning he had greater power and responsibility than most athletic directors. He didn't even report to the president; the athletic department was overseen by a special athletics association that Jurich dominated.

Around the time Pitino arrived, a group of Louisville businessmen and politicians were making a concerted effort to land an NBA team. In part, this was a play for economic development. Louisville could see how pro football and hockey helped revitalize Nashville. But it also came just as much from a desire for respect. The city burghers even had a nonbinding agreement with the Charlotte Hornets, which wanted to relocate. The plan centered around building a downtown arena that the Hornets and the Cardinals would share.

Jurich and Pitino had other ideas. They had no intention of sharing an arena with an NBA team-they didn't even want to share the city with an NBA team. Louisville was theirs. David Stern, who was then commissioner of the NBA, recalls thinking, "If Rick Pitino doesn't want us there, why are we going there?" The Hornets went to New Orleans instead.

Louisville city leaders decided to proceed with an arena anyway, hoping to use it as a centerpiece for downtown development. To help pay for it, the city gave the area around the arena a designation that allowed it to use property tax increases to pay bondholders. Louisville-based Yum! Brands Inc., which owns KFC, Pizza Hut, and other fast-food companies, paid $13.5 million over 10 years for the naming rights. But the arena also needed a tenant, and there was only one possibility the Cardinals.

Once again, Jurich leveraged the basketball team to maximum advantage, negotiating an astonishingly lopsided lease that gave the athletic department almost total control of the arena from Oct. 1 until the end of basketball season, while reaping almost 90 percent of the revenue from premium seats and all the profit from VIP, courtside seating. Not only did the basketball team play in the new arena, so did the women's volleyball team, which drew fewer than 1,000 spectators.

"Jurich took advantage of a city that was willing to do anything to get a downtown arena," says Aaron Yarmuth, the editor of Louisville Eccentric Observer, the city's alternative weekly.

"Tom has a Trump-like negotiating style, where he folds his arms, stomps his feet, and is very strong and unyielding in his position," says Todd Blue, who'd been a local developer during the arena controversy and is critical of the university's dominance over the city. "I don't blame Tom. He did a good job representing his interests."

When it was completed in 2008, at cost of $238 million, the KFC Yum! Center was one of the biggest arenas in college basketball, with 22,090 seats. And thanks to the deal Jurich struck, the basketball team's revenue leaped from $25.9 million to $40.9 million, making it by far the richest college basketball team in the country. But the area around the arena never developed as the city had hoped, which meant those property tax increases Louisville was depending on to pay the bondholder didn't materialize.

That shortfall, combined with the onerous lease, meant the KFC Yum! Center struggled to meet its bond obligations. By 2015, while the basketball team was making $20 million a year in arena profits, the Yum! Center itself was losing about $17 million a year. The bonds were rated junk. Default seemed inevitable.

None of which seemed to trouble Jurich. Indeed, under the terms of the lease, the university had the contractual option to buy the arena outright if it went into foreclosure. One former trustee called that provision "the Jurich special."

In a recent interview with ESPN, Jurich defended the deal. "Nobody twisted their arm," he said. "They brought this deal to us. I didn't go to them and say, 'I got to have this, this, and this, and this.' "

By the time Ramsey arrived in 2002 as the university's 17th president, the trustees had determined that they were no longer content with Louisville's status as a commuter school. They wanted the school to become a major research university, a public institution on par with the University of Michigan or the University of Kentucky, which had long overshadowed its in-state rival in academics. An institution, you might say, that would finally be as good as its basketball team.

Ramsey had had a long career in Frankfort, the state capital, including two stints as budget director. He knew where to find state funds even as the legislature was cutting back on higher education. He also had a knack for cultivating donors, which allowed him to ultimately commit almost $2 billion toward new construction academic centers, student lounges, an attractive campus, and most of all, dormitories for live-in students.

In 2015 the Courier-Journal took a close look at the school's academic progress and came away impressed. The paper reported that the average ACT score of incoming freshmen had risen above the national average; research funding was up fivefold; and there were 50 percent more doctoral programs. Even if there was still a long way to go-the school is ranked No. 165 in the most recent U.S. News and World Report evaluation of national universities-when a reporter went back to the same professor and asked whether a top student could get a first-rate education at the University of Louisville, the professor said, "Yes."

Like Jurich, however, Ramsey operated with very little oversight. Although the state's governor was charged with appointing the trustees, he chose from a list Ramsey gave him. Board meetings were docile affairs at which pointed questions were considered acts of disloyalty. "Don't damage the brand," former trustee (and Ramsey supporter) Bob Hughes recalls being told upon joining the board. "You don't want to give donors an opportunity not to give." The job, as the trustees seemed to define it, was not to question the president but to support him.

Ramsey also inherited the reins of the university foundation, which managed the school's endowment. This was highly unusual, in no small part because such an arrangement is so rife with potential for abuse. But again, the trustees never questioned what Ramsey and several of his top assistants were doing with foundation money.

When Ramsey began buying real estate-not for dorms, but for downtown office space, competing with private developers-they said nothing. They said nothing when he had them approve his plan to use the foundation to award deferred compensation to a handful of officials, including Jurich. They kept quiet when Ramsey invested $10 million in risky biotech startups. And never once did they ask to see the foundation's books.

One of the rewards for their complacency was-what else?- choice basketball tickets.

Starting in 2012, however, Kentucky Gov. Steve Beshear, a Democrat, began to name more skeptical trustees. The first was Steve Wilson, founder of 21C, a hip hotel chain based in Louisville, who was dumbfounded by how the board operated. Early on, Wilson tried to get some information about the university hospital and faced such resistance from Ramsey and the other trustees that he finally resorted to making an open records request, the sort of thing a journalist might do. As he gained allies who asked questions about the foundation, they ran into the same stonewalling. "We started thinking, What else are they hiding?" recalls one of the dissidents.

A lot, as it turns out. A forensic audit that was released this summer showed that the university's endowment had shrunk almost 20 percent over the last three years, to $720 million from $876 million, and the foundation had to liquidate holdings in several top-performing funds to raise cash. The value of certain assets had been inflated to make the numbers look better. The biotech investments had been a bust. Ramsey went through a $17.5 million "special projects" fund, which was spent in part on tickets to college bowl games and on compensation.

Compensation became the most contentious issue of all. Ramsey used the foundation to bolster the salaries of a small number of executives, including himself. Although the money was labeled "deferred comp," it vested almost immediately-in some cases the day after it was awarded. In addition, the foundation added "gross ups" to cover the income taxes of the recipients. And it allegedly paid bonuses that were never revealed to the board. Ramsey claimed this added compensation had been authorized by the trustees, but when a local TV station filed an open records request, the university said it couldn't find any record of the authorization. (Ramsey's lawyer said his client followed the directions of the board.)

Little by little, this information trickled out to the public as the Louisville press began breaking stories about the goings-on at the foundation. Finally, the dissident board members insisted the board hire a compensation consultant-but Ramsey and the foundation board hid information from the consultant, too. In 2015, for instance, Ramsey's compensation from the university was $343,000. But when you included what he received from the foundation, his actual pay was $1.7 million.

An auditor would later find that from 2010 to 2016, Ramsey, Jurich, and seven other Louisville officials received $21.8 million in deferred compensation without the knowledge of the board.

Regarding his complex compensation agreement, Jurich's lawyer told the board that Jurich was promised more than four years ago that his contract would be rewritten to modernize and simplify it. "Tom did not request or come up with the numerous compensation items in updates to his agreement, most of which have been in the contract for a long time," Jurich's lawyer said.

There were other embarrassments beyond lavish pay. For Halloween 2015, Ramsey and his staff dressed as stereotypical Mexicans, with sombreros and large fake moustaches. When pictures of the event were leaked to the media, Ramsey was forced to apologize.

A Republican governor elected in 2015, Matt Bevin, dissolved the board amid increasingly contentious meetings and replaced it with an entirely new set of trustees. The chairman, a no-nonsense businessman named J. David Grissom, took over in June 2016. "I look forward to working with this new board as we move the university forward," said Ramsey, fully expecting to be kept on. As a pro forma gesture, he submitted his resignation to the new board. Much to his surprise, Grissom and the board accepted it.

Perhaps the most painful aspect of this latest basketball scandal is that it came just as the university's bad press was finally dying down. The stripper scandal was old news. The forensic audit of the foundation had made headlines over the summer, but that story was fading, too.

The university's interim president, Gregory Postel, who'd been head of the hospital and medical school, tapped a local private equity executive, Vince Tyra, to sort out the foundation's problems and try to sell its real estate. Postel had to acknowledge that the university had a $48 million shortfall because some of the assets had been overvalued. That led to a hiring freeze and other cost-saving measures.

Finally, Postel renegotiated the lease with the KFC Yum! Center. For more than a year, city and state officials had been pressuring Jurich to cut a new deal, but the athletic director resisted. At one point, he went on the radio and described the criticism he was getting as "criminal." Hard-nosed to the end, he also threatened to leave the arena and build his own on campus.

The board, realizing that the growing political pressure made a new agreement a necessity, pushed Jurich aside and gave the task to Postel. In May, Postel agreed the university would give back $2.4 million a year to help relieve the pressure on the KFC Yum! Center. Jurich, clearly annoyed, grumbled that the money was "a big hit for us" and would have to be made up in additional fees and charges.

Then came the FBI arrests, and the headlines started up all over again. If anything, they were worse than those of the last few years, given that the subject was basketball. Both Pitino and Jurich were fired "for cause," meaning the university would not pay them the remainder of their contracts. Pitino sued the university for $36 million, the amount he said remained on his contract, which ran through 2026. He also sued Adidas, which canceled a $2.3 million annual deal it had with him, for damaging his reputation "for honesty and integrity."

On sports radio in Louisville, fans were mixed about whether Pitino should have been fired, but there was near unanimity about Jurich. Many people thought he should have kept his job, given everything he'd done for Louisville athletics. "There's no AD I would rather have at our university," wrote one blogger in a typical comment.

The Courier-Journal noted that Jurich's 2016 salary, an astonishing $5.4 million, which included deferred comp from 10 years earlier and a 0.5 percent commission on donations he brought in from outside of athletics, was more than the budgets of the biology or history departments. It was also more than twice the salary of the next highest-paid athletic director, Ohio State's Gene Smith ($1.8 million). The paper also discovered that Jurich's daughter was working for Adidas as the liaison between the company and the university.

In the letter Postel wrote firing the longtime athletic director, he said Jurich had demonstrated "ineffective management, divisive leadership, unprofessional conduct, and a lack of collegiality." More likely, Jurich was fired because the new board and the interim president wanted a clean slate-starting with an athletic director who wouldn't be resistant to the idea that athletics was part of, and subservient to, the university.

In this new era, many things Jurich was best known for were seen in a far different light. He hired great coaches-like Rick Pitino. He got a great arena deal-which almost broke the KFC Yum! Center. He negotiated a great Adidas deal-which led to the FBI scandal that cost him his job.

Even his building prowess, which helped revive the campus, had its downside Faculty complained that multiple state budget cuts never seemed to touch the athletic department, with seemingly unlimited resources for 600 or so athletes on a campus of 22,000.

"When we found out about the FBI investigation, obviously it was a surprise," Postel says, "but problems with athletics was already on our list of things we had to do." After firing Jurich, Postel named Tyra the new interim athletic director.

Postel also says that one of his goals is to put athletics-including basketball-in its proper place. "I love sports," he says, "but athletics is overemphasized. This is a university, not a sports complex." To that end, Postel and Tyra told Bowen that he wouldn't be playing basketball at the University of Louisville and was free to shop his talents elsewhere. No other school has been willing to take him on.

Just days after the FBI arrests, the Courier-Journal had a story about the potential economic effect of the scandal if the fans turned away from the Cardinals. What would it do to the restaurants and shops around the KFC Yum! Center? And what would it do to the stadium itself? S&P downgraded its credit rating on the university, citing depleted financial resources, significant management turnover, and concern about risk to the school's reputation from the FBI investigation.

In early season play, the Cardinals lost back-to-back games to ranked teams, dropping out of the top 20. Attendance was down compared with 2016, but so far the damage seemed contained. Still, what everyone in Louisville knew was that the arena's future, and some ways the city's future, remained intertwined with the team's future. "We're married to the university," said one arena official. "Their success is our success."

He didn't really mean the university, of course. He meant the basketball team.

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December 14, 2017


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