\t\tBeing in debt is never a good thing. But let\u2019s be honest, who is not in debt these days.
\nIf there was ever a good time for the Clemson Athletic Department to add another $150 million in debt, now is the time to do it while the rates are at historical lows.
\n\u201cThat is why we are going fast,\u201d Clemson Athletic Director Dan Radakovich told The Clemson Insider in an exclusive interview.\u00a0\u201cThat is why we want to be able to do the things we are doing in a compressed timetable because that means an awful lot.\u201d
\nIn February, Clemson University trustees gave final approval for renovation of Littlejohn Coliseum and concept approval for a new football operations center.
\nThe coliseum renovation, which has already begun, includes reconstruction of the seating areas, along with new practice facilities, locker room, meeting rooms and coaches\u2019 offices for both the men\u2019s and women\u2019s basketball programs.
\nThe trustees also approved the athletic facilities bond resolution for the project, which is slated to cost $63.5 million.
\nConcept approval of a new football operations complex was approved in February, to be located near the existing indoor practice facility. The concept approval begins the process and allows for hiring an architect and further design of the new building.
\nAdditionally, the board granted concept approval of a new football operations complex, to be located near the existing indoor practice facility. The concept approval begins the process and allows for hiring an architect and further design of the new building.
\nThe complex will include locker rooms, meeting rooms and coaches\u2019 offices along with strength and conditioning, sports medicine and dining areas, all located next to the indoor practice facility and existing practice fields. The initial budget for the project is $62 million.
\nClemson is currently finishing up the new baseball facility which will house a brand new clubhouse for the players as well as a baseball museum to name a few of the new amenities. At Memorial Stadium the bridge oculus project is nearly completed, as is the suites and club seats. There are also plans for Vickery Hall and the Hoke Sloan Tennis Complex to receive upgrades in the next few years.
\nThis seems like a lot for the Clemson Athletic Department to pay for, and in reality it is, but Radakovich has a plan in place that will make it much easier to pay back and in the long run will put a lot more money back in the athletic department\u2019s reserve fund.
\nOne of the important pieces of his plan is to get the interest rate when it is at its lowest.\u00a0These are all fixed rate-bonds so over the next 30 years Clemson is going to be paying that back with cheaper money.
\nHow? Radakovich’s debt service model used a very conservative interest rate of 4.5 percent, which is higher than the rate they are locking in for the new facility upgrades.
\nRadakovich has already proven that if Clemson continues to move these projects along fast, they can get a fixed rate in at 4.5 or lower and that ultimately means saving Clemson millions of dollars.
\n\u201cThe Memorial Stadium renovation was 3.51 percent,\u201d he said.
\nAfter Radakovich arrived at Clemson he spent about six months reviewing the state of affairs before coming up with his plan for facility upgrades.
\n\u201cThat will cost somewhere in the neighborhood of $175 million,\u201d he said.\u00a0\u201cWe have a statutory limit within the state of South Carolina for athletics of $200 million.\u00a0We had $25 million in debt when I arrived and that was basically paid for by the ticket bond fee.”
\nRadakovich built a model to analyze how Clemson could pay for the debt service needed for the facility upgrades. \u00a0The model will pull money from three silo’s to pay the debt service each year. \u00a0The three silo’s are the ticket bond fee, contributions from IPTAY and money from a newly created Clemson Athletic Trust.
\n\u201cEach year we would combine the $2 million (ticket bond fee), the $6.5 million (IPTAY) and up to, as the model worked, $4.5 million (Clemson Athletic Trust) \u00a0to pay off the annual debt.\u00a0That is if $13 million was the annual debt service.
\nThe new baseball facility at Doug Kingsmore will house a new clubhouse for the players as well as a museum and new coaches offices and more.
\n\u201cThe $2 million dollars collected each year with $4 off every ticket from Memorial Stadium, $3 for every ticket from Littlejohn and $2 for every ticket at Doug Kingsmore and $1 for every ticket at Riggs, it created this pool of $2 million dollars and it has been very, very consistent since the turn of the century.\u201d
\nBefore the ticket bond was established Clemson was getting contributions from IPTAY as well, which continued and will for future projects.
\n\u201cWhat we have done is gone to IPTAY and said we would like private support in order to take care of all of the other projects we would like to do,\u201d Radakovich said. \u201cThey moved forward and passed a resolution that said each and every year up to $6.5 million would be given to the athletic department in order to fund their facility projects.\u201d
\nWhat IPTAY has done in the past is pay what it calls Priority Four.\u00a0This is how it paid for maintaining or upgrading facilities.\u00a0It took Priority Four money, after it paid for scholarships, Vickery Hall and other means for the student athletes, and the rest was for whatever athletics needed, but it was mostly facility oriented.
\n\u201cWe went back and looked and asked had these Priority Fours been taken away what would have been the amount of free cash associated with them to be able to pay this $6.5 million,\u201d Radakovich said.\u00a0\u201cSo every year, but in 2012, they had the money to pay the $6.5 million.
\n\u201cIf you rolled it back they would have the money in the past as well so we felt really good to say (IPTAY is) going to be able to give us this money to pay for these projects.\u201d
\nAt Memorial Stadium the bridge oculus project is nearly complete and will be ready in time for the 2015 season opener against Wofford on Sept. 5
\nRadakovich said IPTAY is in sync on the debt service model he laid out, but he had to convince them, as a major investor, how it all works, while making sure they felt good about it.
\n\u201cThey have been talking about how much reserves they should have.\u00a0Should it be two-year operating? Should it be a year and a half?\u00a0What\u2019s the runway that you would need to alter how you do work to continue to be a successful organization?\u00a0That is still an ongoing conversation, but taking a portion of the seed money for this was very, very important,\u201d the Clemson Athletic Director said.
\nRadakovich laid out a similar model when he was the athletic director at Georgia Tech, but his Clemson model is different from the Atlanta one because at Georgia Tech he didn\u2019t have any of seed money.
\n\u201cWe had to start that from scratch,\u201d he said.
\nThe Clemson Athletic Trust is the third silo in Radakovich\u2019s plan. It is a quasi-endowment that is housed over in the Clemson University foundation.\u00a0Back in 2013 and 2014 IPTAY accumulated reserves that were north of $50 million.\u00a0The athletic department has a fund balance reserve of $10 million.
\n\u201cSo in looking at this, what we said is we would like to take a portion of the IPTAY reserve and place them over in the foundation and allow that to be invested like we do for all of our endowments, university endowments and all of those things,\u201d Radakovich said.\u00a0\u201cAnd any money that comes forward to IPTAY as capital donations we would like to be placed in the Clemson Athletic Trust.\u00a0Those dollars then would be invested and grow over time.\u201d
\nHow much will they grow?
\n\u201cWhat we said was over the course of 30 years the foundation would return something close to four percent,\u201d he said.\u00a0\u201cNow we know there are going to be years where it goes up 12, down seven, up 18, down four but outside of a Marti Carlo scenario you can\u2019t ever have one of those, so you pick a percentage and say very conservatively what would be the endowment to come forward with. Foundations hate that number because for them four percent is very low. Most people that run foundations or endowments try to run six to eight percent.
\n\u201cSo if you look at our revenue streams we talk about our $27 million dollars that we are getting from IPTAY to start the balance. Here are those premium seat payments \u2013 the $25,000 for Club Seats and the $75,000 for the suites payable over five years.\u00a0Then there are the facility gifts.\u00a0You guys know the cornerstone gifts that we have looked at.\u00a0We have our two cornerstones.\u00a0We have a couple of other naming opportunities.\u201d
\nThe Littlejohn Coliseum Project began last week and is expect to be completed by November of 2016.
\nClemson is hoping sometime this summer it will be able to announce the largest gift in the athletic department\u2019s history.\u00a0Clemson will take gifts that people have given for projects and it will be part of the Clemson Athletic Trust.
\n\u201cFor example people gave money to Doug Kingsmore and that project.\u00a0Some of it is payable over five years.\u00a0Well what we\u2019ve done is taken all of that and put it into our debt service.\u00a0So those moneys will come in and be part of the Clemson Athletic Trust,\u201d Radakovich said. \u201cSo at the end of the day we\u2019re looking at adding in over the course of time about 42 million dollars.
\n\u201cThere is the $9.8 to almost $10 million dollars in capital suite payments and the club seats at Memorial Stadium as well as the club seats and floor seats that will go to Littlejohn.\u00a0Then the $27 million in capital gifts associated with cornerstones or naming and then the five million that will come in from the accounts receivable.\u201d
\nTo show how conservative Radakovich’s model is the model does not include any capital money coming in over the last 25 years of the model. \u00a0That of course won\u2019t be the case.
\n\u201cI really want to emphasize this right here.\u00a0You see all these zeros from here all the way down.\u00a0I would hope that Bobby Couch and all of those folks actually have a job for the next twenty years, but this model shows zero.\u00a0The model shows we don\u2019t go out and raise any more capital money over those thirty years which is of course unrealistic,\u201d Radakovich said.
\nClemson will continue to raise funds from its Major Gifts team, which in turn will be added to the Clemson Trust which will allow the athletic department\u2019s endowment grow and will help in many other areas, too.
\nIn the most conservative model the balance of the Clemson Athletic Trust in 2045 was $63 million, but with a cheaper interest rate the fund quickly climbs.
\n\u201cSo remember this number of $63 million.\u00a0We are getting ready to go out right now for our basketball arena.\u00a0Remember the model is placed at 4.5 percent interest.\u00a0Well if we get the same (3.5) rate that we got in December when we sold the bonds for the Kingsmore, the WestZone Phase 3 and Memorial Stadium this number goes to $88 million,\u201d Radakovich said.\u00a0\u201cThat one percent change in interest rate really helps solidify where we will go. This $88 million dollars is not going to be worth today\u2019s $88 million in 2045, but it\u2019s not negative either.\u201d
\nIf Clemson can get a four percent interest rate for the new football building the Clemson Athletic Trust will be worth $99 million in 30 years. Clemson should be able to do even better than that if they get approval in the next few months.
\nFor those that might be concerned if any of this will impact ticket prices in the years to come, there answer is \u201cNo.\u201d Radakovich has set up the debt service model so that it will have no impact on future ticket prices.
\n\u201cIt\u2019s all paid with private money.\u00a0None of this had any impact on the ticket prices,\u201d he said.<\/p>\n