Being in debt is never a good thing. But let’s be honest, who is not in debt these days.
If 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.
“That is why we are going fast,” Clemson Athletic Director Dan Radakovich told The Clemson Insider in an exclusive interview. “That is why we want to be able to do the things we are doing in a compressed timetable because that means an awful lot.”
In February, Clemson University trustees gave final approval for renovation of Littlejohn Coliseum and concept approval for a new football operations center.
The coliseum renovation, which has already begun, includes reconstruction of the seating areas, along with new practice facilities, locker room, meeting rooms and coaches’ offices for both the men’s and women’s basketball programs.
The trustees also approved the athletic facilities bond resolution for the project, which is slated to cost $63.5 million.
Additionally, 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.
The complex will include locker rooms, meeting rooms and coaches’ 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.
Clemson 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.
This 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’s reserve fund.
One of the important pieces of his plan is to get the interest rate when it is at its lowest. These are all fixed rate-bonds so over the next 30 years Clemson is going to be paying that back with cheaper money.
How? 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.
Radakovich 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.
“The Memorial Stadium renovation was 3.51 percent,” he said.
After Radakovich arrived at Clemson in 2013, he spent about six months reviewing the state of affairs before coming up with his plan for facility upgrades.
“That will cost somewhere in the neighborhood of $175 million,” he said. “We have a statutory limit within the state of South Carolina for athletics of $200 million. We had $25 million in debt when I arrived and that was basically paid for by the ticket bond fee.”
Radakovich built a model to analyze how Clemson could pay for the debt service needed for the facility upgrades. The model will pull money from three silo’s to pay the debt service each year. The three silo’s are the ticket bond fee, contributions from IPTAY and money from a newly created Clemson Athletic Trust.
“Each 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) to pay off the annual debt. That is if $13 million was the annual debt service.
“The $2 million dollars collected each year with $4 off every ticket from Memorial Stadium, $3 for every ticket from Littlejohn, $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.”
Before the ticket bond was established Clemson was getting contributions from IPTAY as well, which continued and will for future projects.
“What 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,” Radakovich said. “They 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.”
What IPTAY has done in the past is pay what it calls Priority Four. This is how it paid for maintaining or upgrading facilities. It 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.
“We 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,” Radakovich said. “So every year, but in 2012, they had the money to pay the $6.5 million.
“If 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.”
Radakovich 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.
“They have been talking about how much reserves they should have. Should it be two-year operating? Should it be a year and a half? What’s the runway that you would need to alter how you do work to continue to be a successful organization? That is still an ongoing conversation, but taking a portion of the seed money for this was very, very important,” the Clemson Athletic Director said.
Radakovich 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’t have any of seed money.
“We had to start that from scratch,” he said.
The Clemson Athletic Trust is the third silo in Radakovich’s plan. It is a quasi-endowment that is housed over in the Clemson University foundation. Back in 2013 and 2014 IPTAY accumulated reserves that were north of $50 million. The athletic department has a fund balance reserve of $10 million.
“So 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,” Radakovich said. “And any money that comes forward to IPTAY as capital donations we would like to be placed in the Clemson Athletic Trust. Those dollars then would be invested and grow over time.”
How much will they grow?
“What we said was over the course of 30 years the foundation would return something close to four percent,” he said. “Now we know there are going to be years where it goes up 12, down seven, up 18, down four but outside of a Monte Carlo scenario you can’t 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.
“So 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 – the $25,000 for Club Seats and the $75,000 for the suites payable over five years. Then there are the facility gifts. You guys know the cornerstone gifts that we have looked at. We have our two cornerstones. We have a couple of other naming opportunities.”
Clemson is hoping sometime this summer it will be able to announce the largest gift in the athletic department’s history. Clemson will take gifts that people have given for projects and it will be part of the Clemson Athletic Trust.
“For example people gave money to Doug Kingsmore and that project. Some of it is payable over five years. Well what we’ve done is taken all of that and put it into our debt service. So those moneys will come in and be part of the Clemson Athletic Trust,” Radakovich said. “So at the end of the day we’re looking at adding, in over the course of time, about 42 million dollars.
“There 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. Then the $27 million in capital gifts associated with cornerstones or naming and then the five million that will come in from the accounts receivable.”
To 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. That of course won’t be the case.
“I really want to emphasize this right here. You see all these zeros from here all the way down. I would hope that Bobby Couch and all of those folks actually have a job for the next twenty years, but this model shows zero. The model shows we don’t go out and raise any more capital money over those thirty years which is of course unrealistic,” Radakovich said.
Clemson 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’s endowment to grow and will help in many other areas, too.
In 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.
“So remember this number of $63 million. We are getting ready to go out right now for our basketball arena. Remember the model is placed at 4.5 percent interest. Well 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,” Radakovich said. “That one percent change in interest rate really helps solidify where we will go. This $88 million dollars is not going to be worth today’s $88 million in 2045, but it’s not negative either.”
If 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.
For those that might be concerned if any of this will impact ticket prices in the years to come, there answer is “No.” Radakovich has set up the debt service model so that it will have no impact on future ticket prices.
“It’s all paid with private money. None of this had any impact on the ticket prices,” he said.