Why Collegiate Athletic Departments Should Keep a Closer Eye on Athletic Endowments

For the first time since 2008-2009, universities are starting to deal with underwater endowments. Back then, the situation prompted institutions to adjust their investment strategies and make changes to ensure long-term financial stability. As the memories of that recession have faded, however, monitoring practices probably aren’t what they used to be. Here are some reminders of steps athletic departments can take to minimize the risks associated with declining markets.

Understand the endowment due diligence process. Understand the university’s foundation or booster club policies for working with an investment professional, monitoring the market, and making sure your investments are well diversified. Know the minimal endowment balances the donor (or law) requires you maintain, if that differs from the original gift amount.

Evaluate your endowments regularly. Monitoring the performance of your athletic endowments helps you know when you might need to make proactive strategic changes to how you rely on them. The goal here is to make changes before the endowment goes underwater. Be particularly aware of newer endowments that haven’t had the opportunity to grow.

Establish clear spending policies. Have clear policies to ensure the funds are used in a responsible and sustainable way. Depending on the state of your endowments, you might consider spending less than your foundation’s allowable policy to preserve the original gift.

Tell your financial story effectively. Accounting standards have certain requirements for disclosing underwater endowments. Organizations are required to disclose:

• Policies related to appropriations from underwater endowments
• The organization’s ability to spend from underwater endowments
• The fair value of underwater endowment funds
• The amount by which the original endowment amount exceeds the fair value of the endowment fund (i.e., the “underwater” portion)
• The original gift amounts or level required to be maintained by donor stipulations

Athletics endowments are more likely to be in the public spotlight—and quite honestly, not completely understood by the journalists reporting on them. So try to use your university’s disclosure to your advantage. At the very least, have a communication plan available.

If your athletics spending policy is more conservative than the university’s, make that fact known and leverage it. Keep track of what the endowment balance would have been following the university’s policies compared to what it actually is because of your elections. This approach could be helpful later when you’re asking the university for support.

Redirect fundraising efforts. The strategy least preferred is to increase fundraising efforts to keep your endowments whole. You’re already working hard to raise funds for capital projects and support of student-athletes.

By understanding and evaluating athletic endowments regularly, you can ensure you’re positioned well for the future and funds are available to support your athletic programs for years to come. Consulting a collegiate athletics CPA is a great way to get started. Their understanding of both your industry and these endowments is key to this effort.

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