Revenue at ASU directed to Red Wolves Foundation; stadium project’s records shielded

Arkansas State University directed a lucrative revenue stream to the nonprofit Red Wolves Foundation without asking for anything in return, and it pays staff to raise money for the foundation, records show.

The findings come as the booster club shields financial documents from public view on the basis that it is a separate organization that is not subject to Arkansas' open-records law, which applies to agencies supported by public funds.

ASU and the foundation separately rejected requests for copies of loan documents for the ongoing $29 million football stadium expansion, which officials say is being funded solely with private money.

Questions about the expansion project surfaced last month when ASU System President Chuck Welch told university booster Mark Fowler he was "embarrassed and deeply sorry" after reviewing how the foundation awarded a contract.

Fowler accused officials of misleading his company when it sought a contract to install televisions and speakers in the new facility. The foundation's board of directors issued a statement saying the process was handled appropriately.

Throughout Arkansas, nonprofits have undertaken multimillion-dollar capital projects on behalf of public agencies that they are organized to support. Because they are considered private, foundations say they are not subject to the same strict contract and transparency laws as public agencies.

In this case, the open-records law should apply to the Red Wolves Foundation's stadium expansion documents, said John Tull, general counsel for the Arkansas Press Association, who specializes in open-records issues.

"Managing the expansion of the stadium would appear to be the responsibility of the Athletic department and appears to be the intertwining of the department and the foundation," Tull said by email.

ASU Athletics Director Terry Mohajir signed two contracts for the expansion, initially on behalf of the university, the Arkansas Democrat-Gazette previously reported. The contracts were later amended to indicate they are between vendors and the foundation, university system spokesman Jeff Hankins said.

Previously reported records show an athletic department official and staff member who are not on the foundation's staff have been part of deciding whom to award at least one contract.

The Democrat-Gazette first filed the open-records request with the foundation's executive director, Adam Haukap, whom ASU pays $85,000 per year. The foundation's offices are in the university's basketball arena; the nonprofit does not pay rent and has no lease agreement to use the space, records show.

Last year, ASU authorized the Red Wolves Foundation to proceed with the stadium expansion through a series of lease agreements, which Haukap signed on behalf of the foundation.

The Arkansas Freedom of Information Act says that "all records maintained in public offices or by public employees within the scope of their employment shall be presumed to be public records."

The nonprofit's outside legal counsel, Robert Jones, said the Arkansas Freedom of Information Act does not apply because it is governed separately from ASU and "does not receive direct transfers of public funds."

Hankins, declining a similar request, said the loan documents are not public records. Even if they were, they can be withheld because they would create a competitive disadvantage if released, he added. Hankins declined to comment further on the request, so it's not clear who would suffer competitive harm or how.

A broader question as to whether all Red Wolves Foundation records should be public -- because foundation staff members draw ASU paychecks and pay no rent for campus offices -- is trickier to answer, Tull said.

"A court would have to weigh the facts and the intertwining between the athletic department and the Red Wolf Foundation to reach a decision as to whether the Foundation is subject to the FOIA for all purposes," Tull said. "I believe it is a close question and would want some discovery of the relationship."

Both the foundation and ASU declined requests for copies of the nonprofit's bylaws, with Hankins providing the same reasons -- they are not public records and would be exempted from release because they would cause competitive harm -- as he did for the loan documents.

Mohajir's authority to sign off on a various foundation contracts comes from the bylaws, Hankins said previously.

The Arkansas Freedom of Information Act defines public records as information "required by law to be kept or otherwise kept and that constitute a record of the performance or lack of performance of official functions that are or should be carried out" by public employees or agencies that are "wholly or partially supported by public funds or expending public funds."

An exemption to the open-records law allows agencies to withhold "files that, if disclosed would give advantage to competitors or bidders," though it's not clear how or to whom it would apply to the foundation's bylaws.

Each of the foundation's employees receives an ASU paycheck, and the nonprofit does not pay rent in exchange for office space. Such overlap is similar to what a former Arkansas attorney general cited in a 1980s opinion that made public all existing records belonging to a nonprofit supporting University of Arkansas, Fayetteville athletics.

A 1993 Arkansas Supreme Court ruling, however, found that a Red Cross chapter receiving below-market rent for offices leased by the city of Fort Smith was not receiving "public funds" from the government, Jones said.

ASU also has directed a revenue stream -- estimated at $1.6 million per year -- to the foundation without any limits on how the foundation spends the money or requirements that it pay a portion to the university.

A November 2013 memorandum of understanding formalized the foundation's authority to sell ads and sponsorships across a range of ASU-owned media. Mohajir, then about one year into the job, and former Chancellor Tim Hudson signed the agreement on behalf of the university.

Through it, the foundation collects all income from a 17-point "inventory," including ad space on radio and television broadcasts, signs at sports stadiums and even concession cups.

Current officials believe there was no agreement between ASU and the foundation regarding sponsorships before 2013 but that the foundation received the sales money, Hankins said.

The foundation in 2016 contracted with the national, Missouri-based firm Learfield Communications to handle the Red Wolves' multimedia rights and sponsorship sales, replacing another vendor.

Hankins confirmed the Learfield deal is worth $16 million over 10 years, a detail initially reported by Talk Business & Politics.

An average of $1.6 million per year would equate to about 8 percent of the $19.1 million ASU athletics department budget in fiscal 2017. Sponsorship money, including the Learfield revenue, goes to the foundation, Hankins confirmed.

UA has a similar agreement with IMG College but is guaranteed a minimum annual payment and a cut of the revenue above a specific threshold. The university's athletics department, rather than its supporting Razorback Foundation, receives the money.

Red Wolves Foundation employees do work on behalf of the nonprofit while on ASU's time clock, Hankins said in response to questions.

"Fund-raising activity is a routine job duty of many university employees at Arkansas State and most universities throughout the state and country," he said.

Those employees do not have "fiduciary responsibility" for the foundation unless it is granted by the nonprofit's board of directors, he said.

Of not charging the foundation rent, Hankins said, "Work space is provided in consideration of the support and considerable contributions that are made by the Red Wolves Foundation to the university and the athletics program."

In the late 1980s, then-Arkansas Attorney General Steve Clark in an opinion found all of the Razorback Scholarship Fund's records were public because of a similar arrangement, writing that its "tasks are performed by public employees using state equipment in state facilities." He cited a 1977 Arkansas Supreme Court case precedent.

The Razorback fund, which shortly afterward changed its name to the Razorback Foundation, now says it does not rely on university employees for day-to-day operations or receive any public money.

It paid for construction of its on-campus office in 2007 and receives monthly rent credit against that total $1.6 million cost. Once the credits exceed the cost, the foundation will pay rent to the UA System, according to its lease agreement. As of Feb. 1, the rent credit totaled $760,000, a UA spokesman said.

The Democrat-Gazette has been reviewing University of Arkansas records since last year as part of an effort to determine whether its booster club is the "functional equivalent" of the athletic department, one test for whether its records should be subject to the state's open-records law.

The newspaper began reviewing those records after the foundation declined to disclose documents related to the firing and replacement of the university's athletic director and head football coach.

UA's athletic department is also self-sustaining. Instead of drawing from student fees, the education fund or campus profits, it transferred $3.2 million to the school's general fund in fiscal 2017.

ASU's athletics department drew $11.4 million from campus aid in fiscal 2017, twice as much as the $5.7 million campus subsidy it received a decade earlier, according to Arkansas Department of Higher Education reports. Such aid was responsible for $59.70 out of every $100 ASU's athletics department spent last year as part of its $19.1 million budget.

Student fees specifically for athletics make up the largest chunk of campus assistance, about $4.9 million last year. Auxiliary profits -- or money raised from enterprises such as parking, housing and bookstore sales -- was at $4.2 million.

The sports department also drew $2.3 million from unrestricted education and general money, or the money pot that includes the state's appropriation and student tuition.

When counting private support from the Red Wolves Foundation and other sources, ASU athletic spending totaled $39.5 million in fiscal 2017, according to reports the university submits to the NCAA. That number was boosted by private money received and spent as part of the capital expansion projects.

A Section on 04/14/2018

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