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University of Louisville

When the University of Louisville responded to a June 8 report detailing millions of dollars in unbudgeted spending, unapproved activities and endowment losses at its foundation, leaders made no attempt to defend what had gone on and pledged themselves to transparency.

A week later, the university found itself responding to more critical news. The National Collegiate Athletic Association issued sanctions against Louisville stemming from the case of a former men’s basketball employee who was found to have arranged for strippers and prostitutes to provide dances or sex acts for 17 recruits and student athletes as well as some of their associates over a four-year period -- when some of the recruits were minors. But officials weren’t quite so contrite.

They acknowledged the events shouldn’t have happened. But they pointed out the university had already imposed penalties on itself. They quickly pledged to appeal additional NCAA penalties that they considered excessive.

“Not only is it unjust, unfair, over-the-top severe, but I’ve personally lost a lot of faith in the NCAA and everything I’ve stood for in the last 35 years with what they just did,” said Rick Pitino, the university’s head men’s basketball coach, in a press conference immediately after the NCAA penalties were handed down.

The difference in tone was hard to miss. Louisville faculty members certainly took note.

“The disconnect or the disparity between the two responses was something that a lot of people noticed right off the bat,” said Susan Jarosi, an associate professor of art history and visual studies who is the president of the American Association of University Professors chapter at the University of Louisville.

“It’s really frustrating, I think, for the faculty,” Jarosi said. “If people really are concerned about restoring the reputation of the university, comprehensively restore it. Appealing these sanctions isn’t going to help. It’s just going to drag it out.”

To some, Louisville seems to be taking its medicine in the foundation case while belligerently fighting against its prescription in the men’s basketball case -- promising to fix its financial improprieties while refusing to take full punishment for its moral transgressions. But it’s important to note that the details of the two situations are significantly different.

Putting aside moral judgments, examining those details shows the university has several incentives that could be driving its seemingly disparate responses. Different power dynamics are at play regarding the foundation and men’s basketball, as university trustees and administrators have largely turned over since the foundation issues took place, while the athletic department and men’s basketball program are headed by longtime leaders in Pitino and athletic director Tom Jurich.

Louisville may also have more money at stake in the resolution of the men’s basketball crisis than in how it fixes its foundation. And while many may cringe at the details of the cases and the optics involved in fighting athletic sanctions in a case involving prostitution, management experts say the athletic department might have calculated that the upside outweighs the risk from a public relations standpoint.

Before fully exploring all of those dynamics, though, it’s important to examine the two situations and where they stand today. The University of Louisville Foundation’s operations have for some time been the subject of scrutiny, including how much it paid top leaders. Although technically a separate legal entity, the foundation was led by longtime university president James Ramsey.

Ramsey stepped down as president of the university and its foundation last year under pressure from Kentucky Governor Matt Bevin. The governor also drove an overhaul of the university’s Board of Trustees, and the foundation’s board has been revamped as well.

Still, several reports have detailed issues during Ramsey’s tenures. A state auditor’s report released in December listed problems including ineffective governance at the university and its foundation stemming from indistinguishable administrative operations. It also found an environment of distrust between board members at the two entities and above-contract compensation for Ramsey.

Then this month a university-commissioned report found a host of additional issues. That report’s findings include that the foundation loaned money without board approval, that it overstated endowment pool market values, that it spent far more than called for under its endowment’s policy, that it purchased properties for athletics and that it spent large sums of money on athletic association employees. The report also examined a deferred compensation plan that cost the foundation nearly $22 million between 2005 and 2016. Officials worked to conceal the details of that plan from open-records requests, the report said.

When the university-commissioned report came out, the university board chair released a statement saying that the board was reviewing policies and procedures and would consider if it should take legal action in the future. The university’s president, Greg Postel, issued a statement pointing out that the report showed activity happening under a previous administration and foundation board.

“As I have said since I took this position in January, I am committed to being transparent and to operating above board,” Postel said. “I also am committed -- and I think our recent actions confirm this -- to returning this university to solid financial footing. The steps we are currently taking will position us well for the future.”

Since then, the foundation has fired Ramsey’s former chief of staff, Kathleen Smith, who was a key figure in the June report and who had been on paid administrative leave from the foundation since September, when she also retired from the university. (Smith’s attorney has denied wrongdoing and called her the “fall girl.”) The university also decided to pay $200,000 to the firm that produced the report in order to answer additional questions. It paid $1.7 million for the original review.

A Tell-All Book

The men’s basketball scandal has also been brewing for years. It became public in 2015, when a book written by an escort alleged former men’s basketball staff member Andre McGee paid women to dance for players and recruits and have sex with them in a dormitory. The university went on to penalize itself, self-imposing a postseason ban on its men’s basketball team in 2016.

That ban wasn’t enough for the NCAA’s Division I Committee on Infractions, which placed the university on probation for four years, reduced the number of scholarships the men’s basketball team can offer, suspended Pitino for five conference games and put in place some recruiting restrictions. More notably, the NCAA declared players who took part in the acts in question ineligible, calling on Louisville to vacate wins between December 2010 and July 2014. More than 100 games and the university’s 2013 men’s basketball title could be vacated.

The NCAA also penalized Louisville $5,000 and called on it to pay back money received from conference revenue sharing related to the 2012-2015 men’s basketball tournaments, which could amount to millions of dollars.

The NCAA issued a decision describing 10 different occasions when McGee, the former director of men’s basketball operations, arranged for one or more sex workers to visit a residence hall when recruiting prospects were staying there, where the women “performed sex acts on and/or with prospects, an enrolled student athlete and a prospect’s friend.” At least seven of those prospects were under the age of 18 at the time. Twice, the former director of men’s basketball operations arranged for prostitutes to have sex at local hotels with basketball coaches of prospects Louisville was recruiting, the report said. Some prospects were surprised and uncomfortable and declined sex, the report said.

Pitino has denied knowing about the events and said he was unaware of what happened in the residence hall between 10 p.m. and the following morning. But the NCAA found that the head coach failed his responsibility to monitor the activities of his former operations director. NCAA bylaws create the presumption that head coaches are responsible for the actions of their subordinates, the group’s Division I Committee on Infractions wrote.

Postel’s statement after the NCAA penalties were announced said that the university was “saddened” by what took place. He went on to point out that the university penalized itself and said the NCAA had gone beyond what Louisville considered to be fair and reasonable.

“The person responsible for these activities, Andre McGee, long ago left the university, and he has yet to cooperate with investigating officials,” the statement said. “In contrast, [Louisville] did cooperate. We wanted the NCAA enforcement staff to uncover what happened. We have been open and transparent throughout this process.”

On Wednesday, Kentucky Sports Radio reported on a letter Pitino sent to supporters urging them to “keep their spirits high.” Louisville’s self-imposed 2016 postseason ban took away a chance for an experienced and highly ranked team to win a national championship, Pitino wrote. He went on to attack the NCAA’s process.

“I was told during the process that I didn’t ask pointed questions,” the letter said. “Well what does that mean exactly? I asked our staff if the recruits enjoyed themselves. What did they do? How did they like everything? I then met with their families for breakfast and asked the same questions. No, I did not ask the staff if they saw any strippers last night. I can assure you that if I asked Andre any difficult question, he would have lied to my face to avoid immediate termination.”

Pitino went on to write that he is not concerned about the “outside world and what they think.”

Asked whether administrators were available for interview on the difference in reactions to the foundation and men’s basketball reports, a university spokesman referred to the official statements released by Postel and university board chair J. David Grissom. Kenny Klein, an athletics department spokesman, said in an email that the athletics department has chosen to appeal the NCAA’s ruling because it believes its penalties to be excessive.

Klein declined to address which wins Louisville would have to vacate or how much money it would have to pay back if the university’s appeal is not successful. No one has been fired since the NCAA sanctions were handed down, he said.

Some see the situation as highlighting the contrast between expectations and responsibility in the worlds of university finance and athletics.

Looking the other way in athletics has become second nature, said Charles Clotfelter, a professor of public policy studies at Duke University who studies college athletics. Clotfelter spoke generally about college athletics.

“In the case of commercial sports, it’s just become truly unexceptionable,” he said. “In that world, it’s like there are no standards of truthfulness or consistency that there would be in the world of finance and the running of foundations.”

Still, there is a financial bottom line for Louisville’s men’s basketball team. It is substantial, and it represents real value the university could lose if its program takes a hit.

Louisville’s men’s basketball team brought in $45.6 million in revenue in 2015-16, according to statistics collected by the federal government. Its expenses totaled $17.9 million. It was a major part of the university’s athletic department turning a $2.8 million surplus on $112.1 million in revenue.

It’s a substantial amount of money on the line, even when compared to the university’s foundation, which manages a quickly dwindling endowment. The endowment’s value declined from $844.3 million to $715.7 million between 2015 and 2016.

That endowment faces further pressure because of the foundation’s troubles. The university-commissioned report on the foundation said restricted endowment programs were underwater -- had a market value below the size of initial gifts -- by $23.7 million as of the end of June 2016. In April the foundation said pledged gifts dropped by $32 million in a nine-month period, driven in large part by a $20 million one-time gift. Additionally, one foundation arm owes $9.8 million to the university.

Still, key stakeholders like board members and donors might view the two situations differently. The basketball program might be seen as a revenue generator that needs to be protected from the NCAA, an outside body, said Simon Barker, managing partner of Blue Moon Consulting Group, a reputational risk management and crisis consulting firm with a focus area in higher education. In contrast, the foundation might be seen as an organization that has been hurt by a lack of financial controls that could scare away donors.

Aggressively fighting the NCAA sanctions does not fit with the classic public relations playbook, Barker said. It’s likely to keep the issue in the news cycle, rather than minimizing the amount of coverage it receives.

But some leaders in the athletic department and university may simply support Pitino, Barker said.

“It doesn’t feel like they have a strong hand to play, yet they’re being quite aggressive in their defense,” Barker said. “I think they’re really trying to protect, most likely, certain hard-core board members and probably people who genuinely think Pitino has done a good job for the program and is getting a bad deal.”

Additionally, the university has already received a large amount of negative press coverage tied to the issue. Leaders probably weighed the likelihood that they would tarnish their image further with an aggressive appeal against the likelihood that such an appeal could be successful.

“They probably feel they have nothing to lose,” Barker said. “Knowing how passionate board members are, and sometimes the community is, and alumni are about these sports that define their college, I can see it happening. ‘What have we got to lose? Let’s go out and defend it.’”

It raises the question of how much the institutional culture has actually changed, even with board and presidential turnover. Faculty members are certainly wondering.

The answer isn’t clear when it comes to most university operations, according Jarosi, the professor and AAUP chapter president. But it doesn’t seem to have changed when it comes to athletics, she said.

“You’re under this kind of scrutiny and you’re trying to say the new paradigm for how we operate at U of L is transparency and openness and oversight,” Jarosi said. “It went out the window.”

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