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$683M and counting: Ohio State’s private contracts raise questions about what’s to come

December 15, 2013
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byler.18@osu.edu, essig.21@osu.edu, mitchell.935@osu.edu and young.1693@osu.edu
Credit: Kayla Byler / Managing editor of design

Credit: Kayla Byler / Managing editor of design

Ohio State holds nearly $700 million worth of agreements through five contracts with corporate icons, including Nike and Coca-Cola, that promise student internships and community investments along with globally recognized athletic equipment, beverages and other assets.

Some, though, question whether enough is being done to keep tuition low in light of these privatizations and wonder what else the university will eventually sell, lease or leverage for the promise of a major payday.

The pursuit of cash payments with extra perks appears to be the logic behind OSU’s approximately $683 million in contracts with private companies that limit at least five different areas – parking, beverages, apparel, athletic goods and banking. OSU officials have said the contracts are intended, at least in part, to help keep tuition as low as possible, but others think more should be done to keep costs for students down, especially as government support to universities dwindles.

Click to expand.

Click to expand.

The Lantern received four of the university’s largest contracts during Fall Semester to fulfill several public records requests. Contracts with the Coca-Cola Co., Nike Inc., Huntington National Bank and QIC Global Infrastructure were looked at individually and experts were consulted on

each about the agreements’ costs and benefits. A deal with Fanatics Inc. and J. America Sportswear was requested as well, but the contract is not yet finalized, despite having been announced more than a year ago.

Additional Lantern articles detailing OSU’s contracts with these corporations will be released this week.

In 1998, OSU and Atlanta-based Coca-Cola agreed to a more than $32 million contract spanning 10 years that made Coca-Cola the exclusive beverage vendor at the university. The deal was renewed in 2008 for an additional 10 years, its purpose being to increase revenue to the university to enhance the student experience, OSU spokesman Gary Lewis said in an email.

The money from Coca-Cola is distributed as the university sees fit, Lewis said.

Roughly a decade after renewing with Coca-Cola, OSU and Nike, which is based in Beaverton, Ore., signed three separate seven-year contracts that went into effect Aug. 1, 2007. Recently, Nike exercised a contract option to extend all three agreements until July 31, 2018, Lewis said.

The three Nike agreements are set to earn the university almost $46 million over 11 years, broken up between the more than $26 million brought in during the original seven years of the agreements and an additional approximately $18.5 million the university is set to gross in the additional 4 years.

The three parts of the agreement are broken up into a standard license agreement, an equipment supply agreement and an appearance and consultation agreement. Money brought in from the the latter two goes to the Department of Athletics, while money brought in through the license agreement is broken up across several areas, Lewis said.

OSU signed with Columbus-based Huntington next, in February 2012. The 15-year, $25 million contract brings in an additional $100 million in loans and investments to improve the university district area.

On the first anniversary of the contract, Huntington committed an additional $1 million to OSU because of the “success of our first year of the partnership” based on how enrollment numbers in Huntington’s programs had “surpassed expectations,” said David Schamer, director of not-for-profit banking at Huntington, in a statement emailed to The Lantern Dec. 6 by Maureen Brown, the senior vice president and director of public relations for Huntington.

The contract money is set to go toward “scholarships, education and alumni giving,” according to the Huntington website. OSU assistant vice president for media and public relations Gayle Saunders listed a variety of places where those funds are specifically distributed, including the Office of Student Life, the OSU Alumni Association and the Office of Academic Affairs.

Later in 2012, the university agreed to a 50-year lease on its parking assets for the upfront price of $483 million. QIC Global Infrastructure, an Australian investment firm, placed the bid and created CampusParc to operate the parking facilities. The deal was finalized and approved by the Board of Trustees in June 2012.

The money from the contract was put into OSU’s endowment fund, which is being used for student scholarships, increased staff grants, adding tenure-track faculty and to support the Campus Area Bus Service.

Then most recently, a 10-year, $97 million apparel deal was announced in mid-November 2012 with apparel companies Fanatics Inc., based in Jacksonville, Fla., and J. America Sportswear, based in Webberville, Mich., that gave the companies exclusive rights to design, marketing, production, retail and distribution of all OSU apparel. That deal still hasn’t been finalized, though it was set to be wrapped up in spring 2013.

The benefits of these deals, some OSU officials said, are meant to help keep student tuition low.

Although a tuition freeze was enacted for in-state undergraduate students for the 2013-14 school year, non-resident tuition rose 2 percent to $15,720 a year. Ohio-resident undergraduate students’ tuition remained at $10,010 for the academic year.

Before that, tuition last rose across the board for the 2012-13 academic year. Tuition increased by 3.5 percent to about $10,000 at the time, while mandatory fees froze for the second consecutive year, so students only experienced a 3.2 percent increase in rates.

OSU Interim President Joseph Alutto said the agreements are, on a broader level, a way of avoiding a worse outcome.

“Without (those contracts), your tuition would be much higher than it is today. So it’s a trade off,” Alutto said in an interview with The Lantern Sept. 23. “Would I prefer not to have to do that? In some cases, yeah, sure. But would I prefer then to increase tuition and to offset that income? Given what I think of this dual mission of access and excellence, no, I’d rather be able to achieve the excellence but not on the backs of the students. And that’s what those affinity agreements allow us to do. It’s a very important part of the overall resource mix for this university.”

OSU Provost and Executive Vice President Joseph Steinmetz said he, like Alutto, feels the agreements are a means to a greater end.

“We have to find creative ways to finance the university, and they’re going to come through these kinds of agreements,” Steinmetz said in an interview with The Lantern Oct. 8. “But what has to happen is there’s gotta be a positive for the university that actually comes out of it. We should never get into these kinds of agreements if it doesn’t help us in the mission that we actually have. The question I always ask when these possibilities come up, there’s a lot of them by the way that come across as possibilities, ‘What’s the positive impact on teaching and research if we do that?’ … I’m not for it if I cannot find a positive for it.”

However, some student representatives said they’d like to see the university doing more to offset tuition costs using the revenue from the deals.

“We need to be very thoughtful of how we are spending the revenue we receive from each of those agreements,” OSU Undergraduate Student Government President Taylor Stepp said. “People and institutions show their priorities in two ways: time and money. And if we are serious about affordability at this university, we need to think very hard about how we’re cutting costs. But we also need to look to inject new revenues into financial aid to offset a lot of those costs.”

Paul Rose, business law expert and associate professor at OSU’s Moritz College of Law, said the agreements do represent “creative ways to generate revenue for the university.”

“I place (the private contracts) in the context of an era of declining state support for universities. So Ohio State is a five to six billion dollar enterprise (and) it requires a lot of money to operate, and we’re also operating in an environment where the administration does not want to put any more burden on students as far as tuition, which is obviously a huge source of revenues for the university,” Rose said in a Dec. 2 interview with The Lantern.

He added that it’s a relatively new problem for public universities to need the kind of money the deals generate.

“Would we be thinking about these deals if we had the same levels of state support that we enjoyed, say, 15 years ago? Maybe not,” he said.

State government support to OSU dropped 14.9 percent from fiscal year 2011 to FY 2012 and fell another 2 percent from FY 2012 to FY 2013, according to OSU’s Financial Planning and Analysis website. Meanwhile, total government support, consisting of state, federal and local levels, fell 3.3 percent from FY 2011 to FY 2012 and rose a net total 0.6 percent from FY 2012 to FY 2013.

Universities are “subjected to the realities of the business world,” Rose said. “We have gaps that we need to fill, that we’d like to fill in order to maintain a certain level of education quality and service, and sometimes these deals are a way to make ends meet.”

Rose recognized, however, that some might be troubled by OSU making exclusive deals with large corporations.

“Some people would worry about the influence of corporations in university life in any form,” he said. “They prefer us to be free from any potential conflicts of interest. They don’t like to see us locked into corporations that may be doing things that people don’t like.”

Stepp said entering into deals with private companies is, overall, a wise choice for the university.

“These decisions are good decisions,” said Stepp, a fourth-year in public affairs. “I think that we’ve really solidified a lot of our financial strength with these decisions.”

Stepp said, however, the university ought to be careful with the contracts it enters into, as not all instances of bringing money into the university are for the betterment of the students.

“I like monetization. I think we need to handle each case very diligently. I don’t think it’s good to say, you know, all monetization is good so we’ll just go ahead and check anything that is monetization,” he said. “We need to look very carefully at each monetization to make sure that it doesn’t infringe on the culture of Ohio State and who Ohio State is, who we are.”

Monetization is the practice of converting an asset into something that can be sold for a potential profit.

Alutto said OSU is paving the path for other universities looking to make private agreements with large-scale benefits.

“I think we have an impact and I think we’re seen as a leader in this area. I can’t tell you the number of provosts and board members of other institutions that have called and said, ‘How are you guys doing this? What are you doing? How is it getting done? Where are these ideas coming from?’” Alutto said.

“I think that Ohio State has developed a reputation for real innovation in this area. And innovation in terms of not just the ability to generate dollars, but the ability to generate those dollars and then focus it on those two objectives … which (are) access but also excellence. It’s not an easy balance. It’s not easy to do both of those. That effect on all the innovations has been good to help us on both dimensions.”

Steinmetz, too, said OSU has become an example for other universities, and shared a story about a trip to California for the yearly meeting of the American Association of Universities, made up of about 60 public and private research universities.

“(At the meeting) you go around the table, and you talk about what’s going on at your institution as sort of the ice-breaker at the beginning of this thing. So provost after provost, all you hear is complaints. ‘Now this is what’s going on, it’s terrible’ and ‘We were furloughed nine days’ and ‘We got cuts here and there,’ so I’m embarrassed when it comes to me to not have to say that,” Steinmetz joked.

He added, however, that it’s something he’s proud of.

“We are definitely being looked at, and it’s almost in an envious – they’re envious of us,” Steinmetz said. “And you can detect that in a somewhat hostile manner. They just think Ohio State is kind of obnoxious sometimes – I don’t mind being that way.”

Wendy Epstein, an assistant professor at DePaul University College of Law, said there’s a chance OSU is leading the way for other institutions.

“There’s no doubt that this trend is one that is spreading across the country. And seeing examples of other universities having success, if that’s what is going on, like Ohio State, could certainly influence other universities,” Epstein said in an interview with The Lantern Dec. 10. “Now on the flip side, at Ohio State, if there’s negative press, or if there’s reason to believe that the deals aren’t good for Ohio State, then it can also have the opposite effect, which is discouraging other schools from entering into these deals. But my sense is it’s the former rather than the latter.”

Rose, however, said he doesn’t think OSU will serve as an instigator for other universities. He said especially with parking, there likely won’t be a “big wave of privatization” from public universities, adding “it’s something that schools will look at on a case-by-case basis.”

At OSU, some are already looking at what could be next. Richard Dietrich, an accounting professor with the Fisher College of Business, said the trend of privatizing assets will probably continue.

“That’s the game we play at lunch, and maybe it’s because we’re business school professors,” he said. “I have no idea what the university is thinking about, but I hope they’re thinking of something.”

Then-OSU President E. Gordon Gee said whatever comes next, outsiders can be fairly certain it won’t include things that are key to the way the university operates.

“Privatizing things like housing or dining … I think those are really core educational functions for the university,” Gee told The Lantern March 25. “They would have to strap me to a log and send me down the Olentangy (River).”

This story is the first in a five-part series about Ohio State’s contracts with Nike, Huntington, Coca-Cola and QIC Global Infrastructure. The series was made possible by the generosity of Ohio State and The Lantern alumna Patty Miller. 


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Comments (5)

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  1. Gemma Spriggs McLuckie says:

    Thank you for this detailed overview of privatization. Looking forward to the rest of the series.

  2. Gemma Spriggs McLuckie says:

    Thank you for this detailed overview of privatization. Looking forward to the rest of the series.

  3. Anonymous says:

    I wish they would spend some of that money on staff salaries. We need to eat too.

  4. Leroy Hushak says:

    In my judgment, these contracts are anti-competitive, preventing other companies from doing business with OSU and OSU faculty, which increases the costs to faculty and others purchasing these goods and services.

  5. Anonymous says:

    Look into the contracted agreement with Fastenal.n they provide the university with an aray of products that are marked up. Some as much as 20%+ over going with a supplier osu has used for years yet osu is forcing maintenance to use fastenal

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