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The tenants have moved out, but the building located at 360 3rd Street in downtown San Francisco continues to be a money pit for the Pac-12 Conference.
Conference members paid more than $92 million in rent to Kilroy Realty over 11 years. That expense became an ongoing source of frustration. But the Pac-12 got 113,000 square feet of prime office space in return.
Also, it got a hangover.
At ex-Commissioner Larry Scott's direction, the conference completely rebuilt two floors of the headquarters. It constructed a state-of-the-art television studio, production bays, meeting rooms, offices and even installed the conference's infamous Instant-Replay Command Center, complete with etched-glass doors and hardwood floors.
Not only did that install cost a small fortune a decade ago, but per the lease agreement the office space now needs to be returned to its original condition. The expense of that is $10 million per a Pac-12 source and it's now part of a financial migraine for members.
The conference was also overpaid by $50 million over 10 years by Comcast under Scott's leadership. The story of that accounting fiasco and the subsequent cover-up is just beginning to become clear. But Pac-12 presidents and chancellors were presented with the bill for it at last week's meeting of the conference's board.
We're just starting to hear how each Pac-12 campus is going to manage absorbing those unexpected expenses. On Monday, Washington State president Kirk Schulz issued a statement in which he announced a temporary freeze on current and future positions, non-essential travel and new professional development.
In the statement, Schulz said the Cougar athletic department exceeded its expenditures for the year due to "inadequate documentation of revenues and expenses."
Basically, the 'Champagne Larry' tax.
Scott flew in a charter jet. He stayed in five-star hotels and soaked in marble tubs. When it came to picking the corporate headquarters the ex-commissioner insisted on a building that cost the conference $696,000 a month in rent. He also double-dipped on his salary, claiming to be a media executive as well as a commissioner, earning $50 million in salary for himself over the years.
It's ridiculous that Scott negotiated the lease for the headquarters to expire one year in front of the conference's media-rights deal. A total misfire there. It's almost as if Scott was thinking more about himself than the campuses he was charged with serving.
What do I make of WSU's announcement?
Officials in Pullman declined further comment. But it's pretty simple. WSU and the University of Washington are both bound by a state law that requires them to present a public budget. Schulz was signaling to state lawmakers and citizens that his athletic department is going to show a deficit.
The president didn't want anyone surprised.
It's more than Scott did for his old conference. I've talked with a number of frustrated conference athletic directors in recent weeks. They'll be charged with making ends meet in their departments. One Pac-12 AD told me, "We're basically turning over rocks these days and finding disasters Larry left for us."
It's a costly reminder about the importance of leadership, isn't it?
The college conferences hire executives, pay them millions in salary and expect they'll put the entity first. Scott failed the Pac-12. I wouldn't blame the conference if it sued him for it. I'd love to hear his explanation. And we're finding out this week that former Big Ten Commissioner Kevin Warren left $70 million in broken TV promises behind when he fled to the NFL. His old conference is dealing with that hiccup this week.
The hangover from Scott?
$5.7 million per Pac-12 school.
The accounting blunder, it turns out, was $50 million over 10 years. But there are two additional years on the deal where the revenue expectations have to be reset. Basically, it amounts to a 12-year problem that must now be accounted for over just two years.
The $10 million cost to return the downtown San Francisco palace back into a regular office space is being absorbed by the conference. The Pac-12 reported an uptick in revenues in its most recent fiscal filing. It also implemented a series of cost-saving measures to help mitigate the shortfall. It also has a "rainy day" fund at its disposal.
Be sure, it's drizzling out there.
Some of the Pac-12 members may be able to easily absorb the hit. Others will have to freeze jobs, cut corners, and endure some ridicule from the academics who don't like seeing athletics operate in the red.
Thanks for nothing, Larry.
Read more of columnist John Canzano exclusively at JohnCanzano.com.
