Earlier this summer, Mitch Barnhart balked at the rising cost of college athletics.
“We’re growing faster than we have in the past and a lot of that is things we can’t control,” the Kentucky athletics director said in an interview with the Herald-Leader.
He rattled off a list of logical culprits: “Travel expenses have become difficult (and the) cost of higher education has become significantly more.”
And then Barnhart mentioned one new operating expense that isn’t getting a lot of attention, but will cost the athletics department around $2.68 million this coming year.
“The excise tax that was levied in the new tax bill is big,” Barnhart said. “That will have an impact on every athletic department.”
A change in the tax code requires non-profit entities to pay a 21 percent excise tax on payments to its five highest-paid employees that are making more than $1 million a year.
For every dollar over the $1 million mark, UK must pay the 21 percent tax, which for UK Athletics includes the salaries of men’s basketball coach John Calipari, football coach Mark Stoops and women’s basketball coach Matthew Mitchell.
According to figures reported to the Chronicle of Higher Education in 2017, Calipari was the highest-paid person on campus that year at $7.24 million, followed by Stoops at $3.9 million and Mitchell at $1.28 million.
The university also will be paying the excise tax on the salaries of Phillip Tibbs ($1,195,600), a physician, and Michael Karpf ($1,123,179), who ran the medical center until recently, UK spokesman Jay Blanton told the Herald-Leader.
With the new salary bump and potential bonuses outlined in the new amendment to Barnhart’s contract, the UK athletics director might top the $1 million mark in the near future. His base salary will be $1,025,000 starting in 2020, per the amendment.
This year’s figures were a part of the $147.7 million dollar 2019 budget approved by the university’s Board of Trustees recently, simply noted as “escalating operating expenses.”
How will these escalating expenses be paid? The same way other expenses are.
“How we make up for it on the other side is really difficult,” Barnhart said. “We have to work at that.”
Many of the so-called “Power Five” athletic departments employ at least two — and sometimes three — individuals who exceed that million-dollar threshold.
The university said it is still waiting on guidance and interpretations about the ultimate cost, but it could be as much as $2.49 million out of its pocket for the calendar year.
If the tax is based on the fiscal year — a point of contention Louisville has — it would have to pay out roughly $1.3 million.
The tax would be higher if based on the calendar year because of Mack’s contract buyout with Xavier “and the tax gross-up benefit associated with that buyout,” a spokesman explained in an email.
According to figures provided by Louisville, the difference in the timing could mean an additional $959,490 that the school would be forced to pay in excise tax because of that Xavier buyout.
The fiscal year total does not include any bonuses that may be awarded to those coaches per their contracts, so it could still be considerably higher, a spokesman noted.
“These calculations could change based on pending IRS guidance,” wrote John Karman III, Louisville’s director of media relations, in an email to the Herald-Leader. “Institutions are awaiting clarification on a number of issues.”
The calendar year projected salaries are $8,587,000 for Mack, $4,397,000 for Petrino, $1,911,000 for Walz and $1,006,000 for McDonnell.
Some of the guidance the university is awaiting is a “technical issue with the statute,” noting that the tax doesn’t appear applicable to state colleges and universities, while acknowledging that it is applicable to an organization like the University of Louisville Athletics Association.
The timing aspect — whether Louisville would be on the hook for $2.49 million or $1.3 million — is the other point of contention that the university is still addressing.
A spokesman for Western Kentucky University said in an email that there are no school employees making more than $1 million that would require excise tax payments.