The Iowa Board of Regents and Naming Rights

This post is part of an extended Open Letter to the Iowa State Auditor.

While naming physical structures after human beings is a time-honored tradition in many cultures around the world, in no context is that tradition more lampooned and maligned than in higher education in the United States. For every alumnus whose life work materially changed society for the better — and was thus deserving of genuine recognition — there are a hundred who merely lined their pockets with the fruits of their degrees, if not also contributed to society’s ills in the process. Because colleges and universities are always looking for ready sources of revenue, however, any alumnus with a bulging bank account can, with the right crony connections and the right number of zeroes, buy the naming rights to a prominent edifice on campus, thus purchasing outright the reverence that others earned with their good works.  

Set aside the cliche of the toxic, ego-mad alum, however, and there is nothing inherently wrong with alumni giving back to their alma maters. Because human beings are necessarily involved in that process it can go off the rails in different ways, but with the right policies in place donations can be made, and — if warranted by the sheer magnitude of a contribution — naming rights can be judiciously granted. In that context, it is reassuring that the Iowa Board of Regents has a dedicated section on ‘naming’ in its policy manual (p. 122 here; click ‘Naming’ here). Unfortunately, while a number of relevant concerns are addressed, one critical factor is omitted entirely, leaving the door wide open not only to crony abuse, but to the transfer of valuable assets at a net loss to the state.

The section on naming runs about 700 words over two pages, and is comprised of six main subsections, several of which have multiple clauses and sub-clauses. What is utterly absent, however, is any obligation on the part of the board or the regent institutions to determine the market value of a proposed naming before it is granted. In fact, the only reference to the prospective value of a given naming comes in section 2.3(16)(E)(ii)(c):

Develop guidelines/rationale to determine the appropriate recognition of a donor, including the contribution threshold for the naming of a Major Unit.

Here the transactional nature of college and university namings is laid bare, but the critical question of pricing is left to the institutions themselves. Not only does that pose a risk in terms of maximizing the exploitation of named assets, but it is particularly odd in an industry which constantly justifies financial decisions by pointing to peer institutions that may be halfway across the country. For example, not only do colleges and universities routinely justify increased tuition and fees because of what their self-selected peers are charging, but administrators are often paid not according to their individual qualifications, but relative to the national market for academic administrators
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This tendency to extol comparables in order to raise prices has been a constant at the Iowa Board of Regents over the past three years or so, and particularly so at the University of Iowa. Not only has the board raised tuition at the state schools five times in just over three years — totaling more than 20% — but at UI the justification for doing so often involves comparisons to schools like the University of North Carolina. Likewise, when J. Bruce Harreld was hired as president, despite the fact that he had no prior experience in academic administration, and admitted that he would need mentoring and coaching, he was given a five-year deal paying $800K per year ($200K deferred), which was significantly greater than his predecessor’s contract, or the compensation of the majority of presidents at Iowa’s self-selected peers.

All of which leads to an obvious question regard naming rights:

Why is there no Board of Regents policy requiring an objective assessment of the market value of any proposed naming?

When the state or anyone else sells a parcel of land, the first step is determining the market value of similar properties — often called ‘comps’. As with a vehicle or an old baseball card, you can’t know what to ask for until you know the value an asset has in the marketplace. So why is the value of the naming rights to a facility or feature on a regent campus left to the administrators at that school? Or worse, farmed out to the self-interested executives at a third-party foundation, who may be partly compensated on commission?

One plausible answer is that for most namings the market value is minimal if not negligible, so any money is probably the most money that can be generated from that transaction. Per current board policy, the schools themselves have discretion over what are called “Minor Units” — “campus areas or sections of facilities (e.g., rooms, labs, open spaces, streets, structures, physical features…)” — but there would still be similar transactions at peer institutions which could be compared. So why isn’t that basic pricing/market research mandated by the board?

For what are called “Major Units” — meaning “entire buildings, wings of buildings, colleges, programs and large sections of campus” — and particularly the most prominent assets, there is no question that a market price exists, and all we have to do to see that is look at Iowa State University, which recently sold the naming rights to its football field for $15M over the next ten years. Is $1.5M per year fair value for advertising on a football field? Maybe, maybe not — but at some point one or both parties looked at other schools to determine the fair market value of that transaction as best they could.

Even in the case of Major Units, however — which may be worth millions of dollars — there is no mandatory due diligence required by the Iowa Board of Regents. At most the board reserves the right to approve the naming of Major Units, but even then the individual schools do not have to provide any market justification. This discretion at every level also opens the door to crony deals being cut behind the scenes, which may not be in the best financial interests of the institution or the state. (As in the previous post, here again we will assume that the board and university presidents are bound by a fiduciary duty to the state, but without requiring an objective analysis of an asset’s value, no one would know if that duty was breached.)

The only mentions of due diligence in the naming section of the policy manual have to do with the vetting of counterparites, not with pricing an asset in play. From 2.3(16)(D):

Corporate Naming

Corporate namings require a thorough degree of due diligence to avoid commercial influence or conflict of interest.

That is also the entirety of the subsection on corporate naming. In the subsection on “Institutional Responsibilities” we find this, in 2.3(16)(E)(ii)(d)(1):

d. Conduct a thorough “due diligence” review of each donor and the person/entity (if different than the donor) in whose honor the naming is to be made and the implications of the naming for the institution. A thorough due diligence would include, at a minimum:

1) Review of any potential conflict of interest issues affecting any Regent institution;

The potential for abuse without such a conflict-of-interest clause should be obvious. If Donor X gives $10M to a project, and Donor Y gives $5M to the same project, but Donor Y is a good friend of the university president, then Donor Y may be ‘honored’ with the naming even though Donor X gave more. While that would obviously be a conflict of interest — meaning the university president should have been recused in that case — note that there is still no determination being made as to that actual value of the asset in question. In such a situation, even if Donor Y was the only donor, and the naming was granted on that basis, that might still result in the transfer of an institutional asset at below-market value, which would also be a conflict of interest.

To ground all of this in reality, we turn now to an important question that we did not contemplate in the previous post. While it was noted that the Board of Regents authorized a sham presidential search at UI in 2015, to cover for the done-deal hire of J. Bruce Harreld — who was in turn promoted by mega-donor and former Harreld mentor Jerre Stead — what we did not contemplate is why Stead was so eager to install a crony in the president’s office at his alma mater. Did Stead hope to personally profit, or was his complicity in that administrative betrayal merely that of a loyal Hawkeye trying to do the right thing in the wrong way?

Harreld officially took office on November 2nd, 2015. In late November, when the Board of Regents posted the agenda for its upcoming meetings in early December — as required by Iowa’s Open Meetings law — a new naming at the University of Iowa was listed among the agenda items, but the details were omitted. Only on the day of the meeting in question was the agenda item updated, revealing that the new, state-of-the-art UI children’s hospital would be named in honor of the Stead Family. In mere moments the previously secreted naming was fast-tracked by the board, without question or comment, and immediately approved.

Even at the time there were serious concerns that the naming was motivated by crony ties between Stead and Harreld, and in-depth reporting showed a number of obvious conflicts of interest. To put the best possible light on that covert bureaucratic act, however, here is how the UI Foundation announced the naming on the UI website, in a press release on 12/02/15 — meaning the same day the naming was approved, and exactly one month after Harreld took office:

Naming honors Steads’ $25 million commitment to further children’s medicine at the UI
In honor of Jerre and Mary Joy Stead, and their extraordinary commitment to children’s medicine at the University of Iowa, the University of Iowa requested that the Board of Regents, State of Iowa, approve the university’s proposal to rename UI Children’s Hospital the Stead Family University of Iowa Children’s Hospital. The Board of Regents unanimously approved the naming in its meeting Dec. 2.

Momentarily setting aside the fact that no market value was ever established for the naming rights to the new children’s hospital, at first blush this transaction may seem amenable. $25M is a lot of money by any measure, the children’s hospital went $100M over its original budget, and of course the sick children deserved every possible advantage. And yet, if we barely scratch the surface on that heart-warming narrative, we find that the UI Foundation and the university itself were at best misleading and at worst willfully deceptive.

As of December 2015, the Steads had indeed given $25M to UIHC. What the UI/Foundation press release omitted, however, was that the vast majority of that money had been given years earlier, in two $10M installments. While the press release did note that the university named the UI Department of Pediatrics after the Steads in 2013 take note of the deft way in which that $20M linkage was rhetorically obscured:

Jerre and Mary Joy Stead began giving to the University of Iowa more than 30 years ago, and their cumulative support totals $53.9 million. In 2013, the UI named the Stead Family Department of Pediatrics in honor of the couple’s generous gifts to children’s medicine. The Steads have supported other areas of the university as well. In 2003, the Steads committed $25 million to the UI Henry B. Tippie College of Business—of which Jerre is a 1965 graduate—to support a variety of initiatives, including the Stead Technology Services Group, a full-service computer lab and technology consulting group.

The first $10M donation to the medical complex on the west side of campus came in 2011, followed by another $10M in 2013 — after which the board approved renaming the pediatric department at its October 2013 meeting (full agenda here; agenda item here). While the Steads reportedly did give another $5M in 2015, which was specifically targeted at construction of the new children’s hospital, the obvious question is why that $5M warranted naming the entire hospital in their honor, when it took $20M to ‘secure’ the naming of the UI Department of Pediatrics.

One plausible answer would be that the Steads effectively traded up, kicking in a few million more and giving up their naming of the Department of Pediatrics, but that isn’t the case. Not only is the Stead Family Department of Pediatrics still on the UI Healthcare/College of Medicine website, but as of a few months ago both namings are still being referenced in reporting:

….in the UI Stead Family Department of Pediatrics, inside its new Stead Family Children’s Hospital.

While this incongruity was also noted by the press at the time, important new information was added to the puzzle only ten days after the renaming of the new children’s hospital. As it turns out, the additional $5M gift from the Steads was brokered by UI VP for Medicine Jean Robillard, who, at the time, had been serving as chair of the 2015 search committee, and was interim president at UI. From the Gazette, on 12/11/15:

A week before Bruce Harreld was named University of Iowa president, interim UI President Jean Robillard took a $10,747 chartered plane to Colorado to meet with longtime donor Jerre Stead about a $5 million donation and the possibility of naming the new UI Children’s Hospital in his honor.

By profession, Robillard was also a pediatric nephrologist in the Stead Family Department of Pediatrics (out-of-date web page here), and as such would have been well aware of, if not a key player in, the prior naming of that department after the Steads. Precisely because Robillard knew that the Steads had already given $20M for the naming rights to that department, it makes absolutely no sense that Robillard would then sell the naming rights to the new children’s hospital for $5M, let alone make a sudden trip in order to do so. (Everything about that transaction could have been handled in a phone call.)

So what else was negotiated at that meeting between Robillard and Stead? Was Harreld’s presidency hanging in the balance? Because if that’s the case, one might imagine that Robillard could have milked Stead for a great deal more — on behalf of the children, of course. (One person to ask about that meeting would be Dana Larson, executive director of communications for the UI Foundation — now called the UI Center for Advancement — who accompanied Robillard on the trip. Also worth noting: Jerre Stead’s wife sits on the board at the center, which paid for Robillard’s chartered jet, and J. Bruce Harreld is an ex-officio member.)

Even if we omit questions of motive, the facts are damning. For $25M total the Steads walked away with the naming rights to the Department of Pediatrics and the brand-new, $360M children’s hospital. If we map that money to the UI presidents presiding at the time, however, it cost the Steads $20M to secure the pediatrics department under former UI President Sally Mason — which was also the lesser of the two ‘honors’ bestowed by UI — and only $5M to secure the naming rights to the prestigious new children’s hospital under J. Bruce Harreld, who also happens to have been Stead’s long-time mentee in the business world.

To those concerns we can also add gross hypocrisy relative to the entire premise of Harreld’s non-traditional appointment. Business types have been making inroads in higher education by calling out traditional academic administrators for failing to aggressively monetize school assets. That is in fact what binds Stead, Rastetter, Robillard and Harreld together, and why the first three blew $350K in state revenue on a fake presidential search to install Harreld in office.

By profession, Stead spent his working life as a mergers and acquisitions guy specializing in turnarounds, and in late 2015 was the CEO of IHS, which subsequently merged with Markit. Regents president Rastetter was not only the godfather of the modern hog lot, but was and is the owner of a farm services company which includes multiple funds for investors. As for Iowa’s VP for Medical Affairs, as part of that job Robillard was charged with building out UIHC and its system of clinics, specifically to increase profits. Given Harreld’s business background it was also clear that he had been brought in to do exactly what those entrepreneurial sharks thought was lacking under President Mason, which was use the university itself to generate more revenue.

So how do we explain Harreld all but giving away a valuable state asset to his old friend, Jerre Stead, only weeks after taking office — under the watchful eyes of Rastetter and Robillard no less? However important Stead’s $5M was to completing the new children’s hospital, it’s also important to note that other donors gave considerably more, and all of it specifically targeted at construction. For example, the Gerdin family — which has also made extensive donations to UI — donated $12M toward construction, and did so very early, in 2012 — right between the $10M donations that the Steads gave to the Department of Pediatrics. So what did the Gerdins get from Harreld, Robillard and Rastetter, when the time came for honors to be bestowed on the donors who made the children’s hospital possible? While the Steads were given the naming rights to the entire building for an extra $5M, the Gerdins got the first-floor lobby for donating more than twice as much.

As a matter of board policy, does anyone think that’s how things would have turned out if Stead had not installed his own crony pal in the president’s office? Relative to both the under-valuation of the naming rights and the crony connections which greased the transfer of those rights to the Steads, the covert, secretive process that led to the naming of the new children’s hospital was objectively improper, even by the thin standards of proscribed regent policy. The question we have yet to answer is whether that was a de facto heist of a valuable state asset.

Consider the following 2015 timeline from this and the previous post:

* August 25th — Robillard flies to Colorado to collect $5M from Stead, reportedly in exchange for the naming rights to the new children’s hospital.

* September 1st — During his candidate forum before the UI community, Harreld is asked point-blank if he has any prior connections to members of the search committee. Harreld says no, even though he knows that Jerre Stead is a member of the search committee.

* September 3rd — Only moments after Harreld is appointed to the presidency at Iowa, he states that his candidacy was initiated by a fellow university president, later identified as Mitch Daniels at Purdue. In reality, Stead introduced Harreld to Rastetter, and Harreld knows that.

* September 4th — In a press report, Jerre Stead states that the first time he new Harreld was a candidate for the UI presidency was when he saw Harreld’s name on a committee list. In reality, Stead introduced Harreld to Rastetter before any committee lists were generated.

* November 1st — In separate interviews with the local press, Harreld claims that his candidacy was initiated by someone at Boston Consulting, or by some anonymous individual who contacted Rastetter. In reality, Harreld knows that Stead conveyed his name to Rastetter.

Within the span of two weeks, after Robillard offered to grant the children’s hospital naming rights to Jerre Stead in exchange for a relatively small donation — which was then treated as a state secret until the last possible minute in early December — both Harreld and Stead told three separate but concerted lies which were designed to distance themselves from each other. Two months later, on the even of taking office, Harreld then tells two more mutually contradictory lies to achieve the same end — one month before transferring the naming rights to Stead.

As to why Harreld and Stead perpetrated that now-obvious charade, we find the equally obvious answer in the regents policy manual, as previously quoted:

From 2.3(16)(E)(ii)(d)(1):

d. Conduct a thorough “due diligence” review of each donor and the person/entity (if different than the donor) in whose honor the naming is to be made and the implications of the naming for the institution. A thorough due diligence would include, at a minimum:

1) Review of any potential conflict of interest issues affecting any Regent institution;

Even as the press was exposing the corrupt 2015 UI presidential search between September and November, Harreld persevered in lying — overtly, repeatedly — about his prior relationship with Jerre Stead, and particularly about the fact that Stead initiated his candidacy. A very good reason for doing so, however, even to the point of blithering self-contradiction, is that if Harreld had acknowledged that Stead was behind his candidacy, that would have violated the policy provision above, and made it impossible to ram through the transfer of the children’s hospital naming rights to Stead. Instead, having put his hand-picked functionary in the president’s office, and with that loyal functionary lying through his teeth, that obstacle was removed, and Jerre Stead walked off with a state asset that is worth considerably more than he paid for it.

How do we know? Well, not only was the UI children’s hospital built in a prominent location, but that location is directly across from — and the upper floors are clearly visible from — the entirety of 70,000-seat Kinnick Stadium. While no one could have predicted the symbiotic marketing magic that came to be called ‘the Iowa wave‘ — which garnered sustained national attention and goodwill for the university, the football team and the children’s hospital — the sheer scale and laudable mission of that project would have made it as valuable as any other naming opportunity across the regents enterprise. Fortunately, all of the things that make a naming opportunity like the new children’s hospital attractive to potential donors also make the opportunity attractive to other monied interests, and that in turn makes it easier for us to determine the market value of that asset.

The fact that a company was willing to pay $1.5M per year, for ten years, to Iowa State in 2018, in exchange for the naming rights to a patch of grass, suggests that in late 2015, the corporate naming rights to the new UI children’s hospital would have been worth at least $1M on an annual basis, if not more. Note also that the corporate naming at ISU came with a limited term, after which the rights reverted — either to be renegotiated or resold at the current market rate. By contrast, honorary namings are perpetual, which is often the whole point either for a genuine expression of cultural thanks, and for donors who hope to purchase immortality with cold hard cash. That does not mean, however, that the assets in question are worth less if they are being transferred in perpetuity, or that the state should collect less in the bargain.

No matter who secures the naming rights for a given state asset — whether from donations or corporate sponsors — the first determination should be how much the asset itself is worth. Ideally, in striking a naming bargain, there should be no conceivable scenario in which the state loses money over the life of the transaction, in constant, inflation-adjusted dollars. For example, if an asset is worth $50K on an annual basis, and the structure in question has a life expectancy of 50 years, that’s $2.5M that the board should demand before making a naming deal.

Underscoring the need to standardize naming policy across the regents enterprise, several months before ISU sold the naming rights to its football field it also sold the naming rights of two research facilities to private-sector businesses. Until that point it had been longstanding practice, if not actual policy, that the regent institutions did not sell the naming rights of facilities to businesses or corporations. As if that radical departure from tradition wasn’t questionable enough, however, consider the terms of those deals:

The university wants to name the new farm’s layer building the “Iowa Egg Council Layer Research Facility,” in honor of the Iowa Egg Council’s $1.5 million contribution to the project, and its new genetics building the “Hy-Line Genetics Research Building,” in honor of a $500,000 gift from Hy-Line International and its United States division, Hy-Line North America.

Selling off pieces of a public university to corporate sponsors is inherently problematic, but unlike the stadium deal several months later, the leadership at ISU didn’t even insist on a duration for what is, effectively, advertising in another guise. Instead of selling the naming rights for five or ten years, the corporate sponsors in question are being treated no differently than private donors, and being granted naming rights in perpetuity. While that may spur other companies and corporations to make a flood of offers to ISU, it should be self-evident not only that such transactions are ripe for crony abuse, but it is almost inevitable that the state will not end up getting fair market value in those deals.

To see why, consider that we are now coming up on the middle of 2019. If the naming rights to the new children’s hospital were worth $1M per year at the end of 2015, then we are only a year and a half from earning out the $5M donation that Robillard secured from Stead. Because Harreld, Robillard and Rastetter granted the naming rights in perpetuity, however, there will never be a chance for the university to renegotiate or sell those rights again, resulting in an inevitable loss of revenue to the school — and yet that’s only half of the problem. Precisely because the clock will keep ticking, every year after that $5M donation is earned out will effectively count not only as a loss to the state but as a profit to the Steads, meaning in another twenty years the entire $25M commitment that the Steads made to the UI medical campus will be refunded.

Imagine how happy — if not ecstatic — any corporate sponsor would be to cut a similar deal. But of course that probably wouldn’t happen, because then everyone would be investigated to make sure no bribes were involved. Which brings us back to how four business-savvy sharks, who were are all publicly committed to maximizing profits at the University of Iowa, nonetheless banded together to grant the naming rights to the new UI children’s hospital to one of their own, at a guaranteed multi-million dollar loss to the state.

Given that Stead ‘secured’ the naming of the Department of Pediatrics for $20M — which, by the board’s own policy definition constituted a Major Unit — how was the naming of a second Major Unit, let alone one of considerably greater prominence, worth one quarter of that amount? Again, as to valuation, even if we don’t know the market value outside of UI, relative to the pricing already established internally, that would seem to be a fire-sale price for a valuable state asset, calling into question how that administrative decision was reached.

The relevant policy question is not simply how much money a person or group may have donated in exchange for the naming rights, but how much a private company might have paid for that ‘honor’, whether UI would have put such an asset up for auction or not. What would John Deere or Wellmark have paid, or any other corporation in Iowa have paid, to have their name associated with caring for and healing sick children at UI? What was the asset itself worth to the state at the time that Jerre Stead bought it for $5M?

Selling off state assets without first determining their market value will inevitably lead to additional crony abuses of power and diminished return on those assets. From the examples cited above it should also be clear that the risk is already accelerating, and that the board’s policies — including the negligible attention paid to corporate namings — are woefully insufficient. Not only should the Iowa State Auditor review all recent namings to determine their fair market value, but policies should be put in place to limit corporate namings in duration, and to ensure that donor namings do not earn out over the expected lifetime of the unit in question. If businesses and corporations want to sponsor facilitates on any regents campus, those transactions should be time limited and treated as the advertisements they clearly are. If donors want to buy perpetual respect, they should pay the aggregated annual market rate for that privilege.

— Mark Barrett