Univ. of Oregon Taps Reserves for Pricey Basketball Arena

SAN FRANCISCO — The University of Oregon has been forced to plunge deeper into a special reserve fund seeded by sneaker magnate Phil Knight to cover interest payments on $200 million of debt sold to pay for one of the most expensive college basketball arenas in the country.

Since the state’s flagship university has been unable to find the money in the athletic department’s operating budget to pay its part of annual debt service on the general obligation bonds, it will now have to lean heavily on its $129 million Legacy Fund, according to an internal memo dated Sept. 28.

Recently hired athletic director Rob Mullens said in the memo that the department would also likely need to ask for an additional $8 million from the special fund to complete the $227 million arena project.

“Over the next four to six years, we are going to need to turn to the Legacy Fund to cover the bulk of the debt payments due each year. Our strong-reliance on the Legacy Fund in the upcoming years will reduce the projected 30-year balance of the fund,” Mullens said in the memo to university president Richard Lariviere.

The school had said the fund — managed by the University of Oregon Foundation — would grow to more than $643 million over the next 30 years.

In 2007, Nike founder Knight helped start the increasingly important reserve fund, which was meant as a final backstop for the athletic department, with a $100 million contribution.

Critics had complained the arena would be unprofitable and would burden the school’s general fund.

Mullens said the department’s budget will require “careful stewardship” to maintain self-sufficiency.

This year, the department will have to draw $11.1 million from the fund to cover debt payments, according to university spokesman Phil Weiler.

Annual debt service for the arena project is expected to rise to an estimated $16.3 million per year starting in fiscal 2012. That includes $1.35 million to pay interest on $27 million borrowed to buy the land and also payments on debt sold to build the parking garage, according to Weiler.

But despite the fiscal problems, the taxable bonds carry Oregon’s GO pledge.

Moody’s Investors Service rates the debt Aa1, Fitch Ratings rates it AA-plus and Standard & Poor’s rates it AA.

Athletic department revenues — including ticket sales and donations — have been slated to pay back the bonds.

The university said it decided to go with an all-taxable deal to give it flexibility to raise revenue from naming rights, advertising, and other sponsorship at the arena.

The bonds helped finance the 12,500-seat Matthew Knight Arena named after the Knight’s son, who died at age 34 in a scuba accident.

The arena is said to be one of the most expensive on-campus college basketball venues in the nation.

When it opens this basketball season the arena will replace McArthur Court, a 9,087-seat venue that was built in 1926.

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