The FOI Loophole: Third-Party Contracts

In July last year, the Connecticut Freedom of Information Commission ruled to keep secret a contract detailing the new relationship forged by the University of Connecticut and Webster Bank. The case highlights questions that journalists must grapple with in the age of rising higher-education costs and the virtual arms race among universities to outspend one another in their efforts to attract the nation’s best and brightest. As this pressure increases, universities have sought new ways to line their coffers, inevitably driving their searches increasingly to private entities. For public universities, this new trend is creating a friction between the state residents who seek transparency for their tax dollars, and the university administrators who are under mounting pressure to compete with private universities while keeping tuition low.

The University of Connecticut dotted i’s and crossed t’s with a company called IMG College in 2008. A 33-page contract outlines their deal: IMG pays UConn more than $8 million a year to handle its sports marketing and promotion and up to $15 million in royalties. Part of that marketing relationship involves signing private companies to put their logo on UConn athletic signage and posters. This provides revenue to the university while in theory generating new customers for the business. Before 2012, the university’s key sponsorship deal was with People’s Bank. Its logo was on every poster, pamphlet, schedule card and doorway to Gampel Pavillion. The Connecticut-based bank has a net income of more nearly $200 million and employs about 5,000 people — and opened up branches on UConn’s campus, including one inside the university’s Co-op.

In 2012, that all changed. IMG leveraged its new control of UConn sponsorship rights to sign on Webster Bank as the new headline money backer of UConn athletics. In a matter of days, People’s Bank signage was stripped from sports fields, banners, and signs and replaced with Webster Bank logos. People’s Bank ATMs were removed from around campus and replaced with blue and gold Webster machines. The bank publicly announced its new status as “The Official Bank of UConn,” and the school sent out a press release boasting:

“The unique partnership for the first time encompasses all aspects of the University, including Athletics and the Alumni Association, and integrates media, hospitality, and venue signage as well as use of University intellectual property for branding, promotions, and affinity marketing.”[1]

But the financial terms of the agreement were not disclosed — along with information that may have detailed the benefits Webster Bank was receiving from the deal, just how much control the company now had over UConn marketing, and who controls which revenue streams.

The Connecticut Freedom of Information Act mandates the public release of “any recorded data or information relating to the conduct of the public’s business prepared, owned, used, received or retained by a public agency,” unless it is in the best interest of the public not to release the information. But when a reporter for the Associated Press requested a copy of the Webster Bank/IMG contract, Rachel Krinsky Rudnick, assistant director of compliance and privacy at UConn, withheld the contract because the signees were private entities, and she denied that the school retained a “final copy.”[2]

The AP reporter, Pat Eaton-Robb, took the denial to the Freedom of Information Commission (FOIC), asserting that the public had a clear vested interest in the terms outlined in that contract. In the hearing process, the AP issued a statement saying, “it certainly appears that the University of Connecticut . . . has effectively outsourced an important government function to IMG [and] the public has a legitimate interest in how IMG is performing that function for one of the leading public universities in the nation.” But as the hearing process wore on, Eaton-Robb quickly found he was out-gunned in legal power. UConn’s general counsel stepped in and IMG and Webster hired prominent attorneys to fight the case.

Steven D. Ecker, an attorney for IMG and Webster, wrote a letter to the commission in February 2013 stating that the public interest “clearly favors nondisclosure” because disclosing information regarding the agreement between IMG and Webster would “negatively affect UConn’s ability to generate maximum revenue” from corporate sponsorships. He argued that if the university is unable to ensure confidentiality to its sponsors, prospective sponsors would be “sorely tempted” to contract with private universities instead.

Ecker also argued that the document detailed “trade secrets” of the university, as well as the private companies, which are exempt from disclosure under state FOI law. Ecker’s argument is backed by a 2011 state Supreme Court decision, which ruled against former state Representative Jonathan Pelto’s argument that public institutions cannot retain “trade secrets.” Trade secrets are defined by the FOI law as

“information, including formulas, patterns, compilations, programs, devices, methods, techniques, processes, drawings, cost data, customer lists, film or television scripts or detailed production budgets that derive independent economic value, actual or potential, from not being generally known to […]other persons.”[3]

With the state Supreme Court’s 2011 ruling, it essentially confirmed that public universities, such as UConn, can in fact keep some of its fundraising practices a secret.

After the close of the case, Pelto said allowing a public entity to claim trade secrets starts the state down a slippery slope. He added that the FOI law was written extraordinarily broad with very specific exemptions to ensure public access to as much information as possible. But FOIC attorney Cliff Leonhardt, who argued the case before the Supreme Court, decided at the last minute not to argue that public entities cannot create trade secrets — saying UConn’s ability to keep some things secret is especially important because the state has made large investments in its bioscience program, and the state must allow UConn to protect its research if it wants a return on those investments.

Leonhard’s words echo Ecker’s. UConn, just like other public universities, has to keep some secrets to stay competitive. Couple this with tough economic times that lead to waning state monetary support, and public institutions may need to turn to these “trade secrets” to help balance their budgets.

In March 2014, the UConn Board of Trustees confirmed a projected $40 million deficit in the upcoming budget. At that same meeting, the board announced dismal private fundraising figures, having reached only 47 percent of its goal at the end of the third quarter of the fiscal year. Meanwhile, UConn President Susan Herbst said in an interview that those private funds are central to fueling the university’s operations, as state backing has seen a $40 million reduction in recent years. Meanwhile, tuition has increased for students as the school has tried to make up for some of the cuts. Thus, a $678 hike is expected next year as well.[4]

But if the university is strapped for cash, does it justify allowing its athletic department to avoid disclosing major contract deals — that would otherwise be subject to public disclosure — by contracting through a third party? At least one state lawmaker does not think so. State Senator Martin Looney proposed S.B. 204 in February of 2013. After hearing about the university’s refusal to release its contract with Webster Bank, he introduced legislation that would have amended the state’s FOI law to

“require that any contract relating to a public institution of higher education becoming a marketing partner with an entity that is a party to such contract, whether or not such institution of higher education is a party to such contract, be subject to disclosure.”[5]

FOIC Executive Director Colleen Murphy issued a statement in support of the bill, saying it “would close an unfortunate loophole” that shields such documents from public view — but Looney let the bill die in committee. He revealed in a later interview that UConn officials held a meeting with him to discuss the bill. He said university officials essentially gave him their word that UConn would not do any more third-party contracting to raise money.[6]

In the end, the Associated Press attempted to hire professional counsel to help Eaton-Robb in his pursuit, but IMG’s lawyers had the case thrown out “with prejudice” before a formal request could be filed on behalf of the AP. That closed the case permanently. But while UConn’s deal with Webster may never see the light of day, the story line offers a foreboding look at FOI’s future in the increasingly money-driven world of higher education. While continuing to raise enough private money to offset raising tuition costs due to meager state funding is a principled goal — assuring best practices and combating corruption will always be done best when information is free and readily available. The modern journalist must be keen on new fundraising practices and be prepared to ensure that the Freedom of Information Act, where it is necessary and prudent, is not threatened by a moneymaking agenda.