Thursday, November 16, 2000
The University Daily Kansan
Section A · Page 5
Hard to swallow
Other schools distribute funds to more students
Many universities around the country have entered into long-term deals with one of the nation's two major soft drink companies. Other Big 12 schools use the money from such deals to benefit a broader range of students than the University of Kansas.
Kansas State University has a 10-year contract worth $13 million with Pepsi-Co. Co. for exclusive sale of Pepsi products. The student union administration has been responsible for overseeing the use of the university's money from the contract.
By the end of the agreement, about $5 million will have gone into an endowment for university libraries, said Tom Schellhardt, associate vice president for administration and finance at Kansas State. About $4 million will be used to reimburse departments for their lost vending profits, and about $3 million is designated for improvements to residence halls and student proacms. Schellhardt said.
Twenty-ounce bottles of Pepsi cost $1 there.
Other Big 12 Conference universities that have crafted similar deals have also dolt out soft drink revenue toward scholarships aiding a broad range of students. At the University of Nebraska at Lincoln, about $250,000 goes into a pool for general scholarships. Nebraska is three years into a 12-year exclusive contract with Pepsi.
Nebraska received $13 million up front in the deal, and takes in another $1.1 million annually. The bulk of the university's profits support a program funding undergraduate science research, giving more undergraduates the opportunity to conduct research, said James Main, assistant vice chancellor for business and finance at Nebraska.
Like KU, Nebraska spends about $50,000 from its soft drink contract each year on student events and programs.
Main said Nebraska switched from Coke three years ago hoping to increase revenue with sales of Mountain Dew, a Pepsi product popular enough with young people that it has become the country's No. 3 soft drink. The yellow beverage accounts for 53 percent of all sales of Pepsi products on the Lincoln campus.
"We were afraid that if we chose Coke, we would have had to lose a lot of business from people who drink Mountain Dew," Main said. Chuck Connelly, senior vice president at Pepsi-Cola Co. in Chicago, said exclusive vending contracts with universities weren't new, but were being signed for more money and longer time periods within the last few years.
"If you look at the economics of the soft drink business, the profit margin on sodas sold through vending machines is significantly higher than the profit margin on what we sell through a supermarket," Connelly said. "So what we've been doing is a major investment in vending machines. That has probably been a important factor driving our going out for contracts with universities."
Coke money flows from many sources
The University of Kansas' deal with Coca-Cola is worth about $12.8 million over 10 years.
Under the contract, the University receives a 55 percent commission on sales of Coca-Cola products from campus vending machines. When KU signed the contract in 1997, Coca-Cola paid an advance of $7 million on that commission. By the end of the ten-year contract, the University is guaranteed another $1 million. A $450,000 payment each year from Coke will total $4.5 million by the end of the contract, and commissions from Treat America, the University's snack vendor under the contract, will come to about $300,000 by the end of the contract.
Of the initial $7 million payment, the University gave $5,750,000 to the Endowment Association, which has invested it for an annual return of about $280,000. The remainder of the up-front payment, $1,250,000, was used for the 1997-98 school year's costs related to scholarships, student programs and reium-bursements to campus departments for their lost profits.
That means the Coke cash available for the University to spend each year includes the $480,000 annual payments from Coke and vending company Treat America, plus annual earnings from the $5.75 million invested by the Endowment Association — this year $280,000. Under the contract the University can actually earn more money if Coke sales exceed projections.
The money also went for new recycling bins and two new recycling trucks, and about $500,000 remains left over to help cover scholarship and reimbursement costs in years when interest and Coke's payments come up short.
This hasn't yet happened.
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rumblings in Student Senate this fall after it raised the price of bottles of Coke products from 85 cents to $1. The council approved the increase last summer, without student feedback. Student Senate in September petitioned for student representation on the council
Marshall became the only student representative on the partnership council in October.
"We weren't here when KU and Coke made this partnership," Marshall said. "There are 26,000 students here. We need something to make sure that this money will benefit all students. We need to look at it and say, 'Who is this really benefiting?'"
Groups and events that got money last year included the Student Organizations and Leadership Center, which received $6,200 to hold two student leadership workshops, $3,000 to support majors fairs and $2,500 for Black History Month events.
One provision of the Coke deal requires University employees to be "cola cops," making sure that groups meeting on campus don't serve Pepsi or other competing beverages.
Irad Ordina, Pomona, Calif., senior, said that when he was president of the Hispanic American Leadership Organization last year, he was told that only Coke products could be served at HALO events on campus.
"They told us if any drinks were to be distributed, it would have to be a Coke product," said Orduna, whose group was denied Coke funding for a conference of Hispanic student groups from other universities.
David Mucci, director of the Kansas and Burge Unions, said student groups wanting to hold meetings in the unions are required to use Union catering services for their refreshments, which prevents them from serving non-Coke soft drinks or off-campus food.
"Whether it were cola or a grapefruit, it would be an issue," Mucci said.
Total soft drink sales have been stable since the deal took effect. After taking in $712,720 in the 1997-98 school year, revenue from campus vending machines peaked at $728,388 the following year and then dipped to $705,430 the next year.
A vendina monopoly
Mark Hirschey, professor of business, said the contract creates a monopoly on campus that eliminates free-market competition.
"Obviously it's a method for the University to extract greater revenue from students," Hirchsey said. "The University is having a tough time at the legislature, so they're looking for other ways to make money."
Paul Johnson, associate professor of political science, said that the University was taxing all students who bought soft drinks on campus to benefit a small portion of the student body.
"It might make more sense if you just tax the students directly," he said. "If the goal is to raise money for scholarships, why not just charge $5 a head and use that for the scholarships?"
A vending monopoly on campus limits freedoms at the University beyond the simple right to choose a cold drink, said David Katzman, professor of American studies and a vocal critic of the University's relationship with Coca-Cola.
Like any type of education funding from the private sector, the money has the potential to compromise intellectual freedom, influencing everything from research outcomes to University policy. Katzman said.
"We have this idea that the University should be insulated from all kinds of political pressure — an ideal pursuit of truth and knowledge," Katzman said. "If I'm worried about something like a Coke contract, I might censor myself."
Tim Miller, professor of religious studies, has also been critical of the deal. He said the contract had contributed to the crass commercialization of the KU campus.
"It sends the message that the University is for sale," Miller said. "It would be one thing to accept contributions from Coke, but it's quite another to craft it as a business deal."
The deal also gives Coca-Cola free rein to turn the fronts of soda machines into large, lighted Coke ads all over campus. he said.
"I don't see the benefits. For the administration to tout that as free money, it's not. It's coming from the pockets of students on campus who are paying a dollar for a Coke."
"We used to have soft drink signs that were a little more inconspicuous," Miller said. "Now you have a big billboard of a bottle of Coke on every one. It's a huge intrusion."
Students' quarters also pay for a number of perks for executives and employees of the Coca-Cola Company, including basketball tickets. Each season, the company receives 20 season tickets for men's basketball games, said Pat Warren, associate athletics director. The tickets include four lower-level, six upper-level and 10 general admission seats.
Coke also gets 50 single-game general admission tickets and six season passes passes for men's basketball and admission for Coke employees and guests to the posh Naismith Room in the Wagon Student Athlete Center during men's games.
The Athletics Corp. also provides a 13-person scholarship suite high above Memorial Stadium for the Coca-Cola Co.'s use during football games. The company can also admit 50 employees and guests to a men's basketball practice with a catered post-practice or pregame event, each year.
The beverage of choice
Randall Rock, chief of staff at Watkins Health Center, said the growth of soft drink serving sizes — such as the rise of the 20-oz. Coke bottle on campus — contributes to health problems. Sugared soda offers no nutritional value, adds to student waistlines and can cause anxiety because of caffeine, he said.
Some critics question whether the University should promote a product that nutritionists have decried for years as a contributor to weight problems and other health risks.
"Our standard serving is way up from the 12-ounce serving that a couple of generations ago we grew up with. I think we have to be careful about that," he said. "The fact that it is readily available and in some cases cheaper than water makes it easier for it to become the beverage of choice."
But for Erica Rahn and countless other KU students who buy Coke products on campus, the issue is not good nutrition. What they find so hard to swallow is how the University spends the quarters that they drop Into Coke machines.
--- Edited by Clay McCuistion
Photos and Design by Melissa Carr
University Athletics Corp.
$241,000 per year to compensate for lost saving profits
--about $200,000 per year
Scholarships for National Merit Scholars
Scholarships for children of faculty and staff
about $150,000 per year
Student programs
about $50,000 per year, which is divided among student organizations programs and events