The Arizona Republic
Secrets and scandal
BOWL’S INQUIRY: Report details hefty expenses, campaign gifts RAPID FALLOUT: Longtime chief Junker fired; BCS scrutiny rising
An investigation by the Fiesta Bowl has found evidence of potentially illegal employee conduct and spending irregularities that could jeopardize the bowl’s non-profit status and prestigious role in college football’s nationalchampionship series.
As a result of the five-month internal probe released Tuesday, the bowl fired its longtime public face, CEO John Junker, and accepted the resignations of two other top bowl officers.
The 276-page report, commissioned by a Fiesta Bowl Special Committee in October, details a culture of excessive spending on bowl employees, politicians and business associates despite rules barring the bowl from using its money to benefit individuals; a system of campaign contributions that could run afoul of state and federal campaign laws; and accounts of efforts by bowl staffers to mislead government investigators.
Junker declined comment.
However, his lawyer said the Fiesta Bowl had posted the report on its website before it had given a copy to Junker, and that Junker would not comment until reviewing the report in detail.
The independent, out-of-state investigators hired by the bowl found:
» Lavish expenses. A review by investigators showed Junker was reimbursed $4.85 million for expenses over the past decade, of which more than half could not be verified as legitimate. Items expensed by Junker and other executives, the report says, included a $1,200 night at a strip club; $13,000 in travel to an employee’s wedding in Missouri; a $30,000plus birthday party for Junker in Pebble Beach, Calif.; and thousands of dollars in golf-club memberships.
» Questionable political activities. Employees told investigators that the bowl reimbursed 11 staffers for more than $40,000 in political donations. The system first was described in a 2009 Arizona Republic report. The reimbursements, if they happened as employees described, would be a violation of state and federal campaign-finance laws as well as a potential violation of Internal Revenue Service regulations that bar non-profits from making political-campaign contributions. The bowl’s political activities, according to employees interviewed for the report, were directed toward public officials who could help the bowl maintain its prominence in the college football world with favorable legislation and ward off unfriendly laws.
Those activities extended to coordinating and hosting fundraisers for candidates, also a potential violation of IRS regulations for non-profits, giving politicians free tickets and sending them on out-of-town football junkets with lobbyists.
The tickets and junkets appear not to have been fully reported as gifts, as required by law, on some financial-disclosure statements filed by the politicians at the Secretary of State’s Office.
» Contract irregularities. A half-dozen service contracts with people or organizations, including several board members, also came under investigators’ scrutiny for their cost or seeming lack of oversight.
Blue Steel Consulting, a security contractor run by a full-time Maricopa County Sheriff’s Office employee, was paid at least $182,000 for services that current bowl Chairman Duane Woods said are not needed. A past chairman called the expense “excessive.”
Investigators also uncovered a secret bowl contract with an unidentified individual who annually is given six free Fiesta Bowl tickets and is paid 10 percent of the amount of the Fort McDowell Yavapai Nation’s sponsorship contract for the Fiesta Bowl Parade — or an average of $40,000 a year — for undisclosed services. Fiesta Bowl employees told investigators it was a mystery even to employees who the person was or why the payment was made.
The Scottsdale-based Fiesta Bowl puts on two annual collegefootball bowl games (the Fiesta Bowl and the Insight Bowl) and numerous other entertainment activities, and hosts the national championship game every four years. The group operates through four non-profit organizations that together held $22.3 million in net assets as of March 2010.
As a non-charitable non-profit, its stated mission is to sponsor football games and related events in a way that promotes the state’s higher education and economy while serving as a “source of national pride for all Arizonans.” Its articles of incorporation state, among other things, that no part of its earnings or assets shall “inure to benefit of any private shareholder or individual” and that the bowl shall not “engage in any business activity or transaction which would cause it to lose its status as a nonprofit corporation.”
Two dozen board members, most drawn from Arizona business or political circles, oversee the bowl’s four non-profits. But its thousands of local volunteers are the heart of the bowl’s operations during bowl season.
The Republic has been a longtime sponsor of the bowl, and Republic CEO and Publisher John Zidich is a board member and is on the bowl’s executive committee.
The investigative report, which cost the organization more than $1 million, attributes numerous spending irregularities to
I’m disappointed, disgusted and devastated by everything.”
Fiesta Bowl chairman, who requested the internal investigation
Junker and some top staffers.
The bowl’s Special Committee report supports the findings of a December 2009 Republic story in which current and former employees said they were reimbursed for making campaign contributions. Junker and bowl officials for months denied the practice occurred.
Concealment of political donations is a felony, and the findings could result in criminal charges. A copy of the bowl report was handed over Monday to the Arizona Attorney General’s Office. It also could jeopardize the bowl’s non-profit status with the IRS, which the bowl said is looking into the activities.
The Fiesta Bowl is a member of the lucrative Bowl Championship Series, which generates tens of millions of dollars in annual tourism revenue for the Valley. It hosts one of the country’s top four college-football bowl games each January, and every four years, it hosts the national-championship game.
The agreement among the top bowls and college conferences that gives the Fiesta Bowl its spot in the system is renewable every four years. The bowl has just ended the first year of a new contract, but negative fallout from the report’s findings may give the BCS reason to cancel the deal.
“I’m disappointed, disgusted and devastated by everything,” said Fiesta Bowl Chairman Duane Woods, who requested the internal investigation last fall.
Along with noting Junker’s firing today, Woods said, Chief Operating Officer Natalie Wisneski resigned on Friday, and Jay Fields, vice president of marketing, quit Thursday. Fields was one of the executives reimbursed for trips to a strip club.
Woods said the bowl is looking for a new executive director.
Wisneski declined comment Tuesday, and Fields could not be reached.
In a prepared statement, the Fiesta Bowl called Junker’s activities “improper and inappropriate” and said it is adopting reforms to restore public trust in the bowl. Among the reforms:
» The board will use a search firm to find a new executive director, chief financial officer and a general counsel/compliance officer to oversee the bowl’s business affairs “and ensure that strict new policies and procedures are followed.”
» A new general counsel/compliance officer will report directly to the board and to the Audit and Compliance and Executive committees.
» The board will review and approve all compensation for senior-level staff. Expense reimbursements to the executive director and any director will be approved by the board’s Executive Committee.
» The board has adopted a whistleblower policy, including a hotline monitored by an independent company, so complaints can be filed anonymously.
» The board’s Audit and Compliance Committee has been restructured to oversee compliance issues and will oversee the compliance officer’s enforcement of ethics codes, policies and legal and regulatory issues.
The probe’s origins
The Republic first reported in December 2009 that five former and current employees said they had been directed to contribute to political candidates and then were reimbursed for those donations. The practice, which employees said dated to 2000, could violate state and federal campaign laws that make it a crime to circumvent prohibitions on direct corporate political donations.
It also could be a circumvention of IRS regulations barring non-profits from “directly or indirectly” being involved in political activities. Violation of the IRS code could result in revocation of the bowl’s tax-exempt status, opening it up to taxation for past and future financial activities and possibly undermining the bowl’s ability to attract an army of volunteers to carry out the Valley-wide effort surrounding the annual event.
Fiesta Bowl officials and their lobbyist vehemently denied The Republic’s report. And although they launched a short, cursory investigation, the Special Committee’s subsequent independent probe — launched 10 months later — revealed that the first investigation was considered by many, including employees and the bowl’s own outside lawyers, to have been suspect.
The Arizona Secretary of State’s Office, which enforces state campaign-finance laws, pressed the bowl and its consultants for more-detailed information, and the lack of satisfactory answers from the bowl about the campaign donations led the secretary of state to turn the matter over to then-Attorney General Terry Goddard, who launched a criminal investigation based in part on The Republic’s report. That criminal probe has never been closed.
The bowl created its Special Committee and launched the second, independent internal investigation after Junker’s assistant, Kelly Keogh, according to the report, told Woods in September 2010 that a cover-up was under way and that some employees had, in fact, been reimbursed for campaign contributions.
“I personally believed he (Woods) really didn’t have any idea that there was a cover-up or that he was being snowed,” Keogh stated in the subsequent report. “I felt that he should have the truth.”
Minneapolis-based attorneys Christopher Madel, a former Justice Department trial lawyer, Bruce Manning and Sara Poulos conducted the new internal inquiry that reviewed e-mail and electronic-payroll and financial records and roughly 10,000 documents, interviewing 52 individuals with ties to the bowl.
The findings were compiled in a report completed March 21.
‘Bonuses’ are paid
More than half of the report deals with the campaign donations and the bowl group’s response to the article. The Special Committee report corroborated earlier employee allegations that they had been reimbursed by the bowl for political donations, although the report also made clear that donation recipients ranging from U.S. Sen. John McCain to Gov. Jan Brewer were unaware of the reimbursements.
The report says employees told investigators the bowl tried to hide the reimbursements by repaying employees through “bonuses.” The political contributions were sometimes delivered by lobbyists, including the bowl’s former top lobbyist, Gary Husk.
Husk has repeatedly said he never delivered campaign contributions from the Fiesta Bowl.
The bowl’s investigators identified 11 individuals, including Wisneski, who said the bowl repaid them and seven of their spouses for making political contributions. In total, the report found at least $46,539 was reimbursed; most of the campaign contributions went to Republicans.
The report also details how Junker and Husk repeatedly tried to discredit The Republic’s initial story and how efforts were made to keep the activities under wraps. For example, the report says, Wisneski told investigators that Husk told her to delete records and not to disclose that reimbursements had occurred. Wis- neski told investigators that she told another employee to alter records but that the employee refused. Husk in the report denies those accusations.
“I absolutely did not ask or instruct Ms. Wisneski or any others at the Fiesta Bowl to not keep, to delete, to destroy or otherwise dispose of documents,” Husk wrote to the Special Committee.
In an e-mail to The Republic, Husk on Tuesday said, “I am proud of my outstanding reputation that has been built over 28 years as a prosecutor, private attorney and businessman. In my entire career, I have never been accused of engaging in any impropriety and I am deeply honored that numerous people from all walks of life can attest to my unquestionable ethics. Although I have not seen a copy of the report, I am certain that it reflects my full cooperation in this investigation and that I provided documentation and information that assisted the investigators. I have also provided evidence that clearly demonstrates that the accusations that have been made against me are not credible. Given these circumstances, it is regrettable that the Fiesta Bowl Board of Directors would decide to recklessly publish these allegations. My integrity is extremely important to me and I would never do anything to jeopardize it.”
In addition to the campaign contributions, Arizona politicians received free tickets to the Fiesta Bowl, were taken on out-of-state trips to football games, and were assisted in coordinated fundraising efforts by bowl employees, the report alleges. Politicians are not barred from accepting those gifts but are required to disclose them in personal financialdisclosure statements.
The Special Committee’s investigation describes several bowl-
FIESTA BOWL sponsored political fundraisers, even though such events appear to violate the bowl’s tax-exempt status.
The bowl also used its money to purchase more than $12,000 in tickets to professional and college-football games from 2007 to 2009 for current Arizona Senate President Russell Pearce, RMesa, and state Rep. Ben Arredondo, a Democrat and former Tempe councilman.
Pearce has sponsored legislation to help the Fiesta Bowl host the BCS championship and to help the bowl in legal tussles with the Arizona Sports and Tourism Authority. Arredondo, as a resident of the bowl’s original home in Tempe, has been a longtime supporter.
Pearce and Arredondo could not be reached for comment.
Politicians were not the only recipients of gifts from the bowl, according to the investigators’ report. The findings detail extravagant spending on bowl staffers, colleagues and sports figures close to the organization, despite IRS prohibitions on personal enrichment.
The bowl group maintains close ties with the Big 12 Conference, which typically sends its champion to the Fiesta Bowl. According to the report, the bowl paid a former conference executive an annual $48,000 retainer fee and made $16,000 in collegesavings-account contributions for his grandchildren.
College-football coaches, athletic directors and conference commissioners from around the country also were regularly provided gifts from the Fiesta Bowl, which relies on their support to stay in the BCS.
According to the report, Fiesta Bowl employees received gifts paid for by the bowl’s four nonprofit organizations. For example, when Junker turned 50 in 2005, the report says, the bowl paid for his birthday party in Pebble Beach, Calif. Total tab: $33,188.96.
The report says that the bowl also spent at least $13,000 in 2007 for the wedding and honeymoon of Keogh, Junker’s assistant, and that Wisneski took a trip to Paris in 2009 at the bowl’s expense.
The report also says Junker has given employees gifts and bonuses totaling more than $97,000 since 2000. Examples listed include a $1,000 “wedding bonus” to one employee, a $2,000 bonus to another for her daughter’s wedding, and a $5,000 bonus when one employee’s husband was in an accident.
Junker also had the bowl reimburse him for tens of thousands of dollars for what investigators believe were personal expenses, and the bowl paid thousands for Junker’s four memberships to expensive private golf clubs — including two out of state.
Since 2000, Junker has taken at least 27 trips in which one or more members of his family traveled with him at Fiesta Bowl expense without any specific authorization from the bowl. One in 2008 to Santa Barbara, Calif., and San Diego spanned 16 days and included his family, the report says. Junker told investigators there was no written policy allowing family travel, the report states, but he considered it “standard practice” as understood by senior board members over the years. However, the past nine board chairmen told investigators they did not recall ever having such an understanding, the report says.
Woods said that Junker and other executives hid most of the excessive spending from board members and that much of the inner workings were not publicly revealed until the Special Committee was created in October 2010 to conduct an investigation with outside lawyers and investigators.
The report also describes expense reimbursements for staffers even in cases in which there was little plausible explanation for the activities’ legitimacy.
On Sept. 12, 2008, for example, Junker, former bowl executive Shawn Schoeffler and Lt. Aaron Brown of the Sheriff’s Office spent more than $1,200 of Fiesta Bowl money at Phoenix’s Bourbon Street. The report indicates the money was spent on dances by strippers, food and drinks at the self-proclaimed “World Famous Strip Club.”
The $1,241 charge on Junker’s credit card included a handwrit- ten note of explanation: “security site planning.”
Asked about that expense, Junker told investigators he visited the strip club with Brown, whose private company provided security for the bowl, and Schoeffler to check out a venue that might appeal to collegefootball players.
“We are in the business where big strong athletes are known to attend these types of establishments,” Junker said. “It was important for us to visit, and we certainly conducted business.”
According to investigators, Junker acknowledged that some of the bill “in all likelihood” covered payment for private dances by the strippers.
Schoeffler, the former vice president of media relations, resigned in September 2009. Investigators said in the report that Schoeffler was reimbursed for six other trips to the strip club, while Fields, another Fiesta executive, who recently quit, was reimbursed for two charges at the club.
A bowl-employee manual says the non-profit organization “will not reimburse expenses incurred in ladies or gentlemen’s clubs.”
Brown and Schoeffler both declined to comment.
In addition to lavish parties, questionable gifts and political contributions, spending issues at the Fiesta Bowl include half a dozen expensive contracts.
According to the Special Committee report, those contracts cover security work, public relations, lobbying and other services.
Among the contractors is Brown, a sheriff’s lieutenant who receives at least $182,000 a year to moonlight as security consultant for the Fiesta Bowl. Although Brown is a full-time sheriff’s employee, he also works year-round for the bowl.
Brown started his company, Blue Steel Consulting, in 2005, a year after he began working for the Fiesta Bowl as a security consultant.
When asked by investigators about his contract, Brown ini- tially claimed he was paid only $50 per hour but later acknowledged the higher compensation.
Besides arranging motorcycle escorts for football teams and handling security functions for events, the report says, Brown supplied an off-duty deputy to chauffeur Junker’s daughter to her prom and its after-party. Brown denied to investigators that he had billed the service to the Fiesta Bowl.
Junker was questioned about that but was uncertain if the bowl picked up the expense. His explanation, according to the report: “I don’t think anybody would have a problem with someone doing that for my daughter as a measure of my daughter’s security.”
In 2009, the report says, Junker agreed to pay Blue Steel $351,000 in advance “deposits” because Brown needed up-front capital to provide security for the national-championship game, which was played in January.
Junker told investigators the arrangement resulted in a “substantial savings” for the Fiesta Bowl. The total payment for fiscal 2010 was $508,776, according to the bowl’s tax returns.
Maricopa County sheriff’s policy forbids conducting personal business with department resources while on the county’s time. In February, sheriff’s officials announced that they were investigating whether Brown used county resources to conduct private business.
Cooperating with investigations
Woods, the chairman, said the bowl is cooperating with the Attorney General and with an IRS inquiry in a bid to save its taxexempt status.
Retaining that status would allow the bowl to avoid paying taxes, potentially retroactively, on its income. The IRS had no comment. Woods said the bowl also will seek reimbursement from employees who received improper benefits.
The bowl’s board also is hoping the recent high level of transparency and the departure of executives engaged in the reported wrongdoing will persuade college-football officials to keep the Fiesta Bowl in the exclusive BCS rotation.