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The Pac-12 on Friday terminated the employment of two senior executives, including the president of the Pac-12 Networks, for failing to disclose overpayments by a media distribution partner to the networks that made the annual revenue appear more robust than it was.
Commissioner George Kliavkoff carried out the dismissals with approval of the Pac-12 Board of Directors (the university presidents) and following an investigation by an independent, outside legal firm.
The conference did not identify the executives.
However, soon after the Pac-12 staff was informed of the situation, two names were removed from the staff directory: Pac-12 Networks president Mark Shuken and CFO Brent Willman, who oversees finances for both networks and conference operations.
A source confirmed they were the executives terminated.
The distribution partner, also unidentified, claims the overpayments totaled $50 million over the course of years, potentially impacting Pac-12 athletic department budgets in the future. (ESPN and Fox are not Pac-12 Networks distribution partners.)
The Pac-12 released the following statement:
"Earlier today, the Pac-12 terminated the employment of two senior executives, effective immediately. This action was taken following an investigation conducted by independent outside legal counsel. The terminations resulted from a failure by those two executives to disclose material information to the Pac-12 Board of Directors and external Pac-12 auditors in connection with overpayments by a Pac-12 Networks distribution partner dating back to 2016.
"The Pac-12 took immediate and appropriate action to address this matter, consistent with best governance practices. Pac-12 leadership is committed to supporting our members and student-athletes, and always operating at the highest level of professionalism."
The Pac-12 Networks were launched in August 2012, to much fanfare. However, poor distribution, including a longstanding impasse with DirecTV, resulted in limited annual payouts to the campuses and criticism of the business model.
The Pac-12 Networks have an array of distribution partners, including Comcast and DISH, Cox, frontier and Spectrum.
An audit, directed by the Pac-12 in 2017 and completed late that year, concluded that "one of the Pac-12 distribution partners had overpaid the Pac-12 Networks for the year 2016 by a material amount," according to information released by the conference.
Shuken and Willman didn't personally benefit from the overpayments, which became known to them following the audit.
(Shuken was hired as president of the networks in August 2017; Willman joined the networks prior to their launch.)
Numerous people were interviewed as part of the investigation, including then-commissioner Larry Scott.
Other than issuing the public statement, the conference declined to comment on any aspect of the investigation — including the people interviewed — and said its focus is on addressing the claim and the executives whose employment was terminated Friday.
It is unclear whether the Pac-12 will have to reimburse the partner making the claim.
Hired in the summer of 2021, Kliavkoff was made aware of the situation this October. The Pac-12's audit committee brought in Cooley LLP, based in Palo Alto, to conduct an investigation.
Kliavkoff briefed the presidents at a previously scheduled meeting in November.
Cooley completed the investigation in January and determined "these executives failed in their obligations and duties to immediately disclose this information related to an immediate and material financial risk to the Pac-12."
Washington president Ana Mari Cauce, and chair of the Pac-12 board, issued the following statement:
"The Commissioner and the Pac-12 have taken timely and appropriate action consistent with best governance practices and based upon the investigation conducted by independent outside legal counsel. The Pac-12 Board appreciates the Commissioner's prompt action on this matter."
As part of its public disclosure of events, the conference released the following timeline of events:
— In the spring of 2017, the Pac-12 Networks engaged the industry-leading auditor to conduct an audit of certain distribution partner payments.
— The audit concluded that one of the Pac-12 distribution partners had overpaid the Pac-12 Networks for the year 2016 by a material amount.
— The two Pac-12 executives whose employment were terminated today were made aware of the audit results in late December 2017.
— After receiving the audit results, the two executives failed to inform the Pac-12 Board of Directors or the Pac-12's external auditors of the financial risk associated with the audit findings.
— Since 2017, the two executives have not shared the ongoing financial risk associated with the apparent overpayment with either the Pac-12 Board of Directors or the Pac-12's external auditors.
— In October 2022, the distribution partner who was the subject of the 2017 audit claimed that it had been overpaying the Pac-12 each year since prior to 2016. The distribution partner claims that the overpayments total more than $50M.
— As soon as the distribution partner notified the Pac-12, the Pac-12 began looking into the claims, and determined that the Pac-12 should bring in independent legal counsel to review the facts of the situation
— The Pac-12 Board of Directors Audit Committee promptly hired the law firm of Cooley LLP to conduct an independent investigation.
— In November 2022, the Commissioner briefed the Pac-12 Board of Directors on the distribution partner's claim and the ongoing investigation being conducted by Cooley.
— Cooley concluded its investigation and on January 13, 2023 Cooley briefed the Commissioner on its findings.
— The Cooley investigation concluded that:
* Two current senior Pac-12 executives were aware of an overpayment from a distribution partner since late 2017;
* These executives failed in their obligations and duties to immediately disclose this information related to an immediate and material financial risk to the Pac-12 to the Pac-12 Board of Directors and the Pac-12's external auditors; and
* These executives failed in their ongoing obligation and duty to disclose this information to the Pac-12 Board of Directors and the Pac-12's external auditors.
— Based upon the findings of the investigation, the Commissioner made the decision to terminate the employment of the two Pac-12 senior executives.
— On January 19, 2023 the Board of Directors Executive Committee and the Chairman of the Pac-12 Audit Committee were briefed on the findings of the investigation and the decision to terminate the employment of the two Pac-12 senior executives.
— The terminations took place and are effective on January 20, 2023.
*** This article will be updated as additional information dictates.