Florida State Taps J.P. Morgan For Institutional Money as Talks Advance With PE Firm

[The Yakk]

A PE firm won't try to break it. They'll work out a value to buyout of it, offer a lesser number to the ACC, negotiate to some agreement and then overcharge FSU for their trouble.

Even worse.

FSU will likely agree that in the event the private equity choads are not made whole from AD revenues, the choads will get an interest in FSU's other revenues. FSU will agree to cut academic expenses and raise tuition to pay them back. FSU students are about to become chattel.

No different than any other firm the PE idiots purchase and ruin.

 

[hoopsfan22]

Sounds like something they'd do in Florida.

 

[businesslawyer]

I wonder if any of the decision makers at these schools understand how PE firms work.

Before they hand over a penny of the $300 million to FSU there will be thousands of hours devoted to how this investment will give the firm a desirable return (with the federal funds rate at 5.5% I imagine they'll be looking at a minimum return between 16%-18%) with every potential source of income listed in full detail.

My question: is this a loan or is FSU selling something to the PE firm?

If this is a loan, how does FSU pay the required return and the principal back (more of a concern if rates drop to where they were a couple years ago)?

If the PE firm is purchasing something, what is it that they are purchasing?

This could become quite dangerous for a not for profit, state run institution for higher education.

So I'm speculating, but I'm speculating as one who works with PE firms for a living.

I would think that FSU would create a subsidiary to which it transfers the rights to all FSU Athletic Department revenue. It then sells some percentage of that new subsidiary to PE for a purchase price. There is a deal on what the funds put in by the PE Group will be used for, material changes to running the Athletic Department will have to be approved by the PE firm, but the University will retain ultimate control, and then going forward the PE firm takes its share of the revenue pie. (And the PE firm would pay taxes on is share of the annual income, but the university, because it's a non-profit, would not.)

Something like that, I'm guessing, but it's pure speculation.

 

[DarthGrumpy]

It's more like LIV Golf. The only reason you need the PE $ is the GOR and conference buyouts have to be funded. But the PE people would take a portion of the TV deal. The Conference wouldn't really just be a partnership of schools, it would be privately owned. Schools would lose a lot of control.

The lawyers will make a lot of money with this idea and 99% of 'student atheltes' will be screwed. Bowl game in Dubai anyone?

 

[businesslawyer]

The lawyers will make a lot of money with this idea and 99% of 'student atheltes' will be screwed. Bowl game in Dubai anyone?

Stop making a bad thing sound so damn appealing!

 

[FfldCntyFan]

So I'm speculating, but I'm speculating as one who works with PE firms for a living.

I would think that FSU would create a subsidiary to which it transfers the rights to all FSU Athletic Department revenue. It then sells some percentage of that new subsidiary to PE for a purchase price. There is a deal on what the funds put in by the PE Group will be used for, material changes to running the Athletic Department will have to be approved by the PE firm, but the University will retain ultimate control, and then going forward the PE firm takes its share of the revenue pie. (And the PE firm would pay taxes on is share of the annual income, but the university, because it's a non-profit, would not.)

Something like that, I'm guessing, but it's pure speculation.

I get that. One sticking point however is how will the PE firm get their return on the proposed $300 million cost to buy out of the GOR? PE firms don't throw around nine figure dollar amounts to be nice.

 

[businesslawyer]

I get that. One sticking point however is how will the PE firm get their return on the proposed $300 million cost to buy out of the GOR? PE firms don't throw around nine figure dollar amounts to be nice.

They will have to be projecting a certain annual return on revenues, maybe with a return of capital in 20 years. Who knows. You really have to see the deal -- there is no limit on how it could be structured. But I can tell FSU this -- with Private Equity there is no free lunch, and the schools will only make money on the deal if there is a way for PE to run the revenue stream in a much better way than FSU was able to.

 

[FfldCntyFan]

They will have to be projecting a certain annual return on revenues, maybe with a return of capital in 20 years. Who knows. You really have to see the deal -- there is no limit on how it could be structured. But I can tell FSU this -- with Private Equity there is no free lunch, and the schools will only make money on the deal if there is a way for PE to run the revenue stream in a much better way than FSU was able to.

I bolded the pertinent parts. I'm not sure that FSU officials realize this and I am very confident that few of their fans realize this but PE firms won't play games. If they throw that kind of money around they are expecting a very good return. As I pointed out earlier, with the current fed funds rate (5.5%) they'll likely be looking at a return of triple that to get involved.

In a half dozen years FSU's whining could well be that in spite of the massive payouts their athletic departments are getting from their new conference, they aren't receiving enough money to stay afloat.

 

[HuskyHawk]

They will have to be projecting a certain annual return on revenues, maybe with a return of capital in 20 years. Who knows. You really have to see the deal -- there is no limit on how it could be structured. But I can tell FSU this -- with Private Equity there is no free lunch, and the schools will only make money on the deal if there is a way for PE to run the revenue stream in a much better way than FSU was able to.

Exactly. The Dodds article suggested that doing this for FSU would be pointless. They have to sell those media rights and so they’d do that for multiple schools that are perceived to be more valuable than the median member of the conference they are in. Essentially a way for those schools to break away from subsidizing the Wake Forests of college sports. A collective would be formed to sell those rights like a conference. It’s ultimately an arbitrage play.

 

[billybud]

FSU's Seminole Boosters are pretty innovativr...they parlayed some donared property into a development called College Town...Apartments, a hotel, shopping and eating establishments, bars, etc.

Partnered with a development company.

Eat, Drink, Shop & Stay | FSU Collegetown

Come eat, drink, and shop at the many retail shops in FSU Collegetown.

fsucollegetown.net

 

[traitor71]

Except the corruption that took place by local officials running those games was about money. Lots of it. What you didn’t have back then was the internet with its twenty four seven in your face exposure that you have today.

The people running the Liberty Bowl, or whatever, making some money didn't take away from the game itself. What we have now is destroying rivalries, leagues, and any sort of competitive balance. It's not even in the same universe as what we have now.

 

[Drew]

 

[upstater]

This reminds me of the great deals Goldman Sachs used to give nations in financial distress. It would swap their debt for immediate payouts, while taking a future cut in the form of a balloon payment. The countries ended up much worse for it, but they were very rich for about a year or two.

 

[Vowelguy]

If I were filthy rich and an ACC fan, I'd be buying up billboards all around Tallahassee highlighting all of their many failures this past year, and titling each one "Still think you're too good for us?"

 

[noeynox]

Talks reportedly stalled when FSU folks asked, "what does recoup your investment mean?"

 

[CL82]

Talks reportedly stalled when FSU folks asked, "what does recoup your investment mean?"

The talks fell apart when FSU said "Well sure we'll sign the contract, but we can get out of it if we later decide we don't like the terms anymore, right?" ... probably.

 

[nelsonmuntz]

Talks reportedly stalled when FSU folks asked, "what does recoup your investment mean?"

I am very disappointed that it didn't happen. It would have been hilarious.

 

[Fishy]

I am very disappointed that it didn't happen. It would have been hilarious.

I am dying for a school or a conference to fall for this.

I am waiting for the day that some U is renting its STEM campus from a middle eastern wealth fund because they had to sell it to pay back their helpful equity partners.

 

[JohnFSilver]

PE money was off the table once it was determined the labor wasn't for free. Lol. That was the entire value prop. Get nfl marketing, viewership, sales, and not have to share any revenue.