The Private Equity College Sports Hellscape Thread

[uconndogs]

The reason PE investors are interested is for a chance at a piece of every single dime of revenue that passes through the school.

It is not obvious to you because your thinking is constrained by a basic ethical sense that is completely lacking among the PE crowd.

The PE investor looks at one these big P4 state schools--or maybe a conference full of these schools--and sees 25,000 undergrads times $20,000 average annual tuition = $500,000,000 coming in every year. Hopefully in perpetuity, since these schools are institutions. That's before even counting the athletic department revenue.

Why not grab 5% or 10% of that and let the schools worry about how to keep running on what's left? Mundane stuff like attracting and paying top faculty; maintaining state-of-the-art facilities; keeping class sizes small--none of that is any concern to the PE investor.

The reason there is PE interest in these conferences is definitely not because of the great economic potential of their football programs. It's because these particular schools are the ones most likely willing to be swindled into putting their entire revenue streams in play. So yes, the deals will be sold/presented as investments in a school's athletic program. But if a school has a few years of poor performance, or declining ticket sales, or a reduction on their media payments, does anyone really believe that the investor will not have access to the school's tuition stream as compensation?

This might end up being one of the safest/most lucrative investment opportunities ever, at least until the public realizes that the school has been gutted and we stop sending our kids there. The PE crowd is betting that will take a very long time, and that's probably a good bet.

Honestly, I don't even know how to respond........

 

[Hamms30]

Which I have to believe will call into question non-profit status for tax purposes. You may be right, but the whole thing just feels so bizarre to me....

Agreed. I think they'd have to set up some sort of a for-profit entity as a subsidiary to the non-profit conference. Operations go through the for-profit entity like a normal enterprise and then the PE firm takes it's cut of the profits per the agreement and then the rest goes up the chain to the non-profit conference office like a dividend and then is distributed out to the schools as normal.

 

[huskymedic]

@ACC Media Day:

 

[Patman]

Honestly, I don't even know how to respond........

He revealed his ignorance. Let him be happy in it

 

[JohnFSilver]

He revealed his ignorance. Let him be happy in it

PE is a terrible Idea for college football. Wull
It make money for the investors? Maybe or maybe not. Will it make money for players and schools? Probably.

Will it be a better product for fans, alumni? Ability not.

People think the money helps the product here. I don’t really understand why they have to monetize every single aspect. It is disgusting .

And fans for it are such enablers. Who gives a crap about anything else than winning and your experience?

 

[The Yakk]

Honestly, I don't even know how to respond........

Lol, I'm not surprised.

Like many "finance guys", you probably believe with all your heart that you work in an ethical industry. The idea that there are investors whose sole mission is to plunder is outside of your comprehension.

I work in finance, too. Probably a lot longer than you have. Nothing surprises me.

 

[The Yakk]

He revealed his ignorance. Let him be happy in it

I am very far from happy.

Are you another "finance guy", Pacman? Another clear thinker who knows everything about finance but is somehow not able to see why investors would be interested in these deals, and when you are told it is because they see an opportunity to steal you decide the messenger must be ignorant?

Good for you. McKinsey is hiring, you should go get a job where you will fit right in.

 

[UConnJim]

PE is a terrible Idea for college football. Wull
It make money for the investors? Maybe or maybe not. Will it make money for players and schools? Probably.

Will it be a better product for fans, alumni? Ability not.

People think the money helps the product here. I don’t really understand why they have to monetize every single aspect. It is disgusting .

And fans for it are such enablers. Who gives a crap about anything else than winning and your experience?

I am a finance guy and I've been trying to figure out how PE can work in college athletics and I have come up with some potential ideas.

For example, could you invest $10 million in a football program and create $15 million in value? For UConn, say you invested $2.5 million per year over 4 years in football NIL, would UConn get a return through higher ticket sales, improved media deal, and perhaps an offer from a P4 conference? If you look at the schools that have been invited up to P4 conferences, they invested in football, primarily through donation or cutting investment in other sports and it created significant value. It's always puzzled me why UConn didn't invest in football back in 2011/2012. Think about this: PP made about as much as Mora as head coach 10 years later. There is no P4 college football program that is paying their head coach about the same amount as they did 10 years ago.

If the Big 12 got a $100 million PE investment and the Big 12 used it to to grab FSU and Clemson from the ACC, would the Big 12 get a return through higher ticket sales, more college playoff revenues, and perhaps a better media deal? If spending $100 million resulted in a new media deal that paid each school $5 million per year more, $90 million per year, you make that investment as that is an incredible return. You could pay back the PE $100 million plus say 15% per year.

If PE gets involved in college athletics, I would think the Big 12 is where it will happen as they want to be perceived as the 3rd best conference and they seem to be risk takers and they can get there if they invest.

 

[The Yakk]

I am a finance guy and I've been trying to figure out how PE can work in college athletics and I have come up with some potential ideas.

For example, could you invest $10 million in a football program and create $15 million in value? For UConn, say you invested $2.5 million per year over 4 years in football NIL, would UConn get a return through higher ticket sales, improved media deal, and perhaps an offer from a P4 conference? If you look at the schools that have been invited up to P4 conferences, they invested in football, primarily through donation or cutting investment in other sports and it created significant value. It's always puzzled me why UConn didn't invest in football back in 2011/2012. Think about this: PP made about as much as Mora as head coach 10 years later. There is no P4 college football program that is paying their head coach about the same amount as they did 10 years ago.

If the Big 12 got a $100 million PE investment and the Big 12 used it to to grab FSU and Clemson from the ACC, would the Big 12 get a return through higher ticket sales, more college playoff revenues, and perhaps a better media deal? If spending $100 million resulted in a new media deal that paid each school $5 million per year more, $90 million per year, you make that investment as that is an incredible return. You could pay back the PE $100 million plus say 15% per year.

If PE gets involved in college athletics, I would think the Big 12 is where it will happen as they want to be perceived as the 3rd best conference and they seem to be risk takers and they can get there if they invest.

Kudos for trying to make the actual numbers work, but I doubt any investor would be interested in your scenarios. Too much uncertainty and not a high enough return. Most of the "finance guys" in this discussion at least seem to agree with that.

The investors sniffing around this space are thinking a lot bigger. They are not interested in investing in the athletic departments or the conferences; they want to own the schools themselves. People are never going to stop spending money to send their kids to Big Midwestern University, or so they believe.

The reason your fellow finance guys refuse to see it is because they are hung up on what they learned in b-school. Like, "the schools are non-profit and how can someone make a profitable equity investment in a non-profit?" But I guarantee, none of that stuff is going to stop the investors.

Personally, I doubt there will ever be an actual deal that gets done. I think the various school presidents and trustees will be smart enough to avoid being plundered, and without the plunder I don't see the investor interest. But who knows?

 

[JohnFSilver]

I am a finance guy and I've been trying to figure out how PE can work in college athletics and I have come up with some potential ideas.

For example, could you invest $10 million in a football program and create $15 million in value? For UConn, say you invested $2.5 million per year over 4 years in football NIL, would UConn get a return through higher ticket sales, improved media deal, and perhaps an offer from a P4 conference? If you look at the schools that have been invited up to P4 conferences, they invested in football, primarily through donation or cutting investment in other sports and it created significant value. It's always puzzled me why UConn didn't invest in football back in 2011/2012. Think about this: PP made about as much as Mora as head coach 10 years later. There is no P4 college football program that is paying their head coach about the same amount as they did 10 years ago.

If the Big 12 got a $100 million PE investment and the Big 12 used it to to grab FSU and Clemson from the ACC, would the Big 12 get a return through higher ticket sales, more college playoff revenues, and perhaps a better media deal? If spending $100 million resulted in a new media deal that paid each school $5 million per year more, $90 million per year, you make that investment as that is an incredible return. You could pay back the PE $100 million plus say 15% per year.

If PE gets involved in college athletics, I would think the Big 12 is where it will happen as they want to be perceived as the 3rd best conference and they seem to be risk takers and they can get there if they invest.

Having worked in financials and investor relations, and talked to so many buy side and sell side hedge fund types since I left sports journalism…

Unlocking value? To what end is it required for the school to unlock its value?
What does unlocking value have to due with the quality of the product?

When PE says unlocking value, I hear that they want liquidate the intrinsic value of the enterprise. They want to liquidate and take for earnings what other people built. It is stealing 200 plays year if sweat equity.

As an example, newspapers and what the hedge funds do this is an extreme).

Their idea of unlocking value of legacy newspapers is liquidating the brand reputation of 200 years to raise prices and provide less content while maintaining reputation.

Imagine how long it would take Coach or Louis Vutton to start compromising quality before the brand = commoditized quality?

There is a time when you can go super cheap with low quality, and the brand will still deliver sales at premium prices.

Eventually, quality catches up and you destroyed the brand equity.

For 100 years college football has built this brand equity. Who is a PE firm to unlock and extract it?

 

[The Yakk]

Having worked in financials and investor relations, and talked to so many buy side and sell side hedge fund types since I left sports journalism…

Unlocking value? To what end is it required for the school to unlock its value?
What does unlocking value have to due with the quality of the product?

When PE says unlocking value, I hear that they want liquidate the intrinsic value of the enterprise. They want to liquidate and take for earnings what other people built. It is stealing 200 plays year if sweat equity.

As an example, newspapers and what the hedge funds do this is an extreme).

Their idea of unlocking value of legacy newspapers is liquidating the brand reputation of 200 years to raise prices and provide less content while maintaining reputation.

Imagine how long it would take Coach or Louis Vutton to start compromising quality before the brand = commoditized quality?

There is a time when you can go super cheap with low quality, and the brand will still deliver sales at premium prices.

Eventually, quality catches up and you destroyed the brand equity.

For 100 college football has built this brand equity. Who is a PE firm to unlock and extract it?

Very well said. Here come the "finance guys" to tell you that you are ignorant in 3...2...1...

 

[uconndogs]

Lol, I'm not surprised.

Like many "finance guys", you probably believe with all your heart that you work in an ethical industry. The idea that there are investors whose sole mission is to plunder is outside of your comprehension.

I work in finance, too. Probably a lot longer than you have. Nothing surprises me.

Making assumptions and then expounding upon them as fact is a great way to show one’s ignorance. You have no idea who I am.

 

[Patman]

I am very far from happy.

Are you another "finance guy", Pacman? Another clear thinker who knows everything about finance but is somehow not able to see why investors would be interested in these deals, and when you are told it is because they see an opportunity to steal you decide the messenger must be ignorant?

Good for you. McKinsey is hiring, you should go get a job where you will fit right in.

Please stop devaluing my degree. If I were 27 again I'm sure private equity would hire somebody like me. They like PhD quants.

This isn't about morals and I doubt his lack of vision is tied into a morality. But please, keep devaluing a UConn degree.

 

[UConnJim]

Having worked in financials and investor relations, and talked to so many buy side and sell side hedge fund types since I left sports journalism…

Unlocking value? To what end is it required for the school to unlock its value?
What does unlocking value have to due with the quality of the product?

When PE says unlocking value, I hear that they want liquidate the intrinsic value of the enterprise. They want to liquidate and take for earnings what other people built. It is stealing 200 plays year if sweat equity.

As an example, newspapers and what the hedge funds do this is an extreme).

Their idea of unlocking value of legacy newspapers is liquidating the brand reputation of 200 years to raise prices and provide less content while maintaining reputation.

Imagine how long it would take Coach or Louis Vutton to start compromising quality before the brand = commoditized quality?

There is a time when you can go super cheap with low quality, and the brand will still deliver sales at premium prices.

Eventually, quality catches up and you destroyed the brand equity.

For 100 years college football has built this brand equity. Who is a PE firm to unlock and extract it?

There is growth equity investing and not all PE shops are focused on cutting costs... Believe it or not, investing in college sports would be relatively low risk if the colleges (or conference) are providing a financial guarantee. Using my $100 million Big 12 example, the risk per current school is $6.25 million plus the return, say 15% and remember the PE firm can lever the investment and make say a 30% return relatively risk free.

Right now, the Big 12 can't offer Clemson and FSU a bigger media deal than the ACC, but what if the Big 12 could offer them each an additional $15 million per year from PE over 4 years until the Big 12 negotiates the next media deal and the next CFP conference payout which presumably will be higher revenues?

 

[Kolumbo]

Kudos for trying to make the actual numbers work, but I doubt any investor would be interested in your scenarios. Too much uncertainty and not a high enough return. Most of the "finance guys" in this discussion at least seem to agree with that.

The investors sniffing around this space are thinking a lot bigger. They are not interested in investing in the athletic departments or the conferences; they want to own the schools themselves. People are never going to stop spending money to send their kids to Big Midwestern University, or so they believe.

The reason your fellow finance guys refuse to see it is because they are hung up on what they learned in b-school. Like, "the schools are non-profit and how can someone make a profitable equity investment in a non-profit?" But I guarantee, none of that stuff is going to stop the investors.

Personally, I doubt there will ever be an actual deal that gets done. I think the various school presidents and trustees will be smart enough to avoid being plundered, and without the plunder I don't see the investor interest. But who knows?

First, I am reading that it is all about athletics revenue and investing in the Big 12 Conference. I don't see anything about investing in the actual schools. If it is about having equity in the schools, that would seem to be very complicated.

Second, I could see a large influx of capital helping the Big 12 distance itself from the ACC. By making the right additions, the Big 12 would be much closer to the P2 and the ACC would be the best of the G6 - pending the outcome of the ACC membership changes of course. In that scenario, Big 12 revenue would certainly grow quickly while the ACC's would drop off. I don't think it will happen, but that is the scenario we're laying out.

Third, perhaps the media deal would be structured to pay the conference say 90% of the total payout and pay 10% directly to the PE Fund. In this way the conference members would still be getting more money given the revenue growth and the PE Fund would get its revenue stream. The percentage and time period would impact the ROI. Even if the Big 12 members don't get significantly more than they get now, they are getting stability and solidifying their positions in the "P3"

So I see how it could work given the right circumstances.

 

[UConnJim]

Having worked in financials and investor relations, and talked to so many buy side and sell side hedge fund types since I left sports journalism…

Unlocking value? To what end is it required for the school to unlock its value?
What does unlocking value have to due with the quality of the product?

When PE says unlocking value, I hear that they want liquidate the intrinsic value of the enterprise. They want to liquidate and take for earnings what other people built. It is stealing 200 plays year if sweat equity.

I didn't address your point about unlocking value. I have been preaching for over 5 years that UConn football has the most potential financial upside of any sport at UConn and it is the path to getting a conference bid. So, why hasn't UConn invested in football? It seems UConn's strategy has been we will invest in football when we get a P4 invite and have higher revenues. Wrong answer. You have to invest to grow!! This is the biggest lesson anyone in finance could have taught UConn. The competitors for P4 bids, Louisville, Cincinnati, UCF, Houston, SMU all invested in football and their investment paid off.

Newspapers are a bad comparison to UConn football as newspapers are a shrinking asset and UConn football has potential to be a growing asset. Unlike newspapers, UConn football has the potential to increase revenues per year by 3x to 5x+. That is unlocking value.

 

[JohnFSilver]

There is growth equity investing and not all PE shops are focused on cutting costs... Believe it or not, investing in college sports would be relatively low risk if the colleges (or conference) are providing a financial guarantee. Using my $100 million Big 12 example, the risk per current school is $6.25 million plus the return, say 15% and remember the PE firm can lever the investment and make say a 30% return relatively risk free.

Right now, the Big 12 can't offer Clemson and FSU a bigger media deal than the ACC, but what if the Big 12 could offer them each an additional $15 million per year from PE over 4 years until the Big 12 negotiates the next media deal and the next CFP conference payout which presumably will be higher revenues?

What’s the upside for PE? More money, taxes are an issue if PE is in there.

this would be a way to spin off football and make it a 40-50 team league, which is much more manageable than 130.

 

[JohnFSilver]

I didn't address your point about unlocking value. I have been preaching for over 5 years that UConn football has the most potential financial upside of any sport at UConn and it is the path to getting a conference bid. So, why hasn't UConn invested in football? It seems UConn's strategy has been we will invest in football when we get a P4 invite and have higher revenues. Wrong answer. You have to invest to grow!! This is the biggest lesson anyone in finance could have taught UConn. The competitors for P4 bids, Louisville, Cincinnati, UCF, Houston, SMU all invested in football and their investment paid off.

Newspapers are a bad comparison to UConn football as newspapers are a shrinking asset and UConn football has potential to be a growing asset. Unlike newspapers, UConn football has the potential to increase revenues per year by 3x to 5x+. That is unlocking

That isn’t true. UConn football is not a business.

I agree that UConn’s media rights are under valued. By who benefits from unlocking the value?

How does UConn, and UConn fo

I didn't address your point about unlocking value. I have been preaching for over 5 years that UConn football has the most potential financial upside of any sport at UConn and it is the path to getting a conference bid. So, why hasn't UConn invested in football? It seems UConn's strategy has been we will invest in football when we get a P4 invite and have higher revenues. Wrong answer. You have to invest to grow!! This is the biggest lesson anyone in finance could have taught UConn. The competitors for P4 bids, Louisville, Cincinnati, UCF, Houston, SMU all invested in football and their investment paid off.

Newspapers are a bad comparison to UConn football as newspapers are a shrinking asset and UConn football has potential to be a growing asset. Unlike newspapers, UConn football has the potential to increase revenues per year by 3x to 5x+. That is unlocking value.

What is UConn footballs value? It generates negative cash flow from operations. It isn’t going leverage the Sherman center

Its value is in its brand and its fanbase.

UConn and PE would be a brand play. Game day and performance is a loss leader. To what extent does football enhance the university brand.

That is the only way they will generate cash u til they sell more.

 

[huskymedic]

Washington Post version: This basketball coach wants to sell his program for $100 million. Seriously.

Assisted access <<

-> Or at least Kenny Blakeney, the Bison’s head coach, is saying as much to potential investors. As part of a wide-ranging proposal that has not been previously reported, he is seeking $100 million for a 33 percent stake in his program. In an era of change, in an effort to be on the right side of extreme stratification, he’s going for it.


“College athletics is full-fledged business now,” Blakeney said in a July interview. “The whole idea is to not get left behind. It’s, ‘How do we include ourselves in this?’ <-

->He met with a private equity firm in June. In mid-July, he flew to Las Vegas for a charity golf outing and talked with private equity investors — plus some other rich folks — on the course. His business plan is long and layered. The main thrust, though, is that Blakeney needs that initial $100 million to upgrade Howard’s arena and roster. From there, he would want Howard to go independent, allowing it to find its own television deal (think Notre Dame) or join a bigger conference as an affiliate school (think the Big East, which Blakeney mentions throughout his written proposal).


Should the idea progress, the 52-year-old coach would pitch a three-way revenue split: a third to the owner(s), a third to Howard and a third to his program, which he says he believes could then use the interest to cover annual operating costs and no longer take money from the school. <-

-> When he projects future revenue to investors, Blakeney hammers the untapped revenue streams at Howard. The school has not sold naming rights for its arena or practice facility. If it did, a company could have massive signs facing busy Georgia Avenue in Washington. The school does not lease out the arena for concerts or other community events. The team doesn’t have sponsorship patches on its jerseys. Its locker room is not endowed. Blakeney’s position is not endowed.<-

 

[huskymedic]

 

[CL82]

Misleading headline. Here's a quote from the article.:

UNC athletic director Bubba Cunningham, however, says he isn’t interested in this form of financing—at least not now. He recently told Sportico that despite conversations with a half-dozen firms dating back to last fall, the school will not be taking money from (or selling equity to) any institutional groups in the foreseeable future.

Cunningham goes on to say that he has cheaper access to capital. Although he doesn't specify, one would imagine that he's referring to state bonding which is likely to be far less expensive, and far less demanding, than private capital.

The author of this article continually speculates about the imminent need for private capital for North Carolina, but none of the actual quotes support that.

 

[Patman]

yeah, just because a thing exists doesn't mean it is a good idea or necessary.

 

[JohnFSilver]

Misleading headline. Here's a quote from the article.:

UNC athletic director Bubba Cunningham, however, says he isn’t interested in this form of financing—at least not now. He recently told Sportico that despite conversations with a half-dozen firms dating back to last fall, the school will not be taking money from (or selling equity to) any institutional groups in the foreseeable future.

Cunningham goes on to say that he has cheaper access to capital. Although he doesn't specify, one would imagine that he's referring to state bonding which is likely to be far less expensive, and far less demanding, than private capital.

The author of this article continually speculates about the imminent need for private capital for North Carolina, but none of the actual quotes support that.

PE makes no sense for conferences.

 

[huskymedic]

Baby steps…

 

[WestCoastHusky]

Baby steps…

UCONN should be exploring the same thing if we are on top of things.