The Private Equity College Sports Hellscape Thread

[ZooCougar]

What does this mean? Indiana receives a boatload of cash from the B1G Conference and apparently 3 times more than that from donors. Add in tuition which for some reason Thee Yakk estimates at only $10k per year per student. Cash is flowing in from all directions like the Mississipp. A supposed $4.2 BILLION operating budget and a $3.6 BILLION endowment. Not a bad partner if you are an investment guru. Certainly worth more than $100 million per year. Maybe let's leave the heavy lifting to the PE guys.

It doesn’t mean they are worth $100M in media revenue.

Do you really believe Indiana is pulling in $300M a year in donations? And if so why would you donate if PE was taking a cut?

And nobody wants to let these people near their endowments, Holy f——-

Also the B1G doesn’t need PE. The Big 12 is only considering it because it wants to close the gap with the B1G.

 

[The Yakk]

I'd think if PE is really going to get involved, a lot schools will split their athletic departments off as separate legal entities. Especially with so many colleges having state funding. Hopefully, somebody would see the massive red flag of letting PE firms get their hands on boatloads of state funded cash and multi-billion dollar endowments.

LOL sure thing, and then guess what?

The PE firms are not going to be interested in deals with those schools.

Everyone in this discussion who is trying to think this through from the perspective of the schools is making a fatal assumption: that the PE firms are going to deal with them ethically and in good faith. I'm sure the university presidents and trustees are assuming the same thing.

Throw that out the window, and then imagine what kind of deals end up on the table.

 

[Hamms30]

LOL sure thing, and then guess what?

The PE firms are not going to be interested in deals with those schools.

Everyone in this discussion who is trying to think this through from the perspective of the schools is making a fatal assumption: that the PE firms are going to deal with them ethically and in good faith. I'm sure the university presidents and trustees are assuming the same thing.

Throw that out the window, and then imagine what kind of deals end up on the table.

That's the point I'm making though. They can go scratch. If I'm a University president, my responsibility is to the academic institution first. I'm not letting them leverage up the AD with the University's endowments as collateral and then keep inflating the bubble so that when things don't go the way they expect, they sink the University along with the AD.

 

[nelsonmuntz]

LOL sure thing, and then guess what?

The PE firms are not going to be interested in deals with those schools.

Everyone in this discussion who is trying to think this through from the perspective of the schools is making a fatal assumption: that the PE firms are going to deal with them ethically and in good faith. I'm sure the university presidents and trustees are assuming the same thing.

Throw that out the window, and then imagine what kind of deals end up on the table.

I don't think the PE firms will necessarily be unethical, these aren't hedge funds that we are talking about, but no one has presented a remotely valid investment thesis for a PE firm to invest in a school's athletic department or a conference. The arguments for why a PE would invest are ridiculous.

 

[ZooCougar]

LOL sure thing, and then guess what?

The PE firms are not going to be interested in deals with those schools.

Everyone in this discussion who is trying to think this through from the perspective of the schools is making a fatal assumption: that the PE firms are going to deal with them ethically and in good faith. I'm sure the university presidents and trustees are assuming the same thing.

Throw that out the window, and then imagine what kind of deals end up on the table.

It’s like the Indiana example.

If you really have all this money coming in, then what do you need PE for?

You don’t.

But people here are nitwits. I only stated IU as an example of waste. The B1G doesn’t need PE money. But if they did…..

There is no way in hell they would allow Purdue, Indiana, Northwestern and Rutgers to have an equal share.

They are being carried by the conference, they are subsidized opponents for the real earners.

 

[The Yakk]

I don't think the PE firms will necessarily be unethical, these aren't hedge funds that we are talking about, but no one has presented a remotely valid investment thesis for a PE firm to invest in a school's athletic department or a conference. The arguments for why a PE would invest are ridiculous.

I stand by the word "unethical", but you can think of it as "shameless" if you prefer.

You are absolutely correct that no PE firm would be interested in "investing in a school's athletic department or conference".

They will have their eyes on all of a school's revenue streams. The biggest of those being annual tuition receipts.

The idea of investors valuing a school's AD is a sales pitch to get their feet in the door. When the final deal is cut, there is no chance the PE's skim will be limited to football revenues or student fees.

Also, I'm pretty sure you get this. I think you are pretending not to understand what's in it for PE's motivation in order to trigger more polemics. I'll keep going if you like, LOL

 

[nelsonmuntz]

I stand by the word "unethical", but you can think of it as "shameless" if you prefer.

You are absolutely correct that no PE firm would be interested in "investing in a school's athletic department or conference".

They will have their eyes on all of a school's revenue streams. The biggest of those being annual tuition receipts.

The idea of investors valuing a school's AD is a sales pitch to get their feet in the door. When the final deal is cut, there is no chance the PE's skim will be limited to football revenues or student fees.

Also, I'm pretty sure you get this. I think you are pretending not to understand what's in it for PE's motivation in order to trigger more polemics. I'll keep going if you like, LOL

I know the PE industry pretty well. I have personally never seen a deal that was contingent on a government entity (like a school) providing a revenue stream (such as student fees) that the government entity was not legally obligated to provide for some service it needed. PE firms invest in revenues and cash flow, not typically a stream of subsidies. The closest I have ever seen to something like this is investing in a business that is dependent on tax subsidies or some other kind of regulatory arbitrage, but even that is a much firmer investment strategy than being dependent on an athletic department's student fee stream.

 

[Kolumbo]

I know the PE industry pretty well. I have personally never seen a deal that was contingent on a government entity (like a school) providing a revenue stream (such as student fees) that the government entity was not legally obligated to provide for some service it needed. PE firms invest in revenues and cash flow, not typically a stream of subsidies. The closest I have ever seen to something like this is investing in a business that is dependent on tax subsidies or some other kind of regulatory arbitrage, but even that is a much firmer investment strategy than being dependent on an athletic department's student fee stream.

Jon Wilner discusses the enrollment cliff and how universities need to find a way to attract students. I'm not arguing for or against the idea of PE, just why it might make sense.

"The infusion of cash from private equity would offer a chance to remain competitive on the field and, as a result, in the admissions game."

"Every metric used in the admissions game will become more important: Membership in the Association of American Universities, placement in the U.S. News and World Report rankings and, of course, the acceptance rates that drive reputation and prestige."

"Should the presidents sell a stake in the conference?
That probably depends on the terms.
Should they give the matter serious consideration?
Because of a daunting macro environment two decades in the making, they don’t have a choice."

Wilner – Why the Big 12 should consider private equity: Winning football can counteract the enrollment apocalypse

The Big 12 provided a double dose of news last week with revelations the conference could sell its naming rights to a corporate sponsor and an ownership stake to a private equity firm. The twin developments come as no surprise. With his schools facing a massive revenue disparity relative to...

sports360az.com

 

[huskymedic]

 

[CL82]

Good read, after you get through the bios. Concessions the big 12 will have to make include upgrading stadiums to minimum standards and dropping the total number of sports offered below 16, the current NCAA minimum.

Anyone anyone else get the sense that the VC world is currently looking at college athletics like this...

 

[The Yakk]

I know the PE industry pretty well. I have personally never seen a deal that was contingent on a government entity (like a school) providing a revenue stream (such as student fees) that the government entity was not legally obligated to provide for some service it needed. PE firms invest in revenues and cash flow, not typically a stream of subsidies. The closest I have ever seen to something like this is investing in a business that is dependent on tax subsidies or some other kind of regulatory arbitrage, but even that is a much firmer investment strategy than being dependent on an athletic department's student fee stream.

Yeah, and that probably means this whole thing is a pipe dream.

Like you, I don't see anyone looking to make an investment in an athletic department's media rights. Too much uncertainty in a changing media landscape.

If you are correct that the big revenue streams are off limits for outside investors, then this discussion is all just noise and there is never going to be a deal.

But here:

I have personally never seen a deal that was contingent on a government entity (like a school) providing a revenue stream (such as student fees) that the government entity was not legally obligated to provide for some service it needed.

I don't think this is necessarily going to stop an aggressive PE investor. Just because you have not seen it, doesn't mean someone is not going to try it. They may not succeed, but if they ever do I hope it's at FSU.

 

[Kolumbo]

I know the PE industry pretty well. I have personally never seen a deal that was contingent on a government entity (like a school) providing a revenue stream (such as student fees) that the government entity was not legally obligated to provide for some service it needed. PE firms invest in revenues and cash flow, not typically a stream of subsidies. The closest I have ever seen to something like this is investing in a business that is dependent on tax subsidies or some other kind of regulatory arbitrage, but even that is a much firmer investment strategy than being dependent on an athletic department's student fee stream.

I was curious so a quick google search regarding affordable housing which is heavily subsidized by the government. I was surprised. This is not the same thing and I may not understand your statement entirely. The way I see at least the large public universities like UConn, they can find the money if necessary.

Private equity firms now rank among the largest owners of US subsidized affordable housing properties

In the last few years, private equity firms including The Blackstone Group and Starwood Capital have become some of the largest owners of subsidized affordable housing in the United States…

pestakeholder.org

 

[pj]

Jon Wilner discusses the enrollment cliff and how universities need to find a way to attract students. I'm not arguing for or against the idea of PE, just why it might make sense.

"The infusion of cash from private equity would offer a chance to remain competitive on the field and, as a result, in the admissions game."

"Every metric used in the admissions game will become more important: Membership in the Association of American Universities, placement in the U.S. News and World Report rankings and, of course, the acceptance rates that drive reputation and prestige."

"Should the presidents sell a stake in the conference?
That probably depends on the terms.
Should they give the matter serious consideration?
Because of a daunting macro environment two decades in the making, they don’t have a choice."

Wilner – Why the Big 12 should consider private equity: Winning football can counteract the enrollment apocalypse

The Big 12 provided a double dose of news last week with revelations the conference could sell its naming rights to a corporate sponsor and an ownership stake to a private equity firm. The twin developments come as no surprise. With his schools facing a massive revenue disparity relative to...

sports360az.com

This makes no sense. Effectively, you're arguing that the universities should borrow from the future in order to bribe students to attend now so that they don't have to downsize now, when the demographic changes are permanent and they would only be delaying downsizing to a future when they would have less revenue, more debt, and less control because of constraints given to the PE investors.

It is mortgaging the future to avoid being rational in the present.

 

[Kolumbo]

This makes no sense. Effectively, you're arguing that the universities should borrow from the future in order to bribe students to attend now so that they don't have to downsize now, when the demographic changes are permanent and they would only be delaying downsizing to a future when they would have less revenue, more debt, and less control because of constraints given to the PE investors.

It is mortgaging the future to avoid being rational in the present.

Jon Wilner wrote the article, not me.

What do you mean, it makes no sense? That is the American way. Borrow now and repay it later. Every single one of us has debt. And to clarify, they would not be borrowing. They would be selling equity shares. There is a big difference.

No one says the demographic changes are permanent. They could swing the other way 10 years from now. If the drop off in enrollments are long term, which they most likely are not, these particular universities who take action now may survive the cut while others may not. It makes perfect sense from that standpoint.

 

[nelsonmuntz]

I was curious so a quick google search regarding affordable housing which is heavily subsidized by the government. I was surprised. This is not the same thing and I may not understand your statement entirely. The way I see at least the large public universities like UConn, they can find the money if necessary.

Private equity firms now rank among the largest owners of US subsidized affordable housing properties

In the last few years, private equity firms including The Blackstone Group and Starwood Capital have become some of the largest owners of subsidized affordable housing in the United States…

pestakeholder.org

That is completely different. The U.S. government has programs to help people pay rent and have housing. If the government does not do that, some people will not have housing. Someone has to own those housing units, so PE firms stepped up because they knew there was demand for the rental properties. It is actually in the government's interest for investment capital to come into affordable housing, so the relationship makes sense.

Student fees do not have to be paid to athletics at all. The schools choose to do it because it helps with marketing and alumni and students like it. Why would the school, instead of paying money into its football team, pay student fees to a private equity firm? Why would the school do that? The transaction you are proposing the PE firms do is pay the schools for a piece of their athletic department, then have the schools pay back the PE firms every year with student fees because....reasons? And who does the PE firm sell their piece of the athletic program too when they want to get out, as they are contractually obligated to do at the end of their fund's life?

 

[nelsonmuntz]

Yeah, and that probably means this whole thing is a pipe dream.

Like you, I don't see anyone looking to make an investment in an athletic department's media rights. Too much uncertainty in a changing media landscape.

If you are correct that the big revenue streams are off limits for outside investors, then this discussion is all just noise and there is never going to be a deal.

But here:


I don't think this is necessarily going to stop an aggressive PE investor. Just because you have not seen it, doesn't mean someone is not going to try it. They may not succeed, but if they ever do I hope it's at FSU.

I could maybe see a PE firm losing its mind and investing into a conference for a piece of the media contract. That would be completely idiotic, but there is some minute chance it happens. I can not figure out why a PE firm would ever invest in a school's athletic department.

I have to think about a loan a little more. Maybe a PE firm makes a loan to an athletic department that could be secured by cash flows from a media deal. The PE firm is not looking for an equity return in that case, so it doesn't need to sell or worry about actually owning a piece of a non-profit university.

 

[Kolumbo]

That is completely different. The U.S. government has programs to help people pay rent and have housing. If the government does not do that, some people will not have housing. Someone has to own those housing units, so PE firms stepped up because they knew there was demand for the rental properties. It is actually in the government's interest for investment capital to come into affordable housing, so the relationship makes sense.

Student fees do not have to be paid to athletics at all. The schools choose to do it because it helps with marketing and alumni and students like it. Why would the school, instead of paying money into its football team, pay student fees to a private equity firm? Why would the school do that? The transaction you are proposing the PE firms do is pay the schools for a piece of their athletic department, then have the schools pay back the PE firms every year with student fees because....reasons? And who does the PE firm sell their piece of the athletic program too when they want to get out, as they are contractually obligated to do at the end of their fund's life?

I assumed the conference would be paying the PE Firm the PE Firm's share of conference revenues which come from the media contracts. As media revenues go up, distributions to universities and the PE Firm goes up. At the end of the fund's life, the PF Firm would have received its original investment plus. That is the risk the PE Firm is taking. At least that is how I figured it works.

 

[Kolumbo]

That is completely different. The U.S. government has programs to help people pay rent and have housing. If the government does not do that, some people will not have housing. Someone has to own those housing units, so PE firms stepped up because they knew there was demand for the rental properties. It is actually in the government's interest for investment capital to come into affordable housing, so the relationship makes sense.

Student fees do not have to be paid to athletics at all. The schools choose to do it because it helps with marketing and alumni and students like it. Why would the school, instead of paying money into its football team, pay student fees to a private equity firm? Why would the school do that? The transaction you are proposing the PE firms do is pay the schools for a piece of their athletic department, then have the schools pay back the PE firms every year with student fees because....reasons? And who does the PE firm sell their piece of the athletic program too when they want to get out, as they are contractually obligated to do at the end of their fund's life?

Regarding public housing. I know the basic idea is that tenants should pay what they can afford for rent and the government subsidizes the rest. And the rents should be enough to cover the cost of operating the properties. I don't know what kind of profits PE gets from public housing but I would think not great returns. Unless they are bilking the government. Since PE is so heavily involved with public housing, I would think PE would be very interested in college sports, a much more profitable business.

 

[nelsonmuntz]

Regarding public housing. I know the basic idea is that tenants should pay what they can afford for rent and the government subsidizes the rest. And the rents should be enough to cover the cost of operating the properties. I don't know what kind of profits PE gets from public housing but I would think not great returns. Unless they are bilking the government. Since PE is so heavily involved with public housing, I would think PE would be very interested in college sports, a much more profitable business.

Is college sports more profitable, or does it just generate revenue? Every football program in the country is seeing its labor costs skyrocket.

 

[nelsonmuntz]

Is every college football program as profitable as Ohio State?

Title IX is already figured out. Do you know what the payroll costs are going to be for every football program? Neither does anyone else, but we all know those costs will be huge.