The Private Equity College Sports Hellscape Thread

[CL82]

I've been working for PE backed companies for years. And while I agree that there are a lot of issues with PE - there are lots of sponsors that invest and create value. They want their return, of course.

Not looking for an argument here - and agree that its a bad fit for college athletics. They should think of it as borrowing money and having to pay it back at 20%-25% interest. The borrowed money might yield some return, but the required rates of return for a PE fund make the math very difficult for this to work. The PE firms are probably hanging their hat on the endless TV money that will come in - so if they get the proper security they will get their money even if it destroys the individual school / conference.

It's worse than that. It's not like this is a margin loan and they are looking to invest the proceeds earning in excess of the interest on the loan. What the concept appears to be is using private equity investment to support increased operations spending. That's not a bad investment play, that's a death spiral.

 

[huskymedic]

Rich alumni/donors helps avoid having to go down that road

 

[Kolumbo]

College Football is big business so why not.

Everyone gets a Breitling!

Our Portfolio

Everything we do is designed to build better businesses, both for today and for tomorrow

www.cvc.com

"Among CVC's sports portfolio is the Women's Tennis Association, the Gurajat Titans (cricket franchise in the Indian Premier League), LaLiga (Spain-based soccer giant), Ligue de Football Professionel (governing body that runs soccer leagues in France), Premiership Rugby (England's top league) and Six Nations Rugby United Rugby Championship (top league in Ireland, Scotland and Wales). Its U.S. investments include Petco."

Big 12 considering private equity investment of up to $1 billion for as much as 20% of conference

The proposed deal with a Luxembourg-based firm would bring a massive influx of cash to the league

www.cbssports.com

 

[J187Money]

It's worse than that. It's not like this is a margin loan and they are looking to invest the proceeds earning in excess of the interest on the loan. What the concept appears to be is using private equity investment to support increased operations spending. That's not a bad investment play, that's a death spiral.

The hope would be that the PE firms are able to help them generate meaningful additional revenue to justify the investment - but to the extent that they don't you are 100% correct.

 

[The Yakk]

Breakup value. You just don’t see it. But they do.

Lol I think you are joking here.

There is no doubt these ghouls would break up a school and sell it for parts if there were money in it.

But that's not where the value is here. The value is in the revenue streams.

The PE vision would be to keep the tens of millions of AD revenue and the hundreds of millions of tuition revenue flowing as long as possible--pocketing as much as they can--until the public realizes the school has been gutted and we stop sending our kids there.

Ultimately they would still destroy the school, but in a different way.

It is hilarious that some of the FSU fanboys in this forum seem to be actively hoping for a PE deal. Future university presidents, LOL.

 

[huskymedic]

 

[Kolumbo]

PE would invest expecting consistant returns. It's already been estimated that revenues will grow rapidly. Some potential angles which may result in higher revenues for the Big 12 and PE:

• CVC could negotiate better media deals than the Big 12 can because CVC has more experience with media and with growth
• CVC may find more markets for Big 12 football outside the US, much like espn broadcast rugby here in the early days
• CVC has a very large book of extremely wealthy investors
• Investors could get inside access to the teams and players, perhaps making it worth their investment
• Even if the return is modest, it will open the idea up to the B1G and SEC
• Yes, College Football is a business and should be run as one, so perhaps PE would help fix what is broken with the system. Why would he say it's only a short-term solution when PE has clearly helped other businesses

 

[nelsonmuntz]

PE would invest expecting consistant returns. It's already been estimated that revenues will grow rapidly. Some potential angles which may result in higher revenues for the Big 12 and PE:

• CVC could negotiate better media deals than the Big 12 can because CVC has more experience with media and with growth
• CVC may find more markets for Big 12 football outside the US, much like espn broadcast rugby here in the early days
• CVC has a very large book of extremely wealthy investors
• Investors could get inside access to the teams and players, perhaps making it worth their investment
• Even if the return is modest, it will open the idea up to the B1G and SEC
• Yes, College Football is a business and should be run as one, so perhaps PE would help fix what is broken with the system. Why would he say it's only a short-term solution when PE has clearly helped other businesses

None of those things are true.

• CVC will not be able to negotiate better media deals. The market for media is pretty efficient already
• No one outside of the US cares about our college athletics. Like, not at all.
• CVC's investors want one thing: Returns, and putting money into an athletic conference looks like a terrible investment. And by terrible, I mean a catastrophically stupid investment to make that will result in the deal being used to mock CVC for decades to come.
• Investors are already rich and can already get access to the players they want access too.
• See above. Investors want returns.
• PE can't fix a business that barely made money before House, and whose market may be shrinking dramatically if dozens of schools are forced to FCS.

 

[nelsonmuntz]

Lol I think you are joking here.

There is no doubt these ghouls would break up a school and sell it for parts if there were money in it.

But that's not where the value is here. The value is in the revenue streams.

The PE vision would be to keep the tens of millions of AD revenue and the hundreds of millions of tuition revenue flowing as long as possible--pocketing as much as they can--until the public realizes the school has been gutted and we stop sending our kids there.

Ultimately they would still destroy the school, but in a different way.

It is hilarious that some of the FSU fanboys in this forum seem to be actively hoping for a PE deal. Future university presidents, LOL.

Investors do stupid stuff all the time, but why would anyone invest in an enterprise that is dependent on student fees that can be shut off at any time?

 

[ZooCougar]

None of those things are true.

• CVC will not be able to negotiate better media deals. The market for media is pretty efficient already
• No one outside of the US cares about our college athletics. Like, not at all.
• CVC's investors want one thing: Returns, and putting money into an athletic conference looks like a terrible investment. And by terrible, I mean a catastrophically stupid investment to make that will result in the deal being used to mock CVC for decades to come.
• Investors are already rich and can already get access to the players they want access too.
• See above. Investors want returns.
• PE can't fix a business that barely made money before House, and whose market may be shrinking dramatically if dozens of schools are forced to FCS.

Exactly.

Any deal they might make will be heavily favored towards the investors because there is so much risk.

The idea that there is a some sort of untapped revenue stream(s) is a fairy tale.

 

[Kolumbo]

None of those things are true.

• CVC will not be able to negotiate better media deals. The market for media is pretty efficient already
• No one outside of the US cares about our college athletics. Like, not at all.
• CVC's investors want one thing: Returns, and putting money into an athletic conference looks like a terrible investment. And by terrible, I mean a catastrophically stupid investment to make that will result in the deal being used to mock CVC for decades to come.
• Investors are already rich and can already get access to the players they want access too.
• See above. Investors want returns.
• PE can't fix a business that barely made money before House, and whose market may be shrinking dramatically if dozens of schools are forced to FCS.

Those are your opinions but it doesn't mean they are true. My opinions may not be accurate either, but they seem reasonable given what we know.

• If a school like Indiana is going to get close to $100 million annually, and growing, obviously there is a revenue stream there which is neither efficient nor earned. Indiana isn't near worth that much and PE would be more than happy to get a piece of that action and negotiate for the Big 12
• You have no idea whether folks in Asia, Australia, Europe are interested in watching Arizona or Oklahoma State play football in the future. If only there were a significant number of foreign students attending US Universities. We also have colleges playing games overseas so apparently there is already some interest. People also said soccer would never catch on here, yet Americans play and watch soccer in record numbers
• Counter to what we are hearing, you believe there is no growth in the market for college athletics. People will spend. They always do
• I'm sure you've met plenty of rich investors who are content enough to stop seeking new opportunities
• So you agree the business model is broken but you believe there is no reasonable solution even though revenues are in the billions. That's doesn't make sense. PE may be able to leverage better solutions on the cost side to help universities become profitably. Just spit-ballin'

It makes absolute sense that PE wants to at least kick the tires on a business with this much cash flow involved.

 

[ZooCougar]

Those are your opinions but it doesn't mean they are true. My opinions may not be accurate either, but they seem reasonable given what we know.

• If a school like Indiana is going to get close to $100 million annually, and growing, obviously there is a revenue stream there which is neither efficient nor earned. Indiana isn't near worth that much and PE would be more than happy to get a piece of that action and negotiate for the Big 12
• You have no idea whether folks in Asia, Australia, Europe are interested in watching Arizona or Oklahoma State play football in the future. If only there were a significant number of foreign students attending US Universities. We also have colleges playing games overseas so apparently there is already some interest. People also said soccer would never catch on here, yet Americans play and watch soccer in record numbers
• Counter to what we are hearing, you believe there is no growth in the market for college athletics. People will spend. They always do
• I'm sure you've met plenty of rich investors who are content enough to stop seeking new opportunities
• So you agree the business model is broken but you believe there is no reasonable solution even though revenues are in the billions. That's doesn't make sense. PE may be able to leverage better solutions on the cost side to help universities become profitably. Just spit-ballin'

It makes absolute sense that PE wants to at least kick the tires on a business with this much cash flow involved.

The fact that Indiana is getting $100M indicates that someone is willing to overpay to get what they really want: Michigan, Ohio State, USC, Oregon etc.

PE would identify fat like Indiana and weed them out over time.

The fact that Indiana, Rutgers and Maryland are getting this money would be seen as waste.

 

[Kolumbo]

The fact that Indiana is getting $100M indicates that someone is willing to overpay to get what they really want: Michigan, Ohio State, USC, Oregon etc.

PE would identify fat like Indiana and weed them out over time.

The fact that Indiana, Rutgers and Maryland are getting this money would be seen as waste.

It would be seen as waste looking at it from the media side. It is gold from the conference side. Right? PE is interested in investing in the conference side because it knows the media and the general population is willing to overpay.

 

[ZooCougar]

It would be seen as waste looking at it from the media side. It is gold from the conference side. Right? PE is interested in investing in the conference side because it knows the media and the general population is willing to overpay.

You’re smoking crack.

They would never like the idea of giving millions to overvalued assets.

That’s less ROI.

They will take a huge piece of it.

The B1G and the SEC don’t need PE money anyways.

 

[BigTenFan]

You’re smoking crack.

They would never like the idea of giving millions to overvalued assets.

That’s less ROI.

They will take a huge piece of it.

The B1G and the SEC don’t need PE money anyways.

Indiana has loads of wealthy donors on top of the money it receives from conference.
Over 300 million dollars last year and Mark Cuban can always write a check if they fall short.....

 

[ZooCougar]

Indiana has loads of wealthy donors on top of the money it receives from conference.
Over 300 million dollars last year and Mark Cuban can always write a check if they fall short.....

Wealthy donors doesn’t mean they are worth $100M a year

 

[The Yakk]

Investors do stupid stuff all the time, but why would anyone invest in an enterprise that is dependent on student fees that can be shut off at any time?

Not student fees.

Full tuition. All of it.

50,000 students times $10,000 per year is $500 million. That's the lure.

The PE ghouls don't care that the university would like to pay for state-of-the-art facilities, or hire good instructors, or keep class sizes low. They see a half-billion dollars coming in every year simply because the entity is an institution. Why not grab 10% of that for themselves, and let the school figure out how to keep things running on the remaining 90%.

The reason you don't see it is you have a baseline ethical compass. Take that away, and all that is left is a big gusher of money to skim.

 

[The Yakk]

None of those things are true.

• CVC will not be able to negotiate better media deals. The market for media is pretty efficient already
• No one outside of the US cares about our college athletics. Like, not at all.
• CVC's investors want one thing: Returns, and putting money into an athletic conference looks like a terrible investment. And by terrible, I mean a catastrophically stupid investment to make that will result in the deal being used to mock CVC for decades to come.
• Investors are already rich and can already get access to the players they want access too.
• See above. Investors want returns.
• PE can't fix a business that barely made money before House, and whose market may be shrinking dramatically if dozens of schools are forced to FCS.

Absolutely correct. In fact Kolumbo's defense of private equity was so nutty that I thought it must be sarcasm, until I read his next comment.

In all his points, there is an underlying assumption that PE make investments to improve a business for the benefit of everyone.

Yikes.

 

[Kolumbo]

Wealthy donors doesn’t mean they are worth $100M a year

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.

 

[Hamms30]

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.

 

[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...