The Private Equity College Sports Hellscape Thread

[FfldCntyFan]

This. It is certainly possible to structure a mutually beneficial deal with private equity. I don't know that I expect university presidents to be able to fairly evaluate the risks and returns. Presumably the other professionals involved will inform them of the risks and advantages and they will fairly evaluate them.

My concern is the return the PE firm wants and the structure of cash distributions on an ongoing basis.

Carried interest can turn into a nightmare for the borrower, and often in the agreements, the language allows the lender to delay receipt of payments (framed as a good thing for the borrower) in order to increase returns.

 

[CTFAN4LIFE]

How do you know?

Because they were the potential partners previously reported about.

 

[Fishy]

It’s not private equity.

It’s just a line of credit at a rate that is more expensive than any school wanting $30M could get on their own.

The $12.5M “infusion” into the conference office is just bizarre. The whole thing screams that it’s just a deal to be able to announce a deal. It’s the LCD glass floor of capital deals.

 

[ZooCougar]

Because they were the potential partners previously reported about.

They seem very light weight. Again, I am wondering what good it will do to anyone. If nobody wants the $30M per school then how does that influence anyone to vote for UConn.

 

[Hamms30]

They seem very light weight. Again, I am wondering what good it will do to anyone. If nobody wants the $30M per school then how does that influence anyone to vote for UConn.

think they're affiliated with CBS and BigXII has a new media contract coming up.

 

[nelsonmuntz]

PE rarely makes things better. They do not improve your sandwiches at Panera and they will not improve the quality of the Big 12.

They are there to make money. The teams are the expense. This is a tread carefully moment IMHO.

The first statement is not true. PE can do a lot of good for companies, employees and owners. They provide customers with comfort that someone with money is standing behind a company, enabling small companies to sell to large companies. They help even when they are not actually invested. Business owners are willing to invest in their own companies because they know there is a potential buyer down the road when they are ready to sell. PE firms often buy companies that are struggling and help them to get back on their feet, saving jobs and helping customers. PE firms provide much, much, much more equity to employees than family owned businesses.

None of that is relevant to a college athletic conference. This Big 12 deal makes no sense at all.

 

[king conn]

They seem very light weight. Again, I am wondering what good it will do to anyone. If nobody wants the $30M per school then how does that influence anyone to vote for UConn.

If it is, they did the deal without UConn so any leverage we might have had is gone

 

[Chuck]

If it is, they did the deal without UConn so any leverage we might have had is gone

Not exactly. I don't really think this is a true private equity deal, but if it was, RedBird would have a seat at the table of the company they were investing in. RedBird's incentive would be to improve its investment and if they thought adding a business line or asset (UConn) was in the company's best interest (which is RedBird's best interest) then they'd push for it.

 

[king conn]

Not exactly. I don't really think this is a true private equity deal, but if it was, RedBird would have a seat at the table of the company they were investing in. RedBird's incentive would be to improve its investment and if they thought adding a business line or asset (UConn) was in the company's best interest (which is RedBird's best interest) then they'd push for it.

And be denied the same way they denied their commissioner.

If RedBird said, we have a deal if you add UConn, that is the lost leverage I am talking about.

I do hope we have an understanding that they just do not want to announce at this time until more things are in place on both sides. With the fiasco that happened last time I could buy that. But probably not...

 

[huskymedic]

Matt Brown @ Extra Points thoughts:

So what's the Big 12 gonna do with this new money?

Here's what the Big 12 Private Capital deal means and doesn't mean. Also, is Vegas the best spot for the expanded First Four games? And a Glassdoor for sports...

www.extrapointsmb.com

 

[Kolumbo]

I had a premonition

Each Big 12 member will use the PE infusion to install a proprietary system in their stadiums unique to the Big 12. The system will include the best state of the art video boards, wifi and phone app. It will all be interconnected when you are inside the stadium, for a FEE. When you pay the gameday fee, one feature will allow the fan to view instant replay of each play on his phone immediately after the play. You can upload tailgate or section photos which may be selected to be displayed on the scoreboard during the game. You will be entered into drawings to win cash or prizes. You can order food and beverages from your phone to be delivered to your seat by uber vendors. This is a unique feature to the Big 12 and a new revenue stream geared at the younger generation who are glued to their phones.

 

[JVN]

Matt Brown @ Extra Points thoughts:

So what's the Big 12 gonna do with this new money?

Here's what the Big 12 Private Capital deal means and doesn't mean. Also, is Vegas the best spot for the expanded First Four games? And a Glassdoor for sports...

www.extrapointsmb.com

I thought this paragraph was important:

"It’s easy to get private capital and private equity confused, but they’re not exactly the same thing, and the differences are pretty important in this specific example. The Big 12, and Big 12 member institutions, aren’t actually giving up any equity, ownership or direct control to RedBird or any other institutional investor. Think of this as a relationship much closer to a loan than say, selling an ownership stake."

 

[nelsonmuntz]

Matt Brown @ Extra Points thoughts:

So what's the Big 12 gonna do with this new money?

Here's what the Big 12 Private Capital deal means and doesn't mean. Also, is Vegas the best spot for the expanded First Four games? And a Glassdoor for sports...

www.extrapointsmb.com

The hurdle rate on private debt is high teens to 20%. That is the minimum return expected by the investors of the private capital firm.

It is important to remember that in private equity, everyone has a boss.

 

[nelsonmuntz]

I had a premonition

Each Big 12 member will use the PE infusion to install a proprietary system in their stadiums unique to the Big 12. The system will include the best state of the art video boards, wifi and phone app. It will all be interconnected when you are inside the stadium, for a FEE. When you pay the gameday fee, one feature will allow the fan to view instant replay of each play on his phone immediately after the play. You can upload tailgate or section photos which may be selected to be displayed on the scoreboard during the game. You will be entered into drawings to win cash or prizes. You can order food and beverages from your phone to be delivered to your seat by uber vendors. This is a unique feature to the Big 12 and a new revenue stream geared at the younger generation who are glued to their phones.

You just listed a bunch of expenses. Attendance is soft as is, and simply raising prices will chase customers away.

 

[Fishy]

They seem very light weight. Again, I am wondering what good it will do to anyone. If nobody wants the $30M per school then how does that influence anyone to vote for UConn.

I have no idea how we manage to find UConn angles in things that clearly have absolutely no bearing on us.

 

[Fishy]

And be denied the same way they denied their commissioner.

If RedBird said, we have a deal if you add UConn, that is the lost leverage I am talking about.

I do hope we have an understanding that they just do not want to announce at this time until more things are in place on both sides. With the fiasco that happened last time I could buy that. But probably not...

How does this happen inside a brain?

The first statement is not true. PE can do a lot of good for companies, employees and owners. They provide customers with comfort that someone with money is standing behind a company, enabling small companies to sell to large companies. They help even when they are not actually invested. Business owners are willing to invest in their own companies because they know there is a potential buyer down the road when they are ready to sell. PE firms often buy companies that are struggling and help them to get back on their feet, saving jobs and helping customers. PE firms provide much, much, much more equity to employees than family owned businesses.

None of that is relevant to a college athletic conference. This Big 12 deal makes no sense at all.

People generally misunderstand what PE is. Can it help a struggling company? Without a doubt. Who would have bet on Barnes and Noble’s survival not that many years ago. Dell? Safeway? Can it sink a company? Also, without a doubt.

But it’s really hard to see any kind of role for it in college sports. Costs are spiraling, revenue will never, ever keep it and if it did, it would just simply send costs even higher. We have created a business that will forever lose money and now we’re going to sell a portion of that to an investor who will expect 18-22% return on their money?

The scenario that comes to mind is the unfunded pension obligations faced by some states and cities. While I am here in charge, I am going to push off this year’s pension obligation and let that bomb explode on the next guy. Absolutely what would happen if a school sold equity today. Someone down the road would have to eliminate the paleontology department to pay Dingledorf Capital’s yearly piece.

 

[CL82]

I had a premonition

Hmmm, that may have been a stroke.

 

[ZooCougar]

I have no idea how we manage to find UConn angles in things that clearly have absolutely no bearing on us.

For the same reason that people here actually believed we were sitting on a Big 10 bid.

Once upon a time Flug said that some PE firm may like UConn. This may or may not be the firm that the voices in Flug’s head were whispering to him.

 

[Kolumbo]

You just listed a bunch of expenses. Attendance is soft as is, and simply raising prices will chase customers away.

That's where the cash infusion comes in. People will pay for anything, and they pay a lot.

 

[ZooCougar]

If RedBird said, we have a deal if you add UConn, that is the lost leverage I am talking about.

Of all the things that were never said.

This may have never been said the most.

 

[nelsonmuntz]

That's where the cash infusion comes in. People will pay for anything, and they pay a lot.

No they won’t. There is absolutely elasticity of demand in entertainment, including sports. If prices go up, demand will go down. If that wasn’t true, why wouldn’t the schools just charge more now?

 

[Fishy]

That's where the cash infusion comes in. People will pay for anything, and they pay a lot.

You do know that the scenario that you made up is still just made up? You need not defend it as it doesn't actually exist.

 

[Fishy]

 

[Kolumbo]

You do know that the scenario that you made up is still just made up? You need not defend it as it doesn't actually exist.

Of course it's made up. I made it up. I'm not saying it's the best use of funds. it was a hypothetical, but they will use the funds for something.

 

[Fishy]

Of course it's made up. I made it up. I'm not saying it's the best use of funds. it was a hypothetical, but they will use the funds for something.

Or they’re not taking the money because this is a parlor trick.

It’s a “$500,000,000” deal that’s really going to be about a $12M dollar deal - the conference office bit is happening just so some money changes hands and it doesn’t look as pointless as it actually is.