Can Private Equity benefit college sports?

[HtownOrange]

Yes, I have too much time on my hands, today, which led me to ponder PE and College sports. Just a few questions regarding private equity and college sports.

1) PE firms exist to make a profit from their investments. How are the majority of college sports monetized to produce a profit? Recall that most college sports programs run in the red, how will PE raise new revenue, decrease expenses, or both?

2) How will PE work within the confines of Title IX?

3) If football, and possibly basketball, be separated out for private equity purposes, how do Athletics Departments survive, in light of the fact that most ADs fail to break even, let alone make a profit on their own? (If you prefer, how do schools justify sharing their limited athletics revenue with a profit seeking mouth to feed making money from the only sport(s) breaking even or making a profit?)

4) If, as suggested, the football and hoops teams are merely associated with the schools and players need not be students making the sports minor leagues, how do they generate revenue? The present argument for the pros not having minor league football is that it is too costly and the NBA already has the G-League, which draws nothing and arguably has better players not in the NBA than most schools.

5) What is the impact on the schools of being associated with the PE run sports? This is a perception, operational, and financial question. While non-profits may own for-profit entities as long as tax and legal rules are followed, what is the practical basis for schools not managing their own business affairs in lieu of PE running the show?

I probably have more questions, as many others do. I have read several writers and speculators predicting the PE movement is imminent but have seen no substantive movement in this direction. While I am instinctively against blurring lines more than necessary, I am open to listening (or reading) reasoned, thoughtful analysis; armchair financiers need not respond.

Also, so e FSU fans (I know, some serious credibility issues with whatever they state) believe PE will come to their rescue, as will the courts and that they will be joining the B1G or SEC later this year (or at least providing notice to the ACC that they are leaving). Nevermind the facts regarding FSU and the lawsuit, I am curious whether PEcan actually save the day.

This thread is intended to develop reasoned analysis re: PE investment in college sports. I am sure there will be more questions by me and others, let's not make this personal to this site's participants, though abusing Georgetown, Rutgers, UConn and the stupidity of others (i.e.: FSU's AD) when factual or just plain funny are acceptable. I say this because I will question how to justify PE investment in Rutgers and UConn.

Anyway, I hope this thread results in substantive analysis.

 

[LAorange44]

I’ve worked with and for PE from time to time, but I am not a finance bro. PE exists solely for the benefit of PE. They are leeches and literally the antithesis to the academic mission. Keep them far far away from college sports. If PE enters the equation, expect a 30% mark up on everything for our new corporate overlords to get a return on investment. PE should be a non-starter regardless of what our peers do. If they want to mortgage their futures and put assets at risk, let them.

 

[Timonen]

I’ve worked with and for PE from time to time, but I am not a finance bro. PE exists solely for the benefit of PE. They are leeches and literally the antithesis to the academic mission. Keep them far far away from college sports. If PE enters the equation, expect a 30% mark up on everything for our new corporate overlords to get a return on investment. PE should be a non-starter regardless of what our peers do. If they want to mortgage their futures and put assets at risk, let them.

Well, up 30% mark up or cut 30% of overhead. There would be accountability at a level most in the category won’t know how to handle. And I wonder how public schools could even be allowed to cede control in areas where PE would demand for the oversight and management they’d require. A cash infusion for a business used to operating at a loss and incapable of sound management won’t actually yield results. I have a hard time seeing the business case from the PE perspective.

 

[OttoinGrotto]

 

[GoSU96]

Well, up 30% mark up or cut 30% of overhead. There would be accountability at a level most in the category won’t know how to handle. And I wonder how public schools could even be allowed to cede control in areas where PE would demand for the oversight and management they’d require. A cash infusion for a business used to operating at a loss and incapable of sound management won’t actually yield results. I have a hard time seeing the business case from the PE perspective.

It’s because there is none.

There’s no cash flows across the industry. There might be five schools, and none of them need the resources.

It’s silly

 

[HtownOrange]

I’ve worked with and for PE from time to time, but I am not a finance bro. PE exists solely for the benefit of PE. They are leeches and literally the antithesis to the academic mission. Keep them far far away from college sports. If PE enters the equation, expect a 30% mark up on everything for our new corporate overlords to get a return on investment. PE should be a non-starter regardless of what our peers do. If they want to mortgage their futures and put assets at risk, let them.

Please correct my conclusion if it needs to be corrected. From what you state, schools, especially SU, should never consider PE regardless of the opportunities PE may offer.

Can we assume you would be fine with Rutgers going the PE route to bury them forever?

 

[HtownOrange]

Well, up 30% mark up or cut 30% of overhead. There would be accountability at a level most in the category won’t know how to handle. And I wonder how public schools could even be allowed to cede control in areas where PE would demand for the oversight and management they’d require. A cash infusion for a business used to operating at a loss and incapable of sound management won’t actually yield results. I have a hard time seeing the business case from the PE perspective.

I agree with your sentiments. I cannot see where PE would generate new revenue or customer expenses or both sufficient to make the profits they seek.

Can you elaborate on your concerns regarding how public schools could even be allowed to cede control in areas where PE would demand for the oversight and management they'd require?

 

[HtownOrange]

It’s because there is none.

There’s no cash flows across the industry. There might be five schools, and none of them need the resources.

It’s silly

I agree. I think PE would only siphon cash away from the Universities. Those Athletic Departments that break even or make money on sports have no need for PE. Thanking God that SU is in the "no need for PE" category. SU with limited resources runs clean and accountable programs. The AD pays back into the school, as it should be.

I am trying to understand what FSU fanboys and various talking heads see in having PE take over athletic departments that are running in the red.

 

[721Comstock]

Private Equity is the bnoro of the financial world -

it ruins everything.

 

[hoopsupstate]

Who’s in charge of personnel? The equity firm or the university?

 

[Timonen]

I agree with your sentiments. I cannot see where PE would generate new revenue or customer expenses or both sufficient to make the profits they seek.

Can you elaborate on your concerns regarding how public schools could even be allowed to cede control in areas where PE would demand for the oversight and management they'd require?

I don’t know the details here but would a public school even be allowed to cede control of other university levers (ie, capital projects, professorial staff, programs) to PE in order for their yield to work out as promised? I’ve gotta think since public dollars are attached, those aren’t simple operational tasks to be handed over.

 

[HtownOrange]

I don’t know the details here but would a public school even be allowed to cede control of other university levers (ie, capital projects, professorial staff, programs) to PE in order for their yield to work out as promised? I’ve gotta think since public dollars are attached, those aren’t simple operational tasks to be handed over.

Thanks for responding. I am with you and don't have a clue.

I assume the sports, at least the money makers, would be the only items under contract with PE, whether "sold" outright or allowed to be managed. I assume academics, students, activities outside of the AD, etc. would remain under the University's control. Anything less that that you cede higher education to for-profit entities. Placing only the AD or just the profitable sports under PE's control would remove most of the concerns. I still cannot account for everything, such as would PE be liable for scholarships (assuming the athletes are students). Way too many variables that I am simply not aware of that would have to be resolved. Just assumptions/opinions, no inside information.

This is a major factor in my incapacity to understand FSU fanboys and the sundry talking heads acting as it the PE matter is a done deal with "T"s t o be crossed and "I"s to be dotted. I don't see any logic nor do I see an substantive justification for PE in college sports...or college for that matter.

 

[General20]

Yes, I have too much time on my hands, today, which led me to ponder PE and College sports. Just a few questions regarding private equity and college sports.

1) PE firms exist to make a profit from their investments. How are the majority of college sports monetized to produce a profit? Recall that most college sports programs run in the red, how will PE raise new revenue, decrease expenses, or both?

2) How will PE work within the confines of Title IX?

3) If football, and possibly basketball, be separated out for private equity purposes, how do Athletics Departments survive, in light of the fact that most ADs fail to break even, let alone make a profit on their own? (If you prefer, how do schools justify sharing their limited athletics revenue with a profit seeking mouth to feed making money from the only sport(s) breaking even or making a profit?)

4) If, as suggested, the football and hoops teams are merely associated with the schools and players need not be students making the sports minor leagues, how do they generate revenue? The present argument for the pros not having minor league football is that it is too costly and the NBA already has the G-League, which draws nothing and arguably has better players not in the NBA than most schools.

5) What is the impact on the schools of being associated with the PE run sports? This is a perception, operational, and financial question. While non-profits may own for-profit entities as long as tax and legal rules are followed, what is the practical basis for schools not managing their own business affairs in lieu of PE running the show?

I probably have more questions, as many others do. I have read several writers and speculators predicting the PE movement is imminent but have seen no substantive movement in this direction. While I am instinctively against blurring lines more than necessary, I am open to listening (or reading) reasoned, thoughtful analysis; armchair financiers need not respond.

Also, so e FSU fans (I know, some serious credibility issues with whatever they state) believe PE will come to their rescue, as will the courts and that they will be joining the B1G or SEC later this year (or at least providing notice to the ACC that they are leaving). Nevermind the facts regarding FSU and the lawsuit, I am curious whether PEcan actually save the day.

This thread is intended to develop reasoned analysis re: PE investment in college sports. I am sure there will be more questions by me and others, let's not make this personal to this site's participants, though abusing Georgetown, Rutgers, UConn and the stupidity of others (i.e.: FSU's AD) when factual or just plain funny are acceptable. I say this because I will question how to justify PE investment in Rutgers and UConn.

Anyway, I hope this thread results in substantive analysis.

This is a good question. Can you think of any industry where PE involvement was good for the customer? I cant but I am far from an expert on the issue.

From what I hear it's only a matter of time before PE comes to college sports. What that will look like and how it will change the game from a fan experience is an interesting discussion. After a very long time with only 2 or 3 teams being legitimate title contenders there is finally something resembling parity in college football. I'd hate to lose that, but my guess is PE involvement will take us back to the place where the same 2 or 3 superpowers win every year.

 

[LAorange44]

I agree with your sentiments. I cannot see where PE would generate new revenue or customer expenses or both sufficient to make the profits they seek.

Can you elaborate on your concerns regarding how public schools could even be allowed to cede control in areas where PE would demand for the oversight and management they'd require?

I think it would be a lot harder to do for public schools. Public schools have legal safeguards since they are state institutions. A school couldn’t sell its athletic department, or unilaterally turn over the athletic department to a private entity. I imagine any sort of deal with PE would require either a predatory loan backed by school assets or a management services agreement whereby PE provides advisory and administrative services in exchange for a percentage of gross revenue. A public school can buy services on the private market so long as it goes through the proper procurement channels. My concern would be that the parties produce a kosher agreement on paper, but PE is controlling the athletic department behind the scenes. The wink, wink, nudge, nudge aspect of the deal. Look at Trump and Elon. The university’s interests and PE interests are never aligned. The PE bros are like loan sharks who will never back off. As long is there is a way for them to get their money back (guaranteed loan backed by assets or percentage of future revenue) the PE boys will find a way to play ball and take control of the AD office.

 

[Cusefan0307]

I’ve worked with and for PE from time to time, but I am not a finance bro. PE exists solely for the benefit of PE. They are leeches and literally the antithesis to the academic mission. Keep them far far away from college sports. If PE enters the equation, expect a 30% mark up on everything for our new corporate overlords to get a return on investment. PE should be a non-starter regardless of what our peers do. If they want to mortgage their futures and put assets at risk, let them.

Ohhhh. Them going to be fighting words to some here friend!

 

[LAorange44]

This is a good question. Can you think of any industry where PE involvement was good for the customer? I cant but I am far from an expert on the issue.

From what I hear it's only a matter of time before PE comes to college sports. What that will look like and how it will change the game from a fan experience is an interesting discussion. After a very long time with only 2 or 3 teams being legitimate title contenders there is finally something resembling parity in college football. I'd hate to lose that, but my guess is PE involvement will take us back to the place where the same 2 or 3 superpowers win every year.

I wouldn’t be so sure about PE. Both the SEC and B1G have made it clear they really don’t need PE for whatever is next in the professionalizing of college sports.

 

[HtownOrange]

This is a good question. Can you think of any industry where PE involvement was good for the customer? I cant but I am far from an expert on the issue.

From what I hear it's only a matter of time before PE comes to college sports. What that will look like and how it will change the game from a fan experience is an interesting discussion. After a very long time with only 2 or 3 teams being legitimate title contenders there is finally something resembling parity in college football. I'd hate to lose that, but my guess is PE involvement will take us back to the place where the same 2 or 3 superpowers win every year.

Like you, I am no expert in PE. This thread is an exercise in what could be, a thought exercise or brainstorming, or whatever. In response to your question, no I cannot think of a consumer benefit received from PE involvement. I am sure there is some, but as noted above, PE usually does things only for their profit, they don't truly build enterprises and develop markets.

I hear the same, that PE investment is inevitable, but I see no forward movement and I cannot find serious discussion supporting PE involvement. Even FSU's AD Alford, who floated the suggestion to benefit FSU, has backed away from discussion PE involvement.

I think that mouthpieces are only seeking clicks but have no knowledge. Too many forget that academic institutions are "ACADEMIC" and not sports oriented. Sport augment the academic mission and make up 5-10% of a university's revenue but rarely dominate the budget. While we think $10MM, $20MM, and even $50MM is a lot of money, SU's budget is roughly $1.5BB. https://finance.syr.edu/wp-content/uploads/2023/11/SUBFAS_FR23_Web_FINAL-s.pdf

Sports simply is not that big of a sector of university business to affect the major decision making and the headaches that PE would involve. Just an opinion, to which I am willing to review credible supporting analysis before taking a hard stand.

 

[FireballPhil]

I personally don't think it matters, PE in one school wouldn't provide enough to make it successful. A PE company would have to control multiple schools to be able to begin to make a difference. The great majority of money would have to come in through advertising, and one school, especially private ones, do not provide a big enough base for it to pay off. They would be able to maximize their profits fairly quickly, but it wouldn't really be sustainable long term, especially in the view that they would not only want to maintain that max ceiling but would try to figure out how to increase that figure every year. A really good ACC marketing director would accomplish the same thing while not taking cash flow from the universities. The only difference is there would real consequences in a PE if it didn't make its goals, where there doesn't seem to be any accountability now in the ACC.

 

[HtownOrange]

I think it would be a lot harder to do for public schools. Public schools have legal safeguards since they are state institutions. A school couldn’t sell its athletic department, or unilaterally turn over the athletic department to a private entity. I imagine any sort of deal with PE would require either a predatory loan backed by school assets or a management services agreement whereby PE provides advisory and administrative services in exchange for a percentage of gross revenue. A public school can buy services on the private market so long as it goes through the proper procurement channels. My concern would be that the parties produce a kosher agreement on paper, but PE is controlling the athletic department behind the scenes. The wink, wink, nudge, nudge aspect of the deal. Look at Trump and Elon. The university’s interests and PE interests are never aligned. The PE bros are like loan sharks who will never back off. As long is there is a way for them to get their money back (guaranteed loan backed by assets or percentage of future revenue) the PE boys will find a way to play ball and take control of the AD office.

I tend to agree with your views. The legal issues probably can be worked out but would require a significantly difficult contract and would require much supervision and enforcement.

 

[HtownOrange]

Ohhhh. Them going to be fighting words to some here friend!

This thread is an opportunity to substantively present their opinions. At least, that is my intent.

 

[HtownOrange]

I wouldn’t be so sure about PE. Both the SEC and B1G have made it clear they really don’t need PE for whatever is next in the professionalizing of college sports.

The B1G and SEC contain most the other schools that break even/are profitable. They probably understand that PE would want the high profits, more than they are willing to part with, especially when tey can hire a consultant as necessary instead of losing complete control.

 

[HtownOrange]

I personally don't think it matters, PE in one school wouldn't provide enough to make it successful. A PE company would have to control multiple schools to be able to begin to make a difference. The great majority of money would have to come in through advertising, and one school, especially private ones, do not provide a big enough base for it to pay off. They would be able to maximize their profits fairly quickly, but it wouldn't really be sustainable long term, especially in the view that they would not only want to maintain that max ceiling but would try to figure out how to increase that figure every year. A really good ACC marketing director would accomplish the same thing while not taking cash flow from the universities. The only difference is there would real consequences in a PE if it didn't make its goals, where there doesn't seem to be any accountability now in the ACC.

This is similar to my conclusions but I have not seen substantive support for PE to provide a fair analysis before taking a hard stance.

The dangers of having time on one's hands...

 

[Scooch]

PE is already well entrenched in professional sports. What can we learn from that?

I’m not incredibly well versed in it, but I know that many Red Sox fans complain that the team’s spendthrift ways began when Red Bird Partners (Cardinale) took a percentage in the team.

 

[LAorange44]

PE is already well entrenched in professional sports. What can we learn from that?

I’m not incredibly well versed in it, but I know that many Red Sox fans complain that the team’s spendthrift ways began when Red Bird Partners (Cardinale) took a percentage in the team.

if one thinks our Athletic Department budget is cheap now, just wait until PE gets involved and there is another mouth to feed.

 

[HtownOrange]

PE is already well entrenched in professional sports. What can we learn from that?

I’m not incredibly well versed in it, but I know that many Red Sox fans complain that the team’s spendthrift ways began when Red Bird Partners (Cardinale) took a percentage in the team.

Thanks for the input. If you have any references or analysis, please share.

As a Yankees fan, I am O.K. with anything that messes with the Red Sox. forgive me for my duplicity in this matter.