Can Private Equity benefit college sports?

[Scooch]

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.

Honestly, I read a lot about PEs involvement in pro sports, but I don’t entirely understand the business model.

I know that, after resisting for years, the NFL recently approved that PE can take a certain share of franchises. I suspect this is driven by owners wanting to make a windfall, but I don’t know how it impacts the operation of the team.

 

[Scooch]

Here’s the AI generated summary of the new NFL rules for PE…

Private equity in the NFL refers to the ability of private equity firms to purchase a minority stake in NFL teams. The NFL's owners approved this change in August 2024, allowing private equity funds to purchase up to 10% of a team's ownership. This is a major change to the NFL's ownership rules, which were previously considered the most restrictive in professional sports.

Here are some details about the new policy:

• Ownership: Private equity firms can hold up to 10% of a team's ownership, but each stake must be at least 3%.
  
  
• Investment period: Private equity funds must hold their investment for a minimum of six years.
  
  
• Number of teams: Private equity funds can invest in a maximum of six teams.
  
  
• Voting power: Private equity investments are non-voting and passive.
  
  
• Eligible funds: The NFL has vetted a list of funds that are eligible to invest, including Arctos Partners, Ares Management Corp., and Sixth Street Partners.
  
  
• Information disclosure: Funds that own stakes in multiple teams are subject to information disclosure requirements.
  

The NFL's new policy could have a number of benefits, including:

• Financial growth
  Private equity investments could provide franchises with access to capital that was previously unavailable.
  
  
• Team sales
  The new policy could make it easier to sell teams, which could be beneficial in an era of high team valuations.
  
  
• Tax benefits
  Private equity funds could benefit from tax advantages of owning an NFL team.
  

However, some are concerned that private equity could change the nature of NFL team ownership. Traditionally, NFL owners have had a close connection to their teams and local communities.

 

[Oakland]

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.

Going the PE route would generate short term benefits and long term detriments; it would be a terrible decision.

 

[LAorange44]

Does any have faith that SU could even negotiate a deal that was semi-advantageous to the school, its athletes, and the fanbase. I just see this getting bungled in a million different ways if it was ever pursued. SU administration seems like the kind of folks who buy timeshares because they are such a great deal.

 

[HtownOrange]

Does any have faith that SU could even negotiate a deal that was semi-advantageous to the school, its athletes, and the fanbase. I just see this getting bungled in a million different ways if it was ever pursued. SU administration seems like the kind of folks who buy timeshares because they are such a great deal.

My guess is that SU would not consider the PE route UNLESS they had ton go that route. The AD has been run such that the AD pays for the athlete's scholarships and they most often return money to the school. That shows the AD has been run properly, at least in a general sense. The school makes the AD account for its practices, unlike several institutions we all know of (Rutgers, UCOnn, FSU, etc.).

 

[OttosShoes]

You know what happens to cars after insurance companies write them off? They go to junkyards where they can be scraped and parted out for whatever is left of value. That's one of the ways PE makes money.

Another [related] way they make money is to corner a market and shut down competition. They could buy, say, all the old Big East programs, cobble together one superprogram that corners the Northeast media market, and shut everything else down.

So, unless you want to become a fractional component of the New York City* Scarlet-Irish Eagle-Panthers, you want PE to stay the @#$# away from Syracuse.

*The NYC Scarlet-Irish Eagle-Panthers play at Met-Life so technically they are in NJ.

 

[General20]

Going the PE route would generate short term benefits and long term detriments; it would be a terrible decision.

This is exactly why I think it will happen. Look at confrence expansion, teams like UCLA should not play in the same conference as Rutgers, they know it will not end well, but they do it anyway to take advantage of the Big10 Network and all the money it generates being included in cable TV bundles, while that lasts.

The majority of money that goes into sports (both pro and college) comes from people who don't watch the games but pay for them anyway because the sports stations are a part of their cable TV cost. As cable moves to an al a carte model and people only pay for what they watch, sports are going to lose a lot of money. One way to compensate will be going after PE money. It's all going to end in disaster, but the ultimate decision makers here are university president's, the majority of whom don't care about sports and just want to milk it for as much money as they can and won't miss it when it's gone or diminished.

 

[Niastri]

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.

As a Red Sox fan, it is not a real thing. The current ownership/management group is the same that won 4 World Series by spending in the top 5 in payrolls the last 25 years.

Certain Red Sox fans don't like the team's reaction to the luxury tax and other financial and talent acquisition decisions.

The Sox have dropped in payroll the last few years, but that's because they haven't idiotically chased every overpriced free agent since trading Mookie Betts after the 2018 championship.

We hear lots of whining about the lack of spending on the Red Sox boards.

 

[Scooch]

As a Red Sox fan, it is not a real thing. The current ownership/management group is the same that won 4 World Series by spending in the top 5 in payrolls the last 25 years.

Certain Red Sox fans don't like the team's reaction to the luxury tax and other financial and talent acquisition decisions.

The Sox have dropped in payroll the last few years, but that's because they haven't idiotically chased every overpriced free agent since trading Mookie Betts after the 2018 championship.

We hear lots of whining about the lack of spending on the Red Sox boards.

So I know what side of the fence you’re on on SOSH. LOL.

 

[rocklloyd]

basketball will go from coach bus to school bus.

 

[CIL]

Depends upon the GP (PE firm). Some basically specialize in levering up a corporation, cutting costs, and selling it off for profit in 5-10 years. I think this is what most people think PE is, because the firms most people know of are mega market firms.

There are others that might make an investment in a company to actually help them grow. Typically the owner stays and sells a stake to a firm. For instance, a family owned business feels they need help with distribution of their widget because it’s only sold in CNY and they don’t have the networks to grow, etc…

With regards to college sports, the former isn’t really viable, and the latter doesn’t make sense for a lot of programs. It also would be horrible for non revenue producing sports.

The reality is it may feel a lot more like private credit. Give an athletic department a loan / capital injection and expect them to pay it back with interest over time. Only way I could see it really working.

 

[NJCuse97]

I think we are thinking too small. I can see PE, substantial PE acting like an LP and investing not in an AD, but in a conference. This is why the B1G and SEC are saying they don’t need it (and not the member schools). In this way, the challenges of state schools and private equity is reduced. Also, a lot of LP is actually public sector pension funds, so again, conference, and not school affiliations helps here. I am thinking like a world I know, real estate equity, where the conference is the GP (sweat equity) and the school ADs are like the properties themselves. There will be fund raises and partners seeking buy outs or recaps when they think league value is high. This could benefit an ACC as it has more money to put to payouts, but would also reinvigorate (negatively) conference realignment.

 

[NJCuse97]

Depends upon the GP (PE firm). Some basically specialize in levering up a corporation, cutting costs, and selling it off for profit in 5-10 years. I think this is what most people think PE is, because the firms most people know of are mega market firms.

There are others that might make an investment in a company to actually help them grow. Typically the owner stays and sells a stake to a firm. For instance, a family owned business feels they need help with distribution of their widget because it’s only sold in CNY and they don’t have the networks to grow, etc…

With regards to college sports, the former isn’t really viable, and the latter doesn’t make sense for a lot of programs. It also would be horrible for non revenue producing sports.

The reality is it may feel a lot more like private credit. Give an athletic department a loan / capital injection and expect them to pay it back with interest over time. Only way I could see it really working.

This is on point with what I can see happening, but as I said, I think the initial money is to the conference. Schools may be tempted to secure bridge financing to prop up programs and stay in the conference, or fund non-revenue based on speculative revenue from the conference. This is where it gets dicey and things like federal interest rates create challenges as it is doing now in CRE

 

[CIL]

This is on point with what I can see happening, but as I said, I think the initial money is to the conference. Schools may be tempted to secure bridge financing to prop up programs and stay in the conference, or fund non-revenue based on speculative revenue from the conference. This is where it gets dicey and things like federal interest rates create challenges as it is doing now in CRE

No clue on my end. I could see an AD like Bama demanding a fixed rate and more speculative departments getting SOFR plus x.

Who knows.

 

[HtownOrange]

I think we are thinking too small. I can see PE, substantial PE acting like an LP and investing not in an AD, but in a conference. This is why the B1G and SEC are saying they don’t need it (and not the member schools). In this way, the challenges of state schools and private equity is reduced. Also, a lot of LP is actually public sector pension funds, so again, conference, and not school affiliations helps here. I am thinking like a world I know, real estate equity, where the conference is the GP (sweat equity) and the school ADs are like the properties themselves. There will be fund raises and partners seeking buy outs or recaps when they think league value is high. This could benefit an ACC as it has more money to put to payouts, but would also reinvigorate (negatively) conference realignment.

Can you develop your idea further? I think I have an understanding of your overall position but am not seeing how the PE, taking a sizeable profit from the pot, will benefit the schools or the conference.

First, I don't see what they offer that properly run school ADs and conferences can't do for themselves. Sure, the Rutgers example proves that some schools are inept in every facet of AD management, but most B1G are run properly and successfully.

Second, one of three things must occur to warrant the expense of the PE: 1) New revenues cover the cost of the PE money (loan payment or share of revenues); 2) Expenses must be cut to cover the return to the PE, they are not loaning money or making an investment for free; or 3) a combination of both. That said, once analyzed, it must then be considered in light of the item #1.

Third, assuming Item #s 1 and 2 are satisfied, is it worth the school and/or conference making such a deal? Ex. Even now, with the ACC in third pace among the conferences, there are many concerns that ESPN, our partner, and while not PE, they are in a very tight relationship with the ACC. This will always be with TV partners, why would it be any less when a third party is inserted between the schools/conferences and the TV partner?

If this is really about money, which may promoters state as the primary driver, why not simply hire consultants as needed to improve the ADs?

How is this arrangement sustainable over time? Serious question as a loan with PE rates would be excessive under most, if not all financial analyses. This is only compounded if the school/conference sells a share to the PE, who will continuously take a large profit.

 

[CIL]

Can you develop your idea further? I think I have an understanding of your overall position but am not seeing how the PE, taking a sizeable profit from the pot, will benefit the schools or the conference.

First, I don't see what they offer that properly run school ADs and conferences can't do for themselves. Sure, the Rutgers example proves that some schools are inept in every facet of AD management, but most B1G are run properly and successfully.

Second, one of three things must occur to warrant the expense of the PE: 1) New revenues cover the cost of the PE money (loan payment or share of revenues); 2) Expenses must be cut to cover the return to the PE, they are not loaning money or making an investment for free; or 3) a combination of both. That said, once analyzed, it must then be considered in light of the item #1.

Third, assuming Item #s 1 and 2 are satisfied, is it worth the school and/or conference making such a deal? Ex. Even now, with the ACC in third pace among the conferences, there are many concerns that ESPN, our partner, and while not PE, they are in a very tight relationship with the ACC. This will always be with TV partners, why would it be any less when a third party is inserted between the schools/conferences and the TV partner?

If this is really about money, which may promoters state as the primary driver, why not simply hire consultants as needed to improve the ADs?

How is this arrangement sustainable over time? Serious question as a loan with PE rates would be excessive under most, if not all financial analyses. This is only compounded if the school/conference sells a share to the PE, who will continuously take a large profit.

There is a difference between GP and LP. In the GP role, the PE firm owns the entity, in most cases outright or full control of the board. In traditional PE investing, investors serve as LPs. Meaning, you give the PE firm (GP) money in hopes for a return on your commitment.

In this example, the poster is inferring that the PE firms act as LPs, where they don’t own the majority of a conference or school, but rather they are giving capital in hopes of a return.

Think of it as if you invest in a mutual fund, ETF, etc. If you invest in an index or active fund, you are hoping that the index / fund deliver returns. You are not necessarily dictating in what companies the manager or index actual index invests in.

This is a little oversimplified, but hopefully it helps.

 

[OttoinGrotto]

There is a difference between GP and LP. In the GP role, the PE firm owns the entity, in most cases outright or full control of the board. In traditional PE investing, investors serve as LPs. Meaning, you give the PE firm (GP) money in hopes for a return on your commitment.

In this example, the poster is inferring that the PE firms act as LPs, where they don’t own the majority of a conference or school, but rather they are giving capital in hopes of a return.

Think of it as if you invest in a mutual fund, ETF, etc. If you invest in an index or active fund, you are hoping that the index / fund deliver returns. You are not necessarily dictating in what companies the manager or index actual index invests in.

This is a little oversimplified, but hopefully it helps.

That's a pretty good explanation.

 

[Timonen]

There is a difference between GP and LP. In the GP role, the PE firm owns the entity, in most cases outright or full control of the board. In traditional PE investing, investors serve as LPs. Meaning, you give the PE firm (GP) money in hopes for a return on your commitment.

In this example, the poster is inferring that the PE firms act as LPs, where they don’t own the majority of a conference or school, but rather they are giving capital in hopes of a return.

Think of it as if you invest in a mutual fund, ETF, etc. If you invest in an index or active fund, you are hoping that the index / fund deliver returns. You are not necessarily dictating in what companies the manager or index actual index invests in.

This is a little oversimplified, but hopefully it helps.

I get it but I think this downplays the point of what PE is there to do - provide returns. Without confidence (either through their direct management or via the current management structure) that sufficient profit would be cleared, they’re out. And what in the current management structure of 98% of college athletic program management would give that confidence today?

 

[HRE Otto IV]

What is the purpose of college sports? The reason why I watch and am engaged in college sports wants nothing to do with PE. I rather watch FCS Syracuse football than PE College football.

 

[cusefan88]

Private Equity sucks and ruins everything. Just look at Party City. Leveraged buyout and saddled with $1 billion in debt.

That same story has killed dozens and dozens of companies.

 

[CIL]

I get it but I think this downplays the point of what PE is there to do - provide returns. Without confidence (either through their direct management or via the current management structure) that sufficient profit would be cleared, they’re out. And what in the current management structure of 98% of college athletic program management would give that confidence today?

1.) This is all hypothetical. It all started with FSU putting out feelers to PE firms because they need help with the entire ACC GoR issue. The reason we haven’t seen it is because collegiate anthletic departments aren’t set up to provide IRRs of 20 plus percent.

2.) However, as one poster threw out there, conferences perhaps could be. Let’s use the ACC in this case. Perhaps PE firm XYZ injects capital in the ACC. They could give money for the ACC to pay for someone else’s GOR. They could install a board of experts in media contracts, marketing, etc. Again, all hypothetical at this point.

 

[bnoro]

Private Equity is the bnoro of the financial world -

it ruins everything.

Hey now at least tag me!

 

[CIL]

Private Equity sucks and ruins everything. Just look at Party City. Leveraged buyout and saddled with $1 billion in debt.

That same story has killed dozens and dozens of companies.

You can’t look at it in a vacuum. Again, PE exists in many forms. Buyout is one form, but again, there are several different goals beyond the party city example you cited.

There are many brands that exist today because of private equity. In fact, 90 plus percent of brands you enjoy and consume received private funding in the form of PE or Venture Capital.

I can’t think even think of a company that went straight from business formation, loan from a bank, to IPO (public markets). You have to go back to the tech bubble to find those types of companies.

 

[OttoinGrotto]

You can’t look at it in a vacuum. Again, PE exists in many forms. Buyout is one form, but again, there are several different goals beyond the party city example you cited.

There are many brands that exist today because of private equity. In fact, 90 plus percent of brands you enjoy and consume received private funding in the form of PE or Venture Capital.

I can’t think even think of a company that went straight from business formation, loan from a bank, to IPO (public markets). You have to go back to the tech bubble to find those types of companies.

Eh, PE and venture are a bit different, often in terms of company stage they invest in, and operate very differently.

 

[NJCuse97]

1.) This is all hypothetical. It all started with FSU putting out feelers to PE firms because they need help with the entire ACC GoR issue. The reason we haven’t seen it is because collegiate anthletic departments aren’t set up to provide IRRs of 20 plus percent.

2.) However, as one poster threw out there, conferences perhaps could be. Let’s use the ACC in this case. Perhaps PE firm XYZ injects capital in the ACC. They could give money for the ACC to pay for someone else’s GOR. They could install a board of experts in media contracts, marketing, etc. Again, all hypothetical at this point.

This is exactly what I am thinking. The investment at the LP level is typically in equity, not debt. That suggests a longer term investment. The capital injection is accretive to the value of the conference (and therefore the investment) by raising payouts to member schools as one example. That in turn keeps some teams around and viable, while attracting other teams that also want to remain viable. This can make the conference something of a selector that can build value for things like TV deals (increases through look-ins) or simply selecting schools that have sound AD fiscal responsibility to ensure there will not be losses or drop offs in investment, making it a safer investment vehicle (like how blue chips are not often high reward, but also not high risk, especially over a longer term). All the examples CIL gives are GREAT examples of how investment can drive value without relying on the skill/fiscal responsibility of the individual AD. It will incentivize ADs to reinvest, or find ways to become more profitable so that they CAN reinvest.

When I work on an operations budget for a property, I am often reminded of the sins in building the property. Those "sins" were often the result of trying to maintain the debt budget, (money borrowed to build the property) so that balancing must be done with great care. It demands responsibility and strategy. This is where so many ADs lack the discipline, instead leveraging their future equity to justify blowing the debt budget. Private Equity will not allow for this, which is why I see it happening at the conference level first (at least with any substantial investment). The PE at the AD level is already happening in the form of alumni donors. These are the seed investors. The Arthur Rock of the scenario.

Arthur Rock - Wikipedia

The outstanding question there that we have all been asking is, "what is the return?" Why did Standard Oil invest in Syracuse University, (see Sims and Archbold)? The answer there I believe was largely "tax shelter". Now-a-days, it could be access to talent. Could argue this is why it's increasingly important to become a research institution. Look at the B1G and their dedication to engineering, bio, and tech research. This is why they insist on being an AAU member (and BTW, half the ACC schools are also members - GT, Cal, UNC Duke, Pitt, UVA, Stanford, Miami, Notre Dame).