Can Private Equity benefit college sports?

[CIL]

I get that but does a school even need that when they certainly can get a traditional loan or even have the AD borrow from the school itself?

For it to make sense for the school it would have to be a lot of money at a cheap rate. Which is the opposite of what benefits the PE.

They are two different things. Much like a bond fund or stock fund.

Your assumption that PE is going straight to an AD department is most likely incorrect. They aren’t. They would most likely invest at the conference / entity level.

I could see private credit firm going to an AD department though, or vice versa. Banks aren’t going to lend (or really can’t due to other reasons that I’m not getting into). If a department can’t raise enough for new facilities, etc. they could very well take out a loan from a credit firm (and some firms do both PE and direct lending). Such as, we’ll give you 100MM but expect it paid back in 10 years and backed by XYZ in case you don’t pay.

 

[tep624]

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.

One PE I worked for owned (or maybe still owns) La Liga. I think you’re on the right track with #2. I really couldn’t wrap my mind around the value proposition until considering conferences.

 

[OttosShoes]

At least in our case not sure what we'd need PE for either. From the annual report, $2.5B on hand and it keeps going up. That includes the endowment and various funds--it's not just free cash--but if some mythical opportunity comes along with a slam dunk 20% ROI I don't think we'd be needing help to fund it.

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[AZOrange]

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.

Even if Bama wanted a fixed rate they are bearing the cost of hedging…not the lender

 

[AZOrange]

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.

Generally at the pro level what PE forms are selling investors are non controlling LP interests….your chance to “own a team”…many are trying to figure out how to cross purchase interests across leagues and sports

 

[AZOrange]

‘They aren’t for profit entities, so why would it be of interest to management. Football’s job in college is to, 1) pay for itself, 2) generate enough excess revenue to support the rest of the AD, 3) any remainder to go back to the school.

I don’t see the play.

Think JVs for licensing rights…schools assign over all licensing rights and the PE firm and management start slapping logos on everything…split profits

 

[AZOrange]

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

With a very different investment thesis…doesn’t defeat the point though that tech capital comes primarily from VC funds (similar to what is seen in PE land)

 

[AZOrange]

I don't think they are looking to buy college teams (maybe later!), they are looking to invest in the cash flow of these teams.

Exactly

 

[AZOrange]

I get that but does a school even need that when they certainly can get a traditional loan or even have the AD borrow from the school itself?

For it to make sense for the school it would have to be a lot of money at a cheap rate. Which is the opposite of what benefits the PE.

Everyone is overthinking it. PE funds are just liquidity vehicles. They provide the schools (or conf or whatever) the cash they need now…in return for a PREF with some sort of upside split. These returns are funded by cash flows that the school has or will have but for time…the PE fills the void.

Similar to pro sports, it provides a liquidity mechanism for owners to cash out stakes, partial, while giving the investors a pretty exclusive club

 

[AZOrange]

At least in our case not sure what we'd need PE for either. From the annual report, $2.5B on hand and it keeps going up. That includes the endowment and various funds--it's not just free cash--but if some mythical opportunity comes along with a slam dunk 20% ROI I don't think we'd be needing help to fund it.

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Potentially cash flows…let’s say you need to have $20mm on hand every September 1 to fund football…some things you mentioned can’t be touched for that…

 

[HtownOrange]

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Potentially cash flows…let’s say you need to have $20mm on hand every September 1 to fund football…some things you mentioned can’t be touched for that…

You are correct, in general, that all dedicated funds are not readily available for use, this assumes a school does not maintain X amount of cash for this purpose. The question then is whether a loan - a slush fund loan if you prefer, which businesses often have on hand for cash flow purposes, is the better option vs. PE. I have experience with bank loans for this purpose, have reviewed and commented on the documents, I understand this part reasonably well. Generally, the loan is at a much lower interest rate than would be expected as ROI on PE capital. Additionally, once the loan is repaid, there is no longer interest paid on the borrowed money unless the loan is dipped into again, much like a credit card. Juxtapose the line of credit with a permanent shareholder that expects high returns.

 

[HtownOrange]

Think JVs for licensing rights…schools assign over all licensing rights and the PE firm and management start slapping logos on everything…split profits

Isn't that already in place? SU, and every other school or conference, doesn't need another partner for this purpose. SU has vendors that take the risk in their production of apparel and other goods with an SU logo, SU gets a portion for licensing such products. Adding a middleman only decreases SU's revenue. Where is the need for PE?

 

[GoSU96]

Think JVs for licensing rights…schools assign over all licensing rights and the PE firm and management start slapping logos on everything…split profits

SU has access to a school dedicated to that type of stuff. The Bird of Prey was part of the first endorsement mega deal. I don’t think you need to take on a partner to handle brand management and licensing .

 

[CIL]

Even if Bama wanted a fixed rate they are bearing the cost of hedging…not the lender

I guess. No different than any debt issuance. Same with your mortgage.

 

[LAorange44]

Think JVs for licensing rights…schools assign over all licensing rights and the PE firm and management start slapping logos on everything…split profits

Right or management services. PE gets involved in the business of the athletics depeartment without actually owning it in exchange for a percentage of gross receipts. They would supposedly find new ways to monetize media rights, merch, and game day experience. There would need to be exponential growth in revenue in order for the short term cash infusion to justify giving up a percentage of revenue. Given the size of alumni and central New York, I don’t see it. It’s a bad deal in 99% of cases. Or maybe I’m the idiot and I don’t see the worldwide appeal of Syracuse Orange when it comes to media rights deals.

 

[AZOrange]

SU has access to a school dedicated to that type of stuff. The Bird of Prey was part of the first endorsement mega deal. I don’t think you need to take on a partner to handle brand management and licensing .

PE brings the liquidity SU or other schools need…that’s the trade off.

 

[NJCuse97]

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

I hear this and this is one of the reasons I think the VC side of this, the individual donors, will continue to "invest" in the AD, perhaps even the non-revenue sports that in turn raise the profitability and profile of the overall AD, keeping them in or making them more attractive to better paying conferences (where I think the PE "LP" money is invested to produce better payouts to the member schools). That is some of the accretive benefit I was referring to, to both the AD and then the conference.

 

[HtownOrange]

PE brings the liquidity SU or other schools need…that’s the trade off.

Does SU need liquidity? I have not seen any indications they do. SU is one of the few schools that runs their AD on a professional and respectable manner. The AD generally, in the black. The AD pays for scholarships outright for all athletes under scholarship. And usually pays surplus revenue back into the general fund. I ask because I don't want the thread derailed from the original purpose, nor that SU is looking into the matter or is running an irresponsible AD.

To be clear, I started this thread based on many claims by FSU fanboys and statements by FSU's AD Alford. No positive information has been released to show the concept is progressing in any manner, which indicates that PE is not interested, at least under the current status of FSU, we can speculate as to the specific reason(s), but little more.

I do not know nor do I think SU is actually looking into PE investment. Nor am I aware that the ACC, nor any other conference, is looking into the matter, though the SEC appears to object to PE investment under the current.

The thread is an academic exercise in justification/application, practicality of PE in college sports. While I am against it in general, I am willing to look at all sides and be convinced otherwise.

Thank you for your insights.

 

[AZOrange]

Does SU need liquidity? I have not seen any indications they do. SU is one of the few schools that runs their AD on a professional and respectable manner. The AD generally, in the black. The AD pays for scholarships outright for all athletes under scholarship. And usually pays surplus revenue back into the general fund. I ask because I don't want the thread derailed from the original purpose, nor that SU is looking into the matter or is running an irresponsible AD.

To be clear, I started this thread based on many claims by FSU fanboys and statements by FSU's AD Alford. No positive information has been released to show the concept is progressing in any manner, which indicates that PE is not interested, at least under the current status of FSU, we can speculate as to the specific reason(s), but little more.

I do not know nor do I think SU is actually looking into PE investment. Nor am I aware that the ACC, nor any other conference, is looking into the matter, though the SEC appears to object to PE investment under the current.

The thread is an academic exercise in justification/application, practicality of PE in college sports. While I am against it in general, I am willing to look at all sides and be convinced otherwise.

Thank you for your insights.

Liquidity will become increasingly important in college sports to pay players. That said dealing with PE firms every day I don’t think there’s enough juice here to make it worth the squeeze. There are bigger returns elsewhere.

 

[GoSU96]

Liquidity will become increasingly important in college sports to pay players. That said dealing with PE firms every day I don’t think there’s enough juice here to make it worth the squeeze. There are bigger returns elsewhere.

Exactly

 

[HtownOrange]

Liquidity will become increasingly important in college sports to pay players. That said dealing with PE firms every day I don’t think there’s enough juice here to make it worth the squeeze. There are bigger returns elsewhere.

Thanks. While I agree liquidity is important and will grow in importance, one of my biggest objections to PE is the exorbitant returns expected by PE. I have many other concerns with PE at the collegiate and conference levels but wanted to focus on your point.

 

[Todoubled23]

PE and college sports? No thanks.

 

[LAorange44]

What expenses are we cutting or what new income are we generating in exchange for that short term liquidity? That’s a rhetorical question.

 

[HtownOrange]

What expenses are we cutting or what new income are we generating in exchange for that short term liquidity? That’s a rhetorical question.

I think most, if not all, posters in this thread see no direct application to SU for a variety of reasons, with the two you identified leading the charge. This is an academic discussion, no more.