Big 12 Considering $1B in Private Equity

[BWRhasnoAC]

People discussing philosophical arguments against PE. That's fine, but what's your solution to find cash then? You can't be against it and then say don't do anything. If u are against PE, or some form thereof, are u prepared to double your ticket prices or NCC contributions? Stop the philosophical comments and deal with reality.

Ya, this is just the consequences of American priorities. We all know why we're here. Nobody in this country can look themselves in the mirror and truthfully deny we all are to blame for this. The Almighty dollar will never stop. Flight the battle on it's terms not some ideal that died generations ago.

 

[mcblogerson]

I’m hoping for the Kum&Go conference

 

[Cloneon]

By definition, if you buy something, do stuff to it, and then sell it for way more than you paid... you're literally making it more valuable. If they "ruined" Safeway, how did they sell it for more and make a profit?

The hard part is the "do stuff to it". That often means firing people, selling assets, etc. People don't like change, and its rough on those that get whacked. But some of these companies would have gone Chapter 11 otherwise, and then everyone gets whacked.

Trying to preserve struggling companies so they never have to change or do painful or difficult things is a recipe for disaster. How did you go bankrupt? Very slowly, and then all of a sudden.

You're not wrong about PE being very bad sometimes. I'm just arguing that it CAN be a good thing too.

My final comment on it is this fundamental of business:

My view from the moon during my life is simple. BTW, I know some will vehemently disagree.
Companies start with engineers and scientists with great ideas. Under tight purse strings, they manage to find someone to put together a business plan. They then convince venture capitalists or loan types. They start their business. And, for the most part they do REALLY well. I've identified several investments of small companies throughout my life. And they were incredible UNTIL they were purchased/acquired. Back to the track. Eventually, the Harvard types are brought in. And that's when the products go to crap. Two recent examples are Amazon and Google. Both of which may not 'fiscally' be in a tail spin yet, but will...unless things change dramatically. I know. When the 'margins' become bigger than the product, that's the beginning of the end. It's so obvious. Another thing equally important is 'competition'. If there's not enough competition, that spells disaster. Things like these are what college sports should be paying attention to.

 

[Cloneon]

Yes. We agree then. Although I’m not as down on it as you are, I’m very leery of it.

My point was moreso towards those who view all PE deals as the devil. Someone mentioned wanting examples of successful PE ventures. Uh take your pick from the Forbes 500: Facebook, Amazon, Google, etc.

Great choice of three examples. As a life-long product analyst, I see all three in 'monopoly' mode now. I certainly don't want to cave this, but our antiquated definition of 'monopoly' is the source of the problem here. Once had great products and now are dismally declining. And their practices at maintaining margins is, laughingly, marginal.

 

[Pope]

I’m hoping for the Kum&Go conference

Oh my. Think of the possibilities.

 

[Nor'MidWester]

Ya, this is just the consequences of American priorities. We all know why we're here. Nobody in this country can look themselves in the mirror and truthfully deny we all are to blame for this. The Almighty dollar will never stop. Flight the battle on it's terms not some ideal that died generations ago.

Never content with where we are. There must always be growth, those at the top must always be getting richer.

 

[BWRhasnoAC]

I’m hoping for the Kum&Go conference

Flesh Light brings you the Kum&Go Conference.

 

[Nor'MidWester]

As I mentioned earlier, PE is great for companies that are in high growth mode and use the cash to scale faster. That in no way is what the Big 12 is doing. They would pocket the money solely to get on an equal playing field with their competitors.

PE will get their returns through 1) taking 20% of the Big 12’s annual revenue or 2) will sell off their 20% stake in 5-10 years to someone else. The first cannot happen since it would be pointless for schools to give up 20% of their revenue since the goal is to catch up to their competitors, not fall further behind. Which means PE will get their money when they flip their stake to someone else. Who will then want their return from the purchase. So you are in bed with PE money forever. All for a short term cash infusion of $62 mil per school? Seems very short sighted.

I guess the idea is that the conference is undervalued and that in 2031 when rights are negotiated we'll all profit? But only as long as we keep up in the meantime. Not saying I agree but that seems to be their philosophy.

Also I'm dumb but how does 1 billion divided by 16 over x number of years equal anywhere close to the big ten media rights money?

 

[WooBadger18]

I guess the idea is that the conference is undervalued and that in 2031 when rights are negotiated we'll all profit? But only as long as we keep up in the meantime. Not saying I agree but that seems to be their philosophy.

Also I'm dumb but how does 1 billion divided by 16 over x number of years equal anywhere close to the big ten media rights money?

So I did the math last night assuming that the Big 12 currently makes $470 mill per year, the Big 10 makes $845.6 mill per year (the latest numbers I could find).

The Big 12 would be ahead of the Big 10 for two years before the big 10 caught up (and in the third year the big 10 would be $314.8 million ahead of the Big 12).

 

[BoomerClone]

Corporate sponsorship gives no profit away. Maybe just leads to a stupid name of the conference. But, it would help bridge the gap between the Big 12 and the B1G/SEC. Private equity gives away profits for a short term cash infusion. Makes sense for a small business needing cash or their business will never start. Makes no sense for the Big 12.

 

[BWRhasnoAC]

Corporate sponsorship gives no profit away. Maybe just leads to a stupid name of the conference. But, it would help bridge the gap between the Big 12 and the B1G/SEC. Private equity gives away profits for a short term cash infusion. Makes sense for a small business needing cash or their business will never start. Makes no sense for the Big 12.

It does when we took a hit for the new members followed by $22 mil for players. They won't be able to compete.

 

[CoachHines3]

I’m hoping for the Kum&Go conference

it would be Maverick, now

RIP KUM&GO

 

[SolterraCyclone]

Great choice of three examples. As a life-long product analyst, I see all three in 'monopoly' mode now. I certainly don't want to cave this, but our antiquated definition of 'monopoly' is the source of the problem here. Once had great products and now are dismally declining. And their practices at maintaining margins is, laughingly, marginal.

Well that wasn’t the point I was making. Whether they’re monopolies now has nothing to do with this convo. They used PE to grow their business and eventually became market leaders. The Big 12 currently is battling a duopoly in a market that has never had PE infusion before.

All that said, I agree, I’m really concerned on the Big 12 taking PE investment. The Big 12 isn’t going to use those dollars for innovative R&D or adding resources or scaling production, or things that would eventually make more money over time. I guess you could argue the cash would get better players, which could lead to better performance, which could lead to bigger media revenue next TV contract. But that’s a stretch.

In my view, it would basically be a one-time loan with insurmountable interest.

 

[BWRhasnoAC]

it would be Maverick, now

RIP KUM&GO

I just saw a Kum and Go In Cedar Rapids.

 

[1100011CS]

Sorry if already discussed... My hawk friends say the new Big12 members won't go for this because they don't want to be locked into this conference. Anyone else hear this?

 

[Mr.G.Spot]

It does when we took a hit for the new members followed by $22 mil for players. They won't be able to compete.

Lots of opinions here from without a lot of facts. I do not claim to have a thorough understanding of this PE transaction. Apparently a lot of you do.

If they are acquiring only 20% then they are looking for a long-term play and are along for a ride. Usually, PE firms buy majority, control the Board and strategy, and the selling shareholders are receiving a cash payment and another bite at the apple within 5 years.

At 20%, these guys are along for a ride and they know that. Why? My guess is they are going to make between a 4-7% safe and annual yield off the top on their billion dollar investment. They will not have put rights.

At a 6% return, they recoup their money (exclusive of the the time value of money) in 12 years and own 20% of a viable long-term play.

What will out TV revenue be in 2036? Let's say it goes up by 50% so their return is now 9% after recouping their investment. This doesn't include extra revenue to be brought in by naming rights and whatever else Yormark can do in the next 5-10 years.

It appears to me to be brilliant for them and us. They get a stable long-term return without much risk. We split a billion dollars today plus naming rights to get us thru the next 3-4 years.

Because they are buying a minority without put rights, they are along for the ride.

At first blush, this looks outstanding. All u negative nannies need to relax unless you want to double your ticket prices and double your donations, if u make any at all.

Relax.

 

[CoachHines3]

I just saw a Kum and Go In Cedar Rapids.

they're still around. I think eventually they will all become Maveriks

Maverik bought Kum&Go

 

[BWRhasnoAC]

Well that wasn’t the point I was making. Whether they’re monopolies now has nothing to do with this convo. They used PE to grow their business and eventually became market leaders. The Big 12 currently is battling a duopoly in a market that has never had PE infusion before.

All that said, I agree, I’m really concerned on the Big 12 taking PE investment. The Big 12 isn’t going to use those dollars for innovative R&D or adding resources or scaling production, or things that would eventually make more money over time. I guess you could argue the cash would get better players, which could lead to better performance, which could lead to bigger media revenue next TV contract. But that’s a stretch.

In my view, it would basically be a one-time loan with insurmountable interest.

Disagree. Investing in players and coaches is exactly what must be done to compete.

Win a Natty and the Big 12 smashes the narrative that they're inferior.

 

[CYphyllis]

Sorry if already discussed... My hawk friends say the new Big12 members won't go for this because they don't want to be locked into this conference. Anyone else hear this?

Did anyone else hear blind speculation and uneducated opinions? Probably.

 

[Mr.G.Spot]

Well that wasn’t the point I was making. Whether they’re monopolies now has nothing to do with this convo. They used PE to grow their business and eventually became market leaders. The Big 12 currently is battling a duopoly in a market that has never had PE infusion before.

All that said, I agree, I’m really concerned on the Big 12 taking PE investment. The Big 12 isn’t going to use those dollars for innovative R&D or adding resources or scaling production, or things that would eventually make more money over time. I guess you could argue the cash would get better players, which could lead to better performance, which could lead to bigger media revenue next TV contract. But that’s a stretch.

In my view, it would basically be a one-time loan with insurmountable interest.

Wrong. The money is needed to survive, pay competitive coaching salaries, pay athletes, and to pay existing p&I payments on the AD debt.

Please tell me why it will be insurmountable interest? Why would they make an investment that can't be paid?