Big 12 Considering $1B in Private Equity

[MountainManHawk]

Way too much focus is being put of the PE deal being an exercise in keeping up with the SEC and B10. Yes, that is a concern but it shouldn't the primary concern or goal.

This deal is being primarily done to assist B12 ADs with addressing near-term House Settlement obligations and addressing other needs that are at high risk of not being funded (in ISU's case, Hilton upgrades/maintenance, retain CMC/Otz and potentially saving Women's Swimming/Diving). And the PE partners are reportedly banking on a significant increase in B12 Media Rights in 2031 for their ROI. The need for a near term cash infusion is real amongst all B12 schools, including ISU, but obviously the deal needs to consider long term financial and PE management/ROI implications. The PE management risk is not onerous if their stake is 20% as reported.

I agree with this. For all of the talk about the imminent cutting of a bunch of sports, they actually can’t do that right now as there is a minimum number of sports schools are required to sponsor. Obviously they could petition to have that rule changed but I haven’t heard of any proposals to do that yet.

So to your point, there is a big need for cash right now and there is only so much that can be done to cut costs so something has to give. I’m surprised we haven’t seen more schools pulling a Trev Alberts and firing a bunch of people but that’s obviously not at all the culture at these places so I can see why they would want to explore every other option before draconian layoffs.

 

[Mr.G.Spot]

You do not know private equity if you think they are in it for 4-7% returns. They can get that in the bond market now. They can get 7-12% returns in the stock market. PE wants MULTIPLES of their investment back. If they invest $1 billion, they’ll likely want $2-$4 billion back over their time horizon (5-10 years typically).

And then they’ll sell their 20% share to who in 5-10 years? Likely another PE investor since it’s highly unlikely the Big 12 IPOs.

I know you have a history of thinking you know everything about everything but if you think this looks “outstanding” you aren’t considering the long term impacts. And maybe Yormark doesn’t care either - someone else will have to clean up the mess in 5-10 years.

U obviously know nothing about PE. How u ever been a partner in a PE firm or an investor in a PE firm? Have u ever negotiated with a PE firm while selling a business? Have u ever written an a PPM?

Back to business. It is very normal for them to get a preferred return of 4-8% on top of the equity they own. I never the dividend was their total return. DUH.

Do u understand why a PE firm would buy a minority interest with no put rights? Obviously not with your comments about my post to justify your bizarre answer. Do u understand the long-term nature of European based pe firms vs. the US? Obviously not. Did u do any research on the proposed firm and how they like to invest in this type of sector?

Anyway, do an IRR on a 20 year play of the assumptions I presented. It's a decent and safe investment.

Good for them and good for us.

 

[Big_Sill]

I have assumed any investment with a PE firm would be more akin to debt than it would true equity ownership.

I'm saying this because the "15 to 20% ownership" statement doesn't make sense to me. Nobody owns a NFP.

Could a new entity be set up to hold certain contracts and assets (media rights)? Maybe, but that would likely be a tax paying entity if it issued shares or units to owners.

 

[CascadeClone]

This is exactly true. That's why I call PE's business-level cash advance loans. They provide immediate cash but long-term pain. The schools don't need $60mil for 2-3 years, they need $30-40mil every year without somebody else getting all of the increased value of the league over time and in the next rounds of media deals.

Likely scenario - You take the PE now, but when you double your league value by the next media negotiation, you've signed up for somebody else to get that increased value. So instead of us then getting say $60mil every year, we stay at 30-40. You screw yourself out of seeing any of that new value.

It all depends on how it is structured.

What if the PE only gets a share of the increase over the current contract? Now you're giving a lot less away, especially in the near term. And you're not going to miss part of what you never had.

My point is, there's no way to know if it is a good deal or a bad one, until the details and T&Cs are all known. I am sure BY is negotiating all that, and he is savvy - he won't sign a terrible deal.

 

[Jer]

It all depends on how it is structured.

What if the PE only gets a share of the increase over the current contract? Now you're giving a lot less away, especially in the near term. And you're not going to miss part of what you never had.

My point is, there's no way to know if it is a good deal or a bad one, until the details and T&Cs are all known. I am sure BY is negotiating all that, and he is savvy - he won't sign a terrible deal.

You are absolutely correct - in these types of things details make massive differences. Typically an investment the size of $1B with realignment, budgets, etc in such upheaval, would mandate giving more than you'd like. But we don't know that is how this is being structured.

Usually PE engagements either work out really well or really badly, there isn't typically a great middle-ground. If structured the right way and with some guarantees of stability or other concessions, this could end up being a good thing. Only the details will help us make educated guesses.

 

[jbhtexas]

U obviously know nothing about PE. How u ever been a partner in a PE firm or an investor in a PE firm? Have u ever negotiated with a PE firm while selling a business? Have u ever written an a PPM?

Back to business. It is very normal for them to get a preferred return of 4-8% on top of the equity they own. I never the dividend was their total return. DUH.

Do u understand why a PE firm would buy a minority interest with no put rights? Obviously not with your comments about my post to justify your bizarre answer. Do u understand the long-term nature of European based pe firms vs. the US? Obviously not. Did u do any research on the proposed firm and how they like to invest in this type of sector?

Anyway, do an IRR on a 20 year play of the assumptions I presented. It's a decent and safe investment.

Good for them and good for us.

What exactly is the equity firm going to own?

 

[Mr.G.Spot]

What exactly is the equity firm going to own?

20% of the big12 which has media contracts (radio,tv,bowl games, playoff money,etc) and whatever else BY can drum up.

 

[1UNI2ISU]

I agree with this. For all of the talk about the imminent cutting of a bunch of sports, they actually can’t do that right now as there is a minimum number of sports schools are required to sponsor. Obviously they could petition to have that rule changed but I haven’t heard of any proposals to do that yet.

So to your point, there is a big need for cash right now and there is only so much that can be done to cut costs so something has to give. I’m surprised we haven’t seen more schools pulling a Trev Alberts and firing a bunch of people but that’s obviously not at all the culture at these places so I can see why they would want to explore every other option before draconian layoffs.

The DI council is working on that right now. MBB, WBB, VB (or equivalent), BB (or equivalent) and SB are going to be the only required sports. Football is not included because of the several DI schools that don't play or have non-scholarship football. The kicker is that you'll be able to have as many scholarships/employees as there are roster spots so costs don't really change much even though you're sponsoring fewer sports.

 

[theshadow]

The DI council is working on that right now. MBB, WBB, VB (or equivalent), BB (or equivalent) and SB are going to be the only required sports.

Forcing P4 schools to add softball while they're contemplating cutting other sports would be an interesting play.

 

[SolterraCyclone]

Everything people are saying about how the deal is structured and expected return is true. Those items will be huge in whether this is a good deal or not.

Another thing not mentioned is this could be catastrophic for both parties if media rights for the Big 12 don’t increase in 2031.

If a Super League forms, if streaming partners don’t get as involved as we think, if ESPN is spun off or greatly cuts budget, etc., the B12 could be royally f’d.

Like we wouldn’t need to worry about playing second fiddle to the P2, we’d need to worry about remaining solvent.

 

[MountainManHawk]

The DI council is working on that right now. MBB, WBB, VB (or equivalent), BB (or equivalent) and SB are going to be the only required sports. Football is not included because of the several DI schools that don't play or have non-scholarship football. The kicker is that you'll be able to have as many scholarships/employees as there are roster spots so costs don't really change much even though you're sponsoring fewer sports.

That’s interesting. I suppose wrestling could be counted for the schools like ISU, Wisconsin, etc that don’t have baseball?

It’s probably been inevitable for a long time but it’s going to suck when the only wrestling schools left are the BigTen schools plus Okie St, ISU, and maybe a half dozen other schools with donors that used to wrestle.

Also I’m not sure what you mean when you say costs won’t change even with fewer sports? Do you just mean because football is going to go to 100+ scholarships and baseball is going to go to 20 or 30 scholarships, etc so the remaining sports cost more than they used to?

 

[1UNI2ISU]

That’s interesting. I suppose wrestling could be counted for the schools like ISU, Wisconsin, etc that don’t have baseball?

It’s probably been inevitable for a long time but it’s going to suck when the only wrestling schools left are the BigTen schools plus Okie St, ISU, and maybe a half dozen other schools with donors that used to wrestle.

Also I’m not sure what you mean when you say costs won’t change even with fewer sports? Do you just mean because football is going to go to 100+ scholarships and baseball is going to go to 20 or 30 scholarships, etc so the remaining sports cost more than they used to?

Correct. Baseball has 11 scholarships/employees right now and they're going to 30. Softball has 18 and going to 30 and so on and so forth so all you're doing is reallocating dollars from non-revenue sports travel and expenses into salaries.

 

[CascadeClone]

What exactly is the equity firm going to own?

The equity, Jerry!

And then they just write it off!

 

[CloneLawman]

What exactly is the equity firm going to own?

They're coming for the crown jewel of the Big 12-- Cyclone Fanatic. Hide you wife! Hide you kids! Hide yo login!!

 

[FriendlySpartan]

Everything people are saying about how the deal is structured and expected return is true. Those items will be huge in whether this is a good deal or not.

Another thing not mentioned is this could be catastrophic for both parties if media rights for the Big 12 don’t increase in 2031.

If a Super League forms, if streaming partners don’t get as involved as we think, if ESPN is spun off or greatly cuts budget, etc., the B12 could be royally f’d.

Like we wouldn’t need to worry about playing second fiddle to the P2, we’d need to worry about remaining solvent.

That’s been the shocking shift of this discussion. Before this announcement alot of people on the board were talking about 2030 and how the schools would be screwed because the media deals would go down or stay flat. Now they are apparently going up so much that taking a 20% hair cut then for money right now is a “smart idea”. Wild times.

 

[cykadelic2]

Also I’m not sure what you mean when you say costs won’t change even with fewer sports? Do you just mean because football is going to go to 100+ scholarships and baseball is going to go to 20 or 30 scholarships, etc so the remaining sports cost more than they used to?

Correct. Baseball has 11 scholarships/employees right now and they're going to 30. Softball has 18 and going to 30 and so on and so forth so all you're doing is reallocating dollars from non-revenue sports travel and expenses into salaries.

How can any discussion regarding the increase of FB schollies to 100+ be rational? The opposite should be happening in light of House settlement obligations. Reducing FB schollies from 85 to 70-75 is a no brainer not only for House reasons but also to provide much needed parity (and resulting TV dollars) for the sport.

 

[1UNI2ISU]

How can any discussion regarding the increase of FB schollies to 100+ be rational? The opposite should be happening in light of House settlement obligations. Reducing FB schollies from 85 to 70-75 is a no brainer not only for House reasons but also to provide much needed parity (and resulting TV dollars) for the sport.

I'd like you to tell me one thing in college sports that's been rational at any point in history.

TV doesn't give a **** about parity, TV wants brands that bring eyeballs and those brands are consolidated in two leagues plus the school with enough pull to get it's own TV contract.

It's an absolute fool's errand that the Big 12 or ACC or anybody else can realistically expect to stay within shouting distance of those leagues long term.

 

[Cydwinder]

Agreed the Big 12 doesn't have a huge brand but there is still a brand there so I have a hard time getting onboard with completely changing the name. But certainly not the first league to do this Barclay's Premier League etc...

I completely agree. My point is something like Barclays Premier League can easily be changed to the HSBC Premier League and it doesn’t damage the brand. It is still the PL at its core. If the Big 12 changes to the Allstate 12, it would be a bad decision in my opinion

 

[FriendlySpartan]

I'd like you to tell me one thing in college sports that's been rational at any point in history.

TV doesn't give a **** about parity, TV wants brands that bring eyeballs and those brands are consolidated in two leagues plus the school with enough pull to get it's own TV contract.

It's an absolute fool's errand that the Big 12 or ACC or anybody else can realistically expect to stay within shouting distance of those leagues long term.

There also has never been parity so all this clamoring for it now is very random.

 

[CascadeClone]

I'd like you to tell me one thing in college sports that's been rational at any point in history.

TV doesn't give a **** about parity, TV wants brands that bring eyeballs and those brands are consolidated in two leagues plus the school with enough pull to get it's own TV contract.

It's an absolute fool's errand that the Big 12 or ACC or anybody else can realistically expect to stay within shouting distance of those leagues long term.

Well let's just all go outside and shoot ourselves, then.

Let me see if I can find a revolver around here somewhere...