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Sportico
Private Equity has infiltrated Pro Sports, now it's going to College
Eben Novy-Williams
August 6, 2020
College sports is in turmoil. The pandemic is gutting budgets; schisms
are forming between the haves and have-nots, and many conferences with
normally steady income streams are struggling for cash.
In most industries, that’d be a perfect recipe for outside capital. But
in college sports, with athletic departments tucked within public
universities and non-profit conferences managing media assets, the path
forward for private equity is less obvious.
And still there’s interest from both sides, according to firm managers
and university administrators. College sports needs money, and private
equity firms have record amounts of it. The big question is—Can you
structure a deal that satisfies both sides?
“For the most part, these athletic departments are not separate legal
entities, so a debt package doesn’t work, and they can’t sell you
equity because they’re not incorporated like that,” said one private
equity veteran. “But those conversations are definitely happening,
mostly at the league level.”
More than 80% of the so-called Power 5 schools are public, and many
have strict rules around transparent, competitive bidding for
university contracts. Certain deal structures, particularly around debt
issuance, could also jeopardize the entire university’s tax exempt
status, which would make them non-starters, some of the investors said.
Most agree that private equity’s best avenue is instead through the
conferences, and particularly around media payments, the long-term
rights deals that companies like ESPN and Fox Sports pay to televise
games on Saturday. An outside lender could give a hefty up-front
payment to a conference, cash needed to offset losses from COVID-19,
and be repaid through future TV revenue.
The Pac-12 is reportedly considering a similar structure. The league is
working on a loan program for schools that could total nearly $1
billion, according to The Mercury News. By using TV payments as
collateral, the conference plans to let each of its 12 schools borrow
as much as $83 million, according to the report. (It’s unclear who is
providing the loan, and the conference declined to comment).
Long before COVID-19 hit, the Pac-12 hired the Raine Group to explore
similar ways to access short-term capital. Leadership considered
structures that were primarily debt, along with more nuanced deals that
would give an outside investor equity in the conference’s media
enterprise. Despite interest from private equity shops and commercial
banks, the schools eventually decided to do nothing.
The situation is different now, as the pandemic stretches into the fall
and college football appears less likely by the day. Top-division
athletic departments sold more than $1.1 billion in football tickets in
2018, and brought in more than $2.2 billion in media payments, mostly
for football rights. Wisconsin, for example, has said its athletics
department could lose more than $100 million in revenue this year.
Deals like the potential Pac-12 loan offering will likely be replicated
at other top conferences. The Pac-12, however, is the only Power 5
conference that wholly owns its entire media enterprise. Only a few
leagues have enough annual TV revenue to borrow against, and most of
those conferences (the ACC, Big Ten and SEC) have complex partnerships
with ESPN or Fox that include their own networks.
There’s another possibility for private equity—challenge the NCAA from
the outside. That’s the goal of the Professional Collegiate League,
which is currently raising money for an entity that will allow athletes
to earn money playing basketball while getting an education.
The PCL’s original plan was to partner with historically black colleges
and universities (HBCUs) and have school-affiliated teams. Those
conversations fell apart because the schools wanted minimal risk and
hefty revenue guarantees, according to CEO Ricky Volante. Now the PCL
is looking to raise around $40 million prior to next year’s launch.
“The maximum value is to own and control all of your intellectual
property, and all of your own teams,” Volante said. “The only way to do
that is if you’re independent of the schools.”
The holy grail would likely be to merge those two plans, possibly in a
the form of an entirely new conference or collection of elite college
programs. Those conversations, once a thought exercise in college
boardrooms, have become much more realistic in the past few weeks.
The idea of a private equity-owned sports league isn’t totally
novel—Italy’s top soccer league is currently weighing outside investors
and during the 2004-05 NHL lockout, private equity giant Bain Capital
offered to buy the entire league for $3 billion.
“There are a lot of people who would definitely be interested” in
private equity money, one FBS athletic director told Sportico. “College
sports, if it’s done as an actual business in the future, could make
even more money.”
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