So It Begins... Private Equity in CFB

[AgronAlum]

This is what happened at my last company. PE bought the company, grabbed the bank accounts, sold the buildings, rented them back, fired the executives (including me), tried to run the company on a shoestring (cutting manufacturing supplies beyond hurting), lost the biggest customer in the process, split up and sold the remaining businesses. A massive cluster and many of my friends were left scrambling to find new jobs. While some PE may actually be beneficial, most seem to be slash and burn.

I ended up getting a MEd and taught Math & Stat at a small college till retirement. Teaching was emotionally rewarding but not really financially rewarding. I did not care, I covered my bills and had a much calmer life.

I'm not sure I know of an instance where they're beneficial to anyone but the select few cashing out on the looting.

Another big scheme lately is buying up maintenance companies (especially HVAC) and sending out salesman instead of technicians. They'll buy up multiple companies in a specific service area and are now rolling out software where they can see if a customer has also sourced a quote from one of the other businesses, so they don't undercut their own price gouging recommendations. They keep the names so it still looks like a family owned business. The PE takeover has happened all over the Des Moines area. I'm not sure about the software implementation yet.

PE has only one concern and it's ROI. The consumer and workforce pay the price.

 

[ScottyP]

I'm not sure I know of an instance where they're beneficial to anyone but the select few cashing out on the looting.

Another big scheme lately is buying up maintenance companies (especially HVAC) and sending out salesman instead of technicians. They'll buy up multiple companies in a specific service area and are now rolling out software where they can see if a customer has also sourced a quote from one of the other businesses, so they don't undercut their own price gouging recommendations. They keep the names so it still looks like a family owned business. This has happened all over the Des Moines area.

Customer: "I would like to get my furnace checked."
Maintenance Guy: (opens inspection panel). "You need a new furnace. This part is bad and they don't make parts for this anymore"
Customer: "This furnace was installed 3 years ago. Shouldn't this be covered under warranty?"
Maintenance Guy: "Sorry, warranty was only 2 years"

 

[HFCS]

They want to invest all of the PE money in football only to be a consistent winner for the next several years to get into the Big 10.

In the end their wildest dreams all Utah can do is match what BYU already has via a weird billionaire.

A lot of this boils down to if you have a weird bilionaire(s) who choses being college sports GM as a weird hobby.

Basketball just makes it even more clear with fewer players to track and now the greatest young basketball players on Earth select super white Mormon Provo as the #1 place to play over Duke, Kansas, Kentucky, UCLA, etc.

 

[drmwevr08]

The return goes to the PE, not the city.

Only if the City does that. Can be done in house. They obv made the decision to farm it out for a defined return and less overhead. Thats a whole separate argument.

 

[AgronAlum]

The only way they get an invite (and I kinda doubt that even happens) is if the playoff expands even more or if they go full SMU and don’t get a cut of the media dollars.

I think you're underestimating the reach and funding these people can acquire if they need to. The backing of RedBird can force open doors Utah never would be able to themselves. Take a look at their assets. But rest assured, the fans of Utah will lose in this deal.

 

[HFCS]

Part of the big problem I have with PE, and NIL for college sports in general to a lesser extent, is that so much of the demand and value is driven by connection to alumni who paid tuition and maybe taxes and in the case of public schools tax payers who may have very little to even do with the school.

We are a loaded basketball team now, but even with this roster only 4 of our players would be equal or better than the typical G league player, yet the passion for these brands earns them 3-20x what a player makes in the G League. A lot of P5 teams don't even have a single player good enough to start in the G league yet almost all of their players are making far more than G league players (the actual market value of players who are better than them) because of the often publicly tax financed brand on their jersey.

If you paid tuition at Utah, paid taxes in the state of Utah, or both, you're now giving some of your tax/tuition money to promote and market a business now run by private equity. The vast majority of the value in these brands comes from the university brand and the intense personal or local connection with them and it's intertwined with people already supporting the school financially directly through tuition or indirectly through taxes.

It's harder to do this comparison with football because "less than NFL" football is in constant fluctuation but I'm sure the same is true with what some really average players are making in college and what some truly fantastic players are making at like the STL Battle Hawks.

 

[Paz23]

It truly is a risky investment. You can buy athletes. You can buy coaches. But even with those your odds, imo, still don't match the ROI risk assessment. This always puzzled me. I'm not sure of the legal ramifications of writing off the losses, which for many companies is a wash. But as an investment, I can't see it.

I guess I just can't wrap my head around it even being an investment. Buying a professional sports team doesn't return much relatively speaking in annual profit, but they are bought by people with enough money to not give a rip, and the appreciation of the asset usually makes it worthwhile on the way out. PE always gives a rip about annualized return and I can't wrap my head around an entity tied to a state university appreciating in value. And if it isn't working, I would think it would be difficult to recoup much of the initial investment by selling it for parts.

 

[inCyteful]

Well this should go well. If you think fans are impatient for results, wait till PE sets the expectations.

 

[WIBadger]

What will this do to their non-revenue sports? This seems like a really bad idea.

I’m not sure it will do that much (at least not initially).

Title ix will still be a thing, which I get doesn’t really impact men’s sports, but they also have minimum sporting requirements for the Big 12 and division 1. I suppose maybe they wouldn’t get as many perks, but I don’t know how much they would be getting anyway

 

[FarmerCy1]

Don't worry, guys, when I win the lottery, I will start a mining company in Africa (my country of Origin), then tie our School sponsorship to gold produced from my mine, and dollars will be flowing in for ISU. We will be getting any player we want as long as they fit into our Coaches' plans and program. It's going to happen. Be optimistic. I just need to hit that combination. With your prayers, nothing is impossible.

When I win, I was going to sink part of the winnings into buying some oil rigs in the Permian basin, and use that sweet sweet oil revenue to fund our Rev sharing into perpetuity. I’ve watched enough Land Man, it doesn’t look that difficult.

 

[AgronAlum]

I think you're underestimating the reach and funding these people can acquire if they need to. The backing of RedBird can force open doors Utah never would be able to themselves. Take a look at their assets. But rest assured, the fans of Utah will lose in this deal.

@FriendlySpartan

You can mark this creative all you want but it's the truth. Redbird got into bed with the UAE last year. The same UAE ADIA that has over a trillion dollars worth of assets under their management. The same UAE that is absolutely pumping money into western media and sports teams. If this Utah deal shows any sort of potential for return, the money will continue to flow into college sports. It's not limited to rights at individual universities either.

 

[jbhtexas]

It would be interesting to see this agreement. For Utah's sake, I hope they put previsions in to limit some of things that private equity firms typically like to do.

 

[cycloneworld]

I guess I just can't wrap my head around it even being an investment. Buying a professional sports team doesn't return much relatively speaking in annual profit, but they are bought by people with enough money to not give a rip, and the appreciation of the asset usually makes it worthwhile on the way out. PE always gives a rip about annualized return and I can't wrap my head around an entity tied to a state university appreciating in value. And if it isn't working, I would think it would be difficult to recoup much of the initial investment by selling it for parts.

Private equity generally looks for 2 ways to get their returns - annual cash flow or making a multiple of the sale price upon their exit in 3-10 years (depends on the PE firm and fun). The language about turning this to a for-profit entity makes me think they want cash flow which would be awful for an athletic department.

 

[FriendlySpartan]

@FriendlySpartan

You can mark this creative all you want but it's the truth. Redbird got into bed with the UAE last year. The same UAE ADIA that has over a trillion dollars worth of assets under their management. The same UAE that is absolutely pumping money into western media and sports teams. If this Utah deal shows any sort of potential for return, the money will continue to flow into college sports. It's not limited to rights at individual universities either.

Oh I didn’t mark that as creative as an insult more as a genuine creative as I didn’t think of it in those terms of opening doors through those channels. I’m very familiar with the sports washing that UAE is doing but didn’t think of it the way you laid out.

I also think this Utah deal is going to get challenged on multipule legal fronts and will put their school at massive risk from losing non profit status. Will be interesting

 

[Cyclone06]

So what upside is there for the VC? They are getting involved in a not for profit... how do they get their money back with earnings? The thought is so dumb I dont even want to read it.

Also is this like a sale/lease back? Sell asset today, repay for asset many times over, forever. Nice.

 

[Die4Cy]

I has a sad.

 

[jbhtexas]

So what upside is there for the VC? They are getting involved in a not for profit... how do they get their money back with earnings? The thought is so dumb I dont even want to read it.

Also is this like a sale/lease back? Sell asset today, repay for asset many times over, forever. Nice.

From the first paragraph of the article...

The University of Utah is on the cusp of striking the industry’s first partnership with an equity firm in a marriage that features a nine-figure capital infusion and the creation and shared ownership of a for-profit entity to operate athletics business and financial elements outside of the traditional university framework.

 

[AgronAlum]

Oh I didn’t mark that as creative as an insult more as a genuine creative as I didn’t think of it in those terms of opening doors through those channels. I’m very familiar with the sports washing that UAE is doing but didn’t think of it the way you laid out.

I also think this Utah deal is going to get challenged on multipule legal fronts and will put their school at massive risk from losing non profit status. Will be interesting

Gotcha. When I see creative on here my brain ties it to sarcasm for some reason. My bad.

In regards to your second point, it would probably also challenge the independent LLCs set up by schools like your Spartans and UK. I believe the LLC ultimately isolates the actual university from repercussions. I'm not sure how taking PE money is any different than other private funding being funneled through those LLCs. Not a tax guy though.

Edit: I just saw JBH's post about it being a for profit entity. I believe MSU and UK are operating as tax exempt.

 

[Die4Cy]

From the first paragraph of the article...

The University of Utah is on the cusp of striking the industry’s first partnership with an equity firm in a marriage that features a nine-figure capital infusion and the creation and shared ownership of a for-profit entity to operate athletics business and financial elements outside of the traditional university framework.

Hmm missed that. There's a likelihood that not only will they have to meet ROI for the PE firm, but their operating entity will have to pay taxes on the profits as well.

 

[FriendlySpartan]

Gotcha. When I see creative on here my brain ties it to sarcasm for some reason. My bad.

In regards to your second point, it would probably also challenge the independent LLCs set up by schools like your Spartans and UK. I believe the LLC ultimately isolates the actual university from repercussions. I'm not sure how taking PE money is any different than other private funding being funneled through those LLCs. Not a tax guy though.

Edit: I just saw JBH's post about it being a for profit entity. I believe MSU and UK are operating as tax exempt.

Correct, the sparty option will also be controlled by the school to an extent, it’s almost like a second endowment fund just for athletics. Not sure about Kentucky.

The addition of outside PE funds instead of just private donations without strings is where the two diverge. Going to be interesting to see the pushback Utah gets from it as people were already getting ready to raise hell when the big ten was looking at PE.