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.”