The college athletics industrial complex rarely rests in its pursuit of the almighty dollar, and that is always apparent when power brokers gather in places such as the NCAA Convention, the Final Four or the National Association of Collegiate Directors of Athletics convention.
In the past year, there was a notable set of new faces showing up to such gatherings en masse—private equity executives. They have spent months gauging interest in college athletics and trying to dispel misconceptions about an industry that does not garner the most favorable headlines when issues surface publicly.
Now, such a listening tour appears to be subsiding and the discussions have begun to turn serious. As ESPN reported Wednesday, the Big Ten is locked into deliberations over a private capital deal worth upward of $2 billion that could also involve an extension of the league’s grant-of-rights agreements through 2046.
Commissioner Tony Petitti has continued to push the concept on the league’s agenda, to varying degrees of prominence, since first soliciting proposals in January. Industry and conference sources tell the Big Ten’s talks have centered around three of the biggest private equity firms in the country—Apollo Global Management, Sixth Street Partners and Ares Management—and that a decision on moving forward with a potential deal could happen before the end of October.
Many of the finer details are still being finalized, and there remains a lack of full unanimity among all schools in the Big Ten over whether to ultimately proceed with the new venture. Reaction tended to center around a very obvious question: Why?
“Private Equity deals, at the conference level, make zero business sense. All these deals do is give more power, control, and job security to the conference commissioners [which probably explains these suspicious media leaks and obfuscation with respect to the actual terms of the deals],” Texas Tech regent Cody Campbell wrote on X. “Why would an entity [like Michigan], with a $19B endowment, take money from private equity, when [through their endowment] they invest in private equity funds and pay a fee and promote to do so?? Doesn’t pass the ‘smell test’ at a very basic and common sense level.”
Ask those who have been in the weeds with such proposals or in meetings with private equity executives and you will get a somewhat different outlook. Mostly, there is less surprise over the fact that a rich and powerful league is going down this road and more so that the historically stodgy Big Ten appears to be first.
“Everybody is waiting for somebody else to go first,” says one athletic director outside of the conference. “Nobody wants to be first mover, but if the Big Ten does do it, then [other schools and conferences] are going to be right behind them.”
Almost all in college athletics who are considering similar cash infusions are not treating such agreements as potential private transactions but rather as private deals without the level of control typically associated with the former. That’s a key distinction for both legal reasons, given the various state institutions and nonprofits involved, and a perception one for university presidents and chancellors who are wary of any public blowback.
As ESPN noted, the Big Ten is preparing to spin out a new entity that would handle things such as media rights and sponsorships, which would then distribute part of those top-line revenues equally to schools, the conference office and the outside firm. Nobody is taking a chunk of the Illinois athletic department or holding onto a seat on the board overseeing Indiana as a result. The general belief is that despite splitting the monetary pie with an added slice, the overall amount can grow enough to more than make up for it.
“I think everybody’s still getting educated about what the possibilities are,” American commissioner Tim Pernetti told this summer. “Honestly, the universities with significant endowments can borrow the money against their endowments at a far lesser cost of capital. But the key to these deals, at least in our sense, is we’re out there looking for the right partner. The investment is great, but if I don’t have a partner that’s going to help me grow the commercial business, then what are they actually betting on for future growth? Bringing a partner in that can dig in, help me grow the pie, that’s only going to be better for their investment down the road.”
The American is one of several leagues following the same path as the Big Ten in exploring conference-wide deals with a private capital component.
The ACC has had varying discussions at both the school and league level, while Big 12 commissioner Brett Yormark has brought several investment ideas to his board of directors—including one with Luxembourg-based CVC Capital Partners, reported last year by CBS Sports The SEC, which has generally been the most skeptical over the need for such a move, previously retained Goldman Sachs to see what might make sense for its members in such a changing environment.
Even the Pac-12, under former commissioner Larry Scott, has gone down this road and seriously considered the concept in 2019.
For schools who are weighing their options or fans of universities pondering one of these deals, the most eye-catching aspect is the up-front figure that can run north of $100 million. Even with annual budgets, which have blown past $150 million for many schools in the Power 2 leagues, that’s a significant amount that can address everything from debt service on stadium projects to increasing staff salary pools to, of course, helping pay for revenue sharing with the players.
As much as the recent House settlement and the added yearly expense of $20.5 million (and counting) as a line item in their budget has been front and center for many athletic directors though, it’s not quite as simple as saying that covering such newfound expenses is the sole or even primary driver to do such a deal. Indeed, many who have explored doing something on the campus-level have noted that there is an aspect of entering into a strategic partnership with a big firm that can assist in plenty of other areas.
Sixth Street also owns Legends Global, which is one of the premier venue and stadium operators in the world and has extensive experience in everything from merchandising to food and beverage (some Big Ten schools already partner with the company). Most firms also have substantial real estate expertise and could be key resources for schools that are considering turning some parts of their campus around their football or basketball stadiums into broader multiuse districts similar to what Kansas and Iowa State have done recently.
“These guys do not lose,” says one Power 4 athletic director who has had discussions with private equity executives. “I think in specific cases, they can bring benefits and relationships to the table that you don’t get when you’re just asking donors again or hitting campus up [for more money].”
Of course, any such investment is not without risk. Private equity firms are notorious for looking to cut costs and often spin off valuable assets on top of levying large management fees. Sometimes they charge interest rates well above the market rate, too.
Some of those issues can be mitigated at the college sports level by cutting out the equity and management piece that would be limited in a capital deal, but just how much of a say such firms will have in a league or on a campus after putting up $2 billion or more of their own cash remains an open question. Plus, such entities tend to calculate every conceivable risk factor and almost always walk away with an exit that makes them money in the long run.
Is that worth it for the Big Ten—and beyond—which is considering going down such a road? Decades ago that likely would have resulted in a hard pass, but such a calculus is changing rapidly in an age of college athletics that has evolved even quicker.
“There are always trade-offs in these things, but right now, universities need to be thinking, the proverbial out-of-the-box thinking, about what can we do to maximize revenue and cut expenses?” says former Arizona president Robert Robbins. “I still think [athletics] is one of the best values on a marketing budget of anything that we do. If you win a national championship, if you get into the Final Four, if you get into the College Football Playoff, your number of applications to your university are going to go up. The philanthropic giving to the university is going to go up, the economic impact to your community is going to increase.
“If you’re going to be competitive for national championships, you’re going to have to figure out a way to enhance revenue so that you can meet those demands.”
At least for one conference, it appears it has found an avenue to address just that in inviting the fresh faces of private capital from the backstage meeting rooms directly to the gates. What happens next could change the conference, and even college sports itself, for years to come if the Big Ten decides to open them.
