Big Ten Private Investment – What we know so far & what it might mean
Earlier this year, we saw the passing of the landmark House Settlement. This, amongst other things, allowed teams to legitimately share revenue directly with players for the first time. Conferences have spent a lot of the time since thinking about how to best fund these payments and we received news this week on what the Big Ten (“B1G”) might be thinking. Here is what we know so far and what it might mean.
What’s Going On?
Reports suggest that the B1G is exploring a deal where an outside private investor would invest $2bn in the Conference.
The deal would be structured such that the investor would buy a stake in a new commercial entity. This entity would manage the league’s media rights, sponsorship deals, and other commercial revenue streams. It would be owned by 20 parties: the 18 schools, the conference and the new investor.
It has been said that the investor would have no control over football or administrative decisions. The schools would not be selling a part of their universities.
Big Ten Enterprises
The suggested name for the new entity is “Big Ten Enterprises”. Such an investment in an entity like this would essentially be an investment in future revenue flows from the commercial rights.
The deal will likely be tied to extending out the grant of rights, potentially out to 2046. The Grant of Rights is the agreement where B1G teams grant control over their media rights to the Conference. This would be important as it would hinder a school in leaving the conference, securing the investor’s revenue stream.
All teams in the B1G would need to sign off before such a deal could go ahead. It is not clear yet if all teams are onboard, especially blue bloods like Ohio State and Michigan.
The new investor will be a private capital/equity style firm. It is worth noting that this type of investment is badged as “private capital” and not “private equity”. Whilst this new structure does contain an equity element (in the new legal entity), the firm will not have full ownership or control of the teams.
What is in this for the investor? They would be buying access to long term revenue stream, especially if the teams have locked in their media rights until 2046. As commercial revenues grow, teh upside would likely be shared across all “owners” of Big Ten Enterprises which is where they would get their return.
The Potential Benefits of this Structure to the B1G?
Whilst selling a portion of rights to an outsider might seem drastic, for schools the benefits of such a structure are:
- Jam today: The initial investment from the investor would filter down to the schools by way of a cash injection. This can provide some immediate relief for revenue share payments or operational costs or assist with longer term projects such as funding new facilities.
- Defend against outside interference: Extending the Grant of Rights and securing outside investment should make the conference more resilient to the threat of potential “super leagues” or similar such structures.
- Support with Commercial Activities: Neither schools nor the conference specialise is maximising commercial activities. As such they are probably leaving opportunity and growth on the table. A private investor could bring commercial expertise to grow sponsorships, international rights, and digital offerings, potentially boosting long-term revenue. This is already happening to an extent as per the Penn State ticketing arrangement with Elevate. There are also benefits to negotiating as one block on commercial items rather than 18 individual schools.
The Potential Risks of such a Deal
While the financial upside is attractive, there are several risks:
- Loss of future flexibility: The extension of the grant of rights fixes value today. But should the market for TV rights surge, schools could find that they have locked in at lower values than they could have achieved otherwise. This is the usual opportunity cost of locking into any agreement for a longer tenor.
- Impacts on Traditions of the Game: Part of what we hold dear in college football is the tradition. We are used to Ohio State playing in a crisp red jersey in “The Shoe”. Many will not want Ohio State playing in a jersey covered in shirt sponsors at the “[insert financial institution name] stadium”.
- Potential for Unequal Payouts: We do not have the detail yet of how any initial payouts would be distributed, but it could be skewed to the bigger teams. It would not surprise me if future distributions were also performance tested which would again skew to the bigger teams. This seems logical as those powerhouse teams will of course want to benefit from their stronger status.
- Fan Backlash: We have seen this in the English Premier League, where teams sell rights to the stadiums or try to push Super League ideas. Fans do not always appreciate change and the blowback can be harsh.
What it Might Mean?
There is a long way to go before anything is agreed and the B1G still need to get all schools onside. This will likely rumble on for some time yet. It will be interesting to see what further announcements come out from either potential partners or the schools themselves. Of course, in this environment we may also see Government officials wade into to the debate.
One thing is clear, there is no turning back and schools are now in an era of sharing revenue with players. Moreso, with NIL, revenue share and the transfer portal spreading talent more evenly, teams will need funds to invest in other differentiating factors, like their facilities. Further commercialisation is coming.
The tricky part for schools is that they are constantly balancing sporting, academic, and commercial priorities. How do they balance academic focus with generating revenue? It normally requires taking on more staff, but people are expensive. External help would be welcome in this regard, but schools must be careful not to sell too much of their soul through the process.
Private Capital/equity always carries a stigma around cost cutting etc, some of that is justified. I don’t think that is the issue here. The bigger risk is external investors lurching the commercial elements of the sport in a direction many find unpalatable. Too much too soon is a real risk. Schools also need to be wary of signing up long term deals with partners who are not always known for hanging around for the long term. An 11 year investment for Private equity/capital is quite a long time.
Private Capital is an answer to a problem the sport has at present. It might not be the only answer but it is one that the B1G is taking seriously.
