The Big 12 Conference provided college athletics some summer discussion fodder with a pair of potential moves for the league that were reported on Thursday: A potential deal for naming rights of the league, and another possible deal to give a private equity firm a stake in the league. And these are not moves that are created equally.
While the potential for the Big 12 to apparently become the “Allstate 12” conference, or something similar, kicked off plenty of jokes and online furor, it would be a deal with private equity that could ultimately come back to haunt the league and its member schools, as far as On3’s Andy Staples and Pete Nakos are concerned.
And the issue is borne from a key difference between how these respective deals would function. Naming rights, while easily mocked, is essentially just the league changing its title branding for an infusion of cash. Operations would not be effected, save for a bit more money to distribute to schools. Private equity, on the other hand, would be staking the league a large up-front sum of money — presumably to make up for revenue shortfalls relative to the Big Ten and SEC — and get partial control over the league, member schools, and get paid back with interest over a term of years (likely decades). The former of those would likely be tolerable for college athletics, and the latter could be disastrous.
“They are going to boss around, they are going to tell you what to do, and there is probably a higher percentage that they tell you to cut sports than if you don’t bring in private equity,” Nakos said.
Staples expanded further on how things might go for athletic departments if they open the door for a private equity firm to have a say.
“Yeah, because they’ll be like ‘Which of these sports make money?’ And they’ll be like, ‘Football and men’s basketball.’ And they’ll go, ‘Cut everything else.’ And you’ll go, ‘Well, no. There’s a thing called Title IX.’ ‘Cut exactly what you need to comply with Title IX and have nothing more than that.’ That’s what they’re going to say. It is a pretty dangerous situation, it’s a dangerous path to go down,” Staples said.
The exact nature of a potential Big 12 private equity deal is also still unknown. The terms that were reported on Thursday are not final, by any means, but the broad strokes of a deal would be a payout to the Big 12 — ergo the schools in the league — in the neighborhood of $800 million to $1 billion from a firm in Luxembourg, for about a 20% stake in the league, along with getting paid back with interest.
Part of Staples’ opposition to this idea for a college athletic conference is because of what he’s seen private equity do elsewhere in America. And perhaps no set of institutions in America has been harmed more clearly than newspapers and print media.
As illustrated in this Harvard Nieman Lab excerpt from American University professor Margot Susca’s recent book, “Hedged: How Private Investment Funds Helped Destroy American Newspapers and Undermine Democracy,” private equity firms have done to newspapers and other media outlets what Staples suspects would happen in college athletics: The institution gets mined for whatever assets and resources to make sure the private equity firm gets paid, all while not caring about the product at hand — newspapers or college sports — inevitably suffers.
Private equity, by then intent on maintaining profit, hampered other efforts to innovate and pushed for further acquisitions. Gannett’s 2005 annual report explained: “Within the publishing segment, the company continues to diversify and expand its acquisitions.” Brian O’Connor remembered a similar situation at the Detroit News, which in 2005 was sold by Gannett to MediaNews Group. In that period, O’Connor sat on an informal digital advisory board, and in the 2000s he proposed ideas that included an email newsletter. “We were told, ‘Our software isn’t set up. We don’t have the money for that.’ Everything was ‘We can’t do that.’ The great digital future was upon us, and we were told we can’t even do a newsletter if it made money,” O’Connor said. Once Alden took over board seats and started managing MediaNews, the situation deteriorated at that chain. Gabi Boerkircher went to MediaNews’ Boulder Daily Camera in late 2010 not long after graduating with a journalism degree from the University of Colorado Boulder. By 2011, with Alden executives on the board, Boerkircher said that cost-cutting and money became all anybody could talk about. A designer at that time and twenty-three years old, Boerkircher suggested apps that would capitalize on the region’s booming brewery scene. “We were told, ‘What’s the click rate? What’s the return on investment?’ It just took the joy out of it. We had to twist it to say that we could sell advertising,” she remembered. Even then, talks to engage local audiences stalled.
In college athletics, this would include cutting sports, for one, but also likely putting the kibosh on new facilities projects, downsizing administrative staffs that have grown in recent decades, and whatever other cost-cutting or revenue-generating measures that could be thought up.
Plus, at this point, there are more questions than answers about how the Big 12 Conference — a not-for-profit entity that basically exists to collectively sell the media rights of the member schools and then distribute the payouts from that and other sources of revenues to the schools — could actually offer up a stake in the league to a non-school. Plus, of the 16 member schools going forward, 13 are public universities, further complicating notions of giving any amount of control to a private firm.
“What if the Big 12 doesn’t exist in a decade?” Nakos said. “What if conference realignment comes with Big Ten contracts that are up with FOX and CBS, who’s on the hook for that billion dollars?”
It’s a question that, at this point, doesn’t have a clear answer — and even if one does come, Staples, Nakos and others would likely be skeptical that this deal could work out positively for the Big 12.
“All of these people want to make their money back,” Staples said. “This is not a charity. Like, none of this — imagine getting a billion dollars. And I was thinking about this, because now if you buy a car or if you buy a house, the paperwork is such that, they made laws that the paperwork has to show you exactly how much you’re paying with interest over the life of the loan. So if you buy a house for $300,000 and you finance like 80% of that, you’ll see that you’re paying, depending on the interest rate, over a million dollars by the time you’ve paid for 30 years. What does that look like for a billion dollars? What is the expected return? How fast do they want it back? I’m not sure that these people are ready for this.”
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