June 18, 2024

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With college sports reaching a critical juncture, private equity groups are lobbying for their support

With college sports reaching a critical juncture, private equity groups are lobbying for their support

For a year now, Drew Weatherford has operated in the shadows of college athletics.

He held secret meetings with representatives of more than 50 Football Bowl Subdivision programs — dozens of athletic directors, a few university presidents, and even some school board members and chief financial officers.

There were phone calls from his office, Zoom chats in hotel lobbies, and in-person gatherings in coffee shops. Most of them unfold in a similar way. Sociable and charming with a sweeping white smile, Weatherford, a former NFL quarterback turned private venture capitalist, presents a slide deck detailing the venture he and co-partner Jerry Cardinale of RedBird Capital Partners launched last year.

Their goal is quite simple: to infuse immediate cash into major college athletic departments.

“No school has said, ‘No, that’s not something we’re going to consider,’” Weatherford said.

In one of the most important weeks in the history of college athletics, as leaders were on the verge of approving A.J Settle a historic antitrust case and adopt a new revenue-sharing model With the athletes, Weatherford is speaking publicly about his exploits for the first time. In two separate meetings with Yahoo Sports, he revealed and then explained the presentations he has given to officials and university staff over the past 10-12 months.

Weatherford Capital and RedBird Capital Partners have combined their powers (and billions in cash) to create Collegiate Athletics Solutions, a custom campaign and business-building platform for investing capital in college athletic departments at the most transformative time in the industry.

“I had a hunch that the revenue-sharing issue was real. This would be another big hit for the athletic departments,” Weatherford said.

College administrators are preparing for the new reality of sharing revenues directly with athletes as part of the terms of the House settlement agreement.

While the The NCAA and schools will pay $2.8 billion in back damagesThey also agreed to a future player revenue-sharing model with a semi-salary cap of $22 million per year per school. Most power conference leaders expect to spend up to $30 million in new revenue annually when considering the revenue-sharing cap, as well as reducing the NCAA’s distribution of back damages and New scholarships are typically added This, to some extent, removes the restrictions on financial aid.

This means $300 million in new money over the 10-year settlement period. That’s why, over the past two weeks in particular, Weatherford’s phone has been ringing more often than usual.

In a timely move last week, RedBird Capital added $4.7 billion to its arsenal for new endeavors, according to the Wall Street Journal, bringing the company to what is believed to be $10 billion in equity.

As part of the Collegiate Athletics Solutions platform, Weatherford and Cardinale are seeking five to 10 programs to invest at least $50 million and up to $200 million. They are in “deep conversations” with a “handful” of programs, though Weatherford declined to identify or discuss specific schools.

At least three athletic directors at a Power Conference school confirmed to Yahoo Sports that they have spoken in depth with Weatherford and Cardinal about the partnership. They declined to reveal their identity because the deals have not yet been finalized.

“If you want to compete at this level, private equity and capital are really important,” said one sports director. “I’ve been talking to these guys for 10-12 months. I haven’t pulled the trigger. But is this what you’ll need to be successful and survive? Yes it is.”

Private equity and private capital are nothing new to sports.

In fact, RedBird acquired Italian soccer giant AC Milan for $1.3 billion in 2022 and has stakes in Formula 1 affiliate Alpine and Fenway Sports Group, owner of the Boston Red Sox and English soccer team Liverpool. RedBird’s independent content studio, EverWonder, runs a new eight-team men’s college basketball tournament based in Las Vegas over Thanksgiving weekend. The tournament is expected to pay participating teams up to $2 million in nothing deals.

These projects aren’t exactly rare in the world of higher education either. But in college athletics, it was very unusual. the words private And justice Together they scare some. Many frown at the idea of ​​athletic departments — originally intended to be a nonprofit marketing and entertainment entity at the university — offering control of a portion of them for quick money.

Weatherford describes Collegiate Athletic Solutions (CAS) as “private capital,” not equity. He says there is no ownership here. Schools are free to be flexible with a lump sum of $50 million to $200 million. It is meant to be spent with other existing capital — such as traditional debt, supportive donations and bonds — to offset expenses such as athlete revenue sharing, coaching salaries, and facility improvements. But freedom is theirs.

He said the CAS venture does not require a management role within the athletic department as private equity often does, although it is intended to be an advisor to presidents and athletic directors in managing revenue growth.

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After all, they have an incentive to see increases in the division’s revenue: they earn a percentage on any new annual growth. Over a period of 10 to 20 years, this percentage decreases from 22% in the first few years to 2% by the end, as the company meets its original principal investment. Weatherford describes this as taking the “revenue dividend.”

If there is no growth, the company does not take any cut.

“They are not authorized to repay the money we give them,” Weatherford said.

These capital companies are built around investing wisely in income-producing entities. Why risk a precarious situation in college sports if you’re not guaranteed a profit?

“I personally believe very strongly in college athletics,” Weatherford said. “As a former athlete, I owe a lot to that, and so does my family. We believe in college athletics. I don’t like the fact that 10-15 teams have a chance to win a national title every year. I would like it to be 40-50. It’s not a level playing field. Not everyone has resources needed to compete.”

New revenue streams are more important than ever for college athletic departments that, over the years, have saved little or no money in reserves.

Most athletic departments use profits from their actual revenue-generating sport (football) to support the rest of the department. This means funding losing Olympic sports and paying for soccer.

Over the years, buoyed by multimillion-dollar television contracts, athletic departments at the highest level have become flush with money. Unable to directly compensate athletes and exist in a competitive environment, departments have poured excess funds into flashy facility projects and multi-million-dollar coaching and administrative salaries in an attempt to compete with their rivals on the recruiting trail.

this result? Many schools have significant debts that continue to expand as the arms race for modernizing facilities and coaching salaries continues — until now. Schools would be allowed — but not required — to pay athletes directly. The facilities arms race is quickly evolving into one focused solely on athlete compensation.

“Every school I talk to says they have to max out revenue sharing or they won’t be competitive and risk being eliminated from their conference,” Weatherford said. “They need to generate more revenue. The reality is that a lot of their access to capital is strained. They’ve raised a lot of their debt for facilities. They’ve leveraged, they’ve raised large amounts of money from donors to build facilities, and I wouldn’t say there’s no more room remaining, but they are approaching the brink of exhaustion.

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But many still question the need for private equity or capital in college sports. Although university board members and school heads are most welcoming to the idea, they are naturally hesitant. They are also the strongest leaders in this sport.

“What can private equity do that schools can’t do with donors?” asks outgoing US Sports Commissioner Mike Aresco. “Another question…does private equity align with your goals? I’m wondering about its role in college athletic departments.

In an interview last month, SEC Commissioner Greg Sankey brushed off the suggestion that private equity was some sort of savior for the industry. “If you use the cliché, ‘If I were buying stocks, I would buy stocks in college sports,’ well, there seem to be a lot of people outside of college sports who think that,” he said. “Something is going well.”

However, the looming revenue-sharing model has officials scrambling for cash. The new model is expected to go into effect starting next school year, in the fall of 2025. Saving over $30 million over fourteen months is no easy feat.

For those who work in the Big Ten and SEC, the task is not difficult. Over the next few years, more than $25 million in new TV and College Football Playoff money is on the way for each of these members.

In the ACC and Big 12, things are more difficult.

In fact, one ACC school may be ahead of others in seeking private money. Florida State and athletic director Michael Alford are believed to be seriously exploring that path, with multi-million-dollar numbers emerging from public records obtained by Sportico and the Tampa Bay Times.

While Weatherford is on the FSU Board of Trustees, he is not involved in the Seminoles’ private equity venture, he said. However, perhaps in the not-too-distant future, Collegiate Athletics Solutions, or some other entity, will present a huge check to an athletic department near you.

“It’s basically like going and getting a loan and paying it off over 15 to 20 years,” another Energy Conference athletic director said. “That’s the thing: How desperate are you? Because you have to pay that note.”