Here's what direct foreign investment in college sports could actually look like:
No, not like the PGA/LIV situation. And probably not with NIL:
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Thanks to everybody who called, texted, emailed, DMed, etc with well wishes. We’re all back from the hospital now, and my kid is healing well ahead of schedule. Hopefully, this newsletter should now be able to return to our regular, four-day-a-week publishing schedule as well.
Earlier this month, massive news shook not only the golf world but the entire sports business industry. The PGA announced it would merge with Saudi-backed LIV Golf, creating a new, single golf entity, one which would receive substantial new investments from the Saudi Arabia Public Investment Fund. The final details are still being hammered out and will intense scrutiny from regulatory officials in multiple countries, but as it stands now, it’s fair to say that the Saudis will now wield substantial influence over professional golf.
Money from middle eastern sovereign investment funds isn’t new to sports. The Abu Dhabi United Group for Development and Investment owns a controlling stake in Manchester City, and the Saudi PIF fund owns Newcastle United. Sovereign investment funds have also been active in investments surrounding international track and field, F1, and others. But the PGA merger is one of the first examples of dramatic foreign investments in American sports properties.
It isn’t the last. Just last week, a Qatari investment fund announced it is seeking to purchase a 5% stake in Monumental Sports & Entertainment, the group that owns the Washington Wizards, Mystics, Capitals, and Capital One Arena, along with other real estate and sports holdings.
This influx in foreign spending led many to wonder if, or when, we might see similar capital infusions in college athletics.
"How do we not know the next step down the road isn't NIL and the SEC" - Mike Tirico just now on Golf Channel on the future opportunities in US sports after the PGA/LIV merger.
— Peter Burns (@PeterBurnsESPN)
Jun 6, 2023
Despite heavy consumer interest, it isn’t really easy for a sovereign investment fund to pump money into college sports…at least not directly
Qatari and Saudi funds aren’t just heavily investing in sports properties so they can engage in sportswashing, although they are absolutely trying to do that. They’re also doing it to make money. Throwing money at Manchester City, PSG, professional wrestling events and more isn’t a charity or a heavy-handed way to demonstrate international soft power. They’re hoping these investments grow in value, so they can extract profits.
It’s fun to make jokes about Texas A&M turning their Qatar campus into some sort of NIL Death Star, but that’s not the practical reality. A sovereign fund can’t exactly buy Texas A&M or Ohio State or Boston College…, and if a group pumped money into NIL to improve recruiting, there’s no easy way for the PIF to extract profits as they could from making the Champions League. Could some oil sheik or displaced Russian oligarch bankroll some NIL collective? I mean, I guess…but it’s hard to see why they would, when it would be easier and more profitable to just buy an Italian soccer club or a minority stake in the Orlando Magic or something.
But after asking around, I do think there are two ways that foreign investment, be that from Middle Eastern oil states, Chinese state-backed investment firms, or something else, could become significantly financially involved in college athletics.
What if somebody else tries the Pac-12 Private Equity Media Rights gambit?
This whole operation has been memory-holed a bit, seeing as there’s a completely different Pac-12 media rights crisis that’s capturing the public attention.
But back in 2018, then-commissioner Larry Scott floated the idea of the Pac-12 selling an ownership stake in their media rights to a private equity company.
The idea was that the Pac-12 would try to partner with a firm that had direct experience in growing and marketing multimedia rights partners. In exchange for a badly needed initial cash infusion, the PE firm would get to keep a % of future media rights revenue over a certain period. Barcelona did something similar to this with their La Liga TV rights to PE firm Sixth Street.
The first FOIA story I ever wrote for Extra Points was about how the Pac-12 was pitching itself to potential investors. In the end, the league decided not to sell a stake in their future rights.
One of the challenges of this particular strategy is that there aren’t a ton of potential buyers. The Pac-12 wanted a big number, and unlike many other similar investments, figuring out a profitable “exit” from Pac-12 network investment was perceived to be harder and more complicated than a similar deal with professional sports, or other broadcast properties. Nobody else in college athletics has attempted a similar maneuver.
But, theoretically, is anything stopping a future league from spinning up their broadcast rights, MMR rights, licensing rights, and other assets into some new LLC, and then seeking outside investment in that LLC? Other than potential local political opposition, not really. And if one of those outside investors happened to be a major investment bank or PE firm, who then decided to unload their stake to a pass-through LLC tied to a sovereign wealth fund…it isn’t hard to imagine a world where the PIF owns 20% of future Big 12 TV rights.
Likely in the short term? No. Plausible over twenty years, especially if the evolution of cable TV slows down rights fees explosions for non-B1 G/SEC brands, or professionalization forces schools to be even more aggressive about raising revenue? I think it’s absolutely plausible.
Foreign investment could also flow into the infrastructure that supports college sports
Let me tell you a story about my adopted hometown, Chicago.
Back in 2008, the city government decided to privatize its 36,000 parking meters. In exchange for a huge lump sum (over a billion dollars), the city struck a deal to lease the parking meters for seventy-five years.
The listed buyer, at the time, was Morgan Stanley, who then spun the investment into a new entity called Chicago Parking Meters LLC, an entity gobbled up by the Abu Dhabi Investment Authority. Indirectly, a major piece of Chicago’s public infrastructure is now controlled by investors outside of the country.
This is the sort of thing that I could see potentially happening around college athletics. Schools, in conjunction with local governments, often need to raise massive amounts of money for construction projects, such as stadium improvements, campus housing, and more. As I understand it, foreign companies can buy municipal bonds if they wanted, but they could also buy stakes or invest in specific development projects. A Chinese firm made significant real estate investments supporting Barclays Center, for example. Foreign investment money also plays a real part in multifamily residential construction.
Could something like the PIF end up owning a stake in say, a mixed-used residential and entertainment district surrounding a new football stadium? Could it help finance renovations of a softball field? Yes, if that isn’t already happening via enough shell companies to obstruct their involvement, I could certainly see this happening in the future.
Foreign investment may continue to come for other supplemental infrastructure in college athletics. IMG Academy, perhaps the biggest powerhouse prep school for developing D-I talent, was just sold to a PE firm based in Hong Kong. Could there be some future world where international investors gobble up interests in companies like Hudl, Teamworks, On3, Anthony Travel, or others that serve the college athletics industry? Certainly possible!
Is this a bad thing?
Well, that depends.
Regardless of who the investors are, anybody that needs to dramatically raise money is trading some measure of control for cash. An athletic department that badly needs to raise major money from donors to complete ambitious capital projects…suddenly can’t afford to tell their donors that they’re dumbasses who read too many message boards. Now that Chicago has sold off control of the parking meters, the city can’t do things like close streets or add bike lanes without working with their ‘business partners.” Making the cash for control trade isn’t always bad, but it does come with costs.
One of those costs might be needing to ask for money from really gross people….like sovereign investment funds or state-connected firms tied to countries with horrific human rights policies. It might mean eschewing those, but then going to PE firms with different, but also problematic, histories and policies.
I don’t see much interest among fans or athletic leaders in making the business of college sports smaller. Nobody is beating down the doors to invest in modestly sized enterprises that don’t project massive growth. If schools feel the need to keep building, keep growing, and keep chasing others with deep pockets, eventually, somebody is going to ask some very unpopular people for money.
As long as these investments remain profitable, and if league bylaws or federal laws do not prevent them, I imagine we’ll continue to see outside interest in buying into the sports industry. Industry leaders will need to decide what lines they don’t want to cross, even if that means missing out on money that might help on the field.
If recent events are any guide, that line is getting erased.
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