Let's talk about private equity for a second

Good morning, and thanks for your continued support of Extra Points.

There’s a lot of interest in private equity in college athletics right now. The Big Ten is reportedly kicking the tires on private equity investments. The Big 12 and AAC have also looked into it, and very well may announce deals later this year. Florida State also memorably considered it, although those talks didn’t end in a deal. 

Wait, why would any college athletic department or conference want anything to do with private equity?

Good question. Let me answer that by talking a little bit about this business.

Last January, I was shopping Extra Points around to potential buyers. I knew that I would no longer be able to work under our previous ownership model (D1.ticker). I could have tried to do everything myself, but I realized that what Extra Points really needed was some additional capitalization (so we could afford to make investments to grow), and a partner with skills that I don’t have. I’m a competent reporter and writer, and I’d like to think I’m an uncommonly creative thinker, but I’m just not as good at sales, marketing, product building or time management as other people. I wanted help.

Did I take any investment meetings with massive institutional investors, like BlackRock or Morgan Stanley? No, but I did have some meetings with home offices of investment groups, along with traditional media organizations and private individuals. Eventually, after considering a lot of different options, I ended up selling equity to a single individual (Dennis Alshuler), who is helping turn Extra Points into a more mature company.

This scenario is one of the reasons any entity might engage with private equity. While there are lots of ways to potentially get capital to make business investments (like going to a bank), partnering with private equity could potentially give capital and access to specific expertise and relationships.

The sorts of folks who run college athletic departments may be smart administrators and good humans, but many of them do not have a sophisticated understanding of the global entertainment business, user analytics, creating and managing new IP, sponsorship sales, and plenty of other components that come with running a big-budget professional sports business. And that’s what big time college sports is these days. The pros.

Sure, in a world where revenue sharing is going to represent a $20+ million dollar hole in P4 budgets, and where ambitious G5 programs need as much cash as possible to try and close the gap, a giant capital infusion via private equity is going to look very attractive. But from talking to folks on the college side and equity side, it’s the connections, experience, and skills that really make a potential partnership attractive for schools.

So why hasn’t this happened yet? What are the meaningful risks? Are there other models?

Let’s talk about it. And since I can’t cram everything into one newsletter, let’s consider this the start of that conversation.

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