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Last week, the Big 12 announced a broad, potentially historic parntership with RedBird Capital Partners. As part of the agreement, the Big 12 office secured a $12.5 million capital infusion to help the league invest in new commerical revenue-generating iniatives. But it also provided an opportunity for individual schools to secure a cash advance.
Accepting the additional school money is completely optional for Big 12 schools. But if they opt-in, schools would be able to obtain as much as $30 million, which would be repaid over a number of years via Big 12 conference distributions.
I reported earlier that my industry sources were telling me only a few Big 12 schools were expected to actually accept that money, even though plenty of conference institutions could probably use it. After all, the Big 12’s TV contract doesn’t pay out nearly what the Big Ten or SEC do, and many Big 12 schools are in smaller cities and with less affulent alumni bases than the R1 research behemoths of the P2.
But so far…the schools that you’d think would be interested…aren’t interested.
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Cincinnati will reportedly turn down the money. So will West Virginia. Baylor and TCU are also reportedly not interested. Houston and UCF are on the record as not interested. I’ve been repeatedly told that BYU won’t take the money either, and Utah’s own PE situation makes accepting another partner impractical. According to FOS, Texas Tech, Iowa State and Colorado will also not opt-in.
Most of the remaining institutions, like Arizona State, Oklahoma State and Kansas, are near the top in the Big 12 when it comes to athletic department budgets and generated revenue. Those would be the schools that would need expensive cash the least.
So why are so many schools turning down the money? The biggest reason, I’m told (and this lines up with local reports), is that taking the private capital offer is expensive. ESPN reports that the RedBird offer carries a “double-digit interest rate”. Public institutions like Houston and Cincinnati, should they need to raise $20 million, can typically borrow money at substantially cheaper rates (via bond sales, local lending, state programs, etc). Even most private schools can usally find a cheaper option.
The biggest reason Utah has turned to private equity (which is different from private capital) isn’t just the money, but the expertise that comes from working with large institutional investors. Utah is hoping that by tapping into other businesses in a PE’s portfolio (like in data, tech, professional sports, marketing, etc), they can generate more revenue than they could if they were simply spending and operating themselves.
That’s not the option on the table here for the rest of the league.
If institutional investors want to buy into college sports (and boy howdy an awful lot of them do), then they’re going to need to present terms that are actually attractive to public universities. Otherwise, don’t be shocked to see more and more schools turning these investment offers down, no matter how badly they need the money.
Speaking of money, what happens when a university needs to cut costs?
A new paper, published in the Chronicle of Higher Education by Friend of the Newsletter Robert Kelchen of the University of Tennessee, analyizes how colleges actually deal with budget challenges, especially as the traditional revenue strategies (hike tuition, start more graduate programs, partner with online programs) haven’t solved the problem. What did he find?
When budget cuts occur, some areas are protected more than others. This sample of disproportionately large public research universities and systems enjoys more financial strength than most of American higher education, but about one in four still faced budget reductions in a typical year. Overall, spending on nonacademic personnel was cut in 60 percent of cases when overall institutional expenditures fell, with a median cut of 2.4-percent. The relatively small trims in personnel spending highlight that many institutions scale back on items such as employee travel, new construction, and professional development before making layoffs.
Academics were most likely to be cut. On the nonacademic side of the house, administrative student employees were most likely to get cut, followed by facilities and general administration. These, along with development, were the only areas to also see decreases in at least a fifth of instances of cuts when institutional budgets increased. This suggests that even in good economic times, central administration looks to tighten its own belt first while also deferring maintenance. Neither of these may be good strategies for the long term as buildings crumble and institutions struggle to maintain administrative capacity, but they can be the least painful in the short term.
Other areas of nonacademic spending were clearly protected, as they are likely viewed as being more mission critical for a range of reasons. Athletics, research administration, and development were the least likely to face reductions when the university’s budget was cut.
That’s interesting to me! As almost everybody looks to tighten their proverbial belts, athletic spending appears to be more protected from cuts than lots of academic spending.
To see this story right after Arkansas (and North Dakota, and Wichita State, and many others) recently announced the shut down of some athletic programs, and with more sport cuts possibly on the way before the end of June, is a bit of a shock…but also makes sense.
How sustainable is it protect athletics after cuts have already been made in instruction, central administration and facility upkeep? Is that politically possible everywhere? To borrow an overused analolgy often used to justify athletics spending…if the house has foundation problems, who cares what the front porch looks like?
Good thing athletic costs are slowing down across D-I—-ahh just kidding, it’s the opposite.
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Here’s what else we’ve been cooking on this week:
I think theres been a lot of industry overreaction about the Amazon/Duke MBB sublicneses. The NIL component for Duke is meaningful, and this is an important experiment in what kind of premium audience can be generated from regular season college basketball, but it doesn’t mean college football games are gonna start going to Netflix or that everybody is going independent again. Here’s the truth.
When athletic departments report official revenue figures to the NCAA, they’re not just including stuff like TV money, ticket sales or video game licensing money. Those figures also include student fees, government appropriations and institutional support. What do revenue figures look like once you take all that stuff out? We did the math.
And we also shared a research study out of UMass Boston that examined what happened to official Cost of Attendence figures once schools were allowed to pay athletes the entire COA. Coaches feared schools would juice the numbers to pay athletes more money. Did they?
And finally, we added another 200+ documents to the Extra Points Library, from game contracts across multiple sports, to the contracts for newly hired men’s and women’s basketball coaches, to vendor deals.
You can get every single newsletter we publish, and get access to Athletic Director Simulator 4000, by upgrading to a premium subscription. It’s just nine bucks a month, and it makes our journalism, our games and our business possible.
Thanks for reading. I’ll see you on the internet next week.
