It’s been a busy couple weeks for the “private equity is taking over college sports” crowd.
Learfield’s sale to TPG was our cover story last week, while the Big 12 also got across the finish line on its deal with RedBird Capital.
What should we make of all of it? I chatted recently with David Sunkin, the co-lead of the sports practice at Sheppard, who advised Big Ten schools amid the conference’s dalliances into private equity last year.
Here were a couple of his thoughts:
Answers have been lightly edited for clarity and length.
SBJ: What do you foresee as private equity’s role in college sports, and how might that tie into TPG’s purchase of Learfield?
David Sunkin: “It’s interesting, and it makes an awful lot of sense when I think about it. ... What I really think is sports generally is a big asset class. College sports in particular is a new focused asset class, a bunch of monies circling. There’s a lot of private equity folks that want to be in that asset class. And frankly, I think it’s harder right now to put private equity into a college athletic department or a conference because it’s just made up of college athletic directives. That’s not a private-type investment that private equity is used. ... The recipient of that money when it’s a college or a college conference exclusively, sure, everybody likes money. They need money for all the reasons everybody knows about, but they look at it differently than I think a private enterprise does.
“For private equity, there’s a learning curve and a comfort curve that needs to be addressed. Because if you’re a college athletic director or the Big Ten conference chairperson or Big 12 or SEC, whatever the case may be, your constituents, they’re not entirely driven by commercialism and capitalism. There’s the academic side. There’s a lot of politics involved within a campus, a lot of politics when you’re talking to public schools. You have the regents. It’s going to take some time for private equity to find [its] way where both sides are comfortable.
“So, if you’re TPG or Ares or Arctos or whatever, you say, ‘OK, let’s invest in another part of the college sport ecosystem. It makes perfect sense to go into a company like Learfield that controls so much in the media rights world, because they’re not owned by the taxpayers of California. They’re owned by private individuals that look at it in a more traditional kind of way.”
SBJ: This might be a basic question, but why is it that PE firms are actually interested in college sports?
DS: “Look at the asset class for professional [sports] — NFL teams, NBA teams, many MLB teams, MLS. There’s a lot of investment in emerging sports. ... Institutional capital is investing in those things and will continue to do so. But college sports dwarfs all of that stuff. It’s huge. And the colleges need the money now because of the professionalization. They’ve got to pay the players now. NIL. All that stuff. The media rights are massive. There’s tremendous revenue sources that are really traditional and can be examined with diligence.
“It’s sort of a perfect time where the money is really big in college athletics — primarily media rights, venue development, all that kind of stuff. The programs need money now more than ever in order to compete and to provide a phenomenal game-day experience for their fans. So, you look at that and you look at the hockey stick returns in professional major sports franchises, and it’s viewed as a really, really attractive asset class.”
SBJ: What are maybe some of the misconceptions about PE trying to jump into college sports? What is PE? What isn’t it?
DS: “The public perception of private equity on Main Street is, unfortunately, generally not great, because it’s very complicated. Politically, people use it as sort of a stalking horse to say, ‘Oh, that’s wrong. They come in. They break it up. They lay people off, and then they take it public or they sell it and they get their big returns.’ Sometimes that happens. But if you look at sophistication that many of the private equity firms have developed over the years, primarily through their investments in professional franchises — the NFL obviously expanding for the first time ever, allowing that to happen — they bring in financial discipline, which is not another word for ‘cutting costs.’ Financial discipline, whether it’s in your household budget or state budget or federal budget or a large company budget, is not a bad thing.
“... Media rights have exploded. The kinds of money that these media rightsholder companies have to pay for a major Notre Dame, USC, Penn State, whatever the case may be, is huge. The market has driven that, and I think that has put stress on some of these folks. Learfield has experienced that stress. Others have. Having somebody in the room that’s already invested significant amounts of capital allows them to get follow-on capital to help maybe smooth things over and be less distressed at times. That’s good. They have a lot of operating asset management know-how. That helps.”