On Thursday morning, CBS Sports’ Dennis Dodd reported that Big 12 member teams are “considering a first-of-its-kind private equity investment to ensure the league’s long-term financial and competitive security.” The reported investment would include a cash infusion of $800 million to $1 billion in exchange for a 15% to 20% stake in the Big 12. “A portion of the funds would go directly to the 16 member teams, and the partnership would give the conference access to CVC’s investment services and clients,” Dodd reported.
The impact of a potential deal would be landscape-changing in college sports, and today we’ll evaluate the pros and cons of private equity investment in the Big 12 from the perspective of member schools, including BYU.
1. Closing the fiscal gap
The first and most obvious benefit is money. The increase could allow the Big 12 to close the gap with the SEC and Big Ten. Currently, the gap between the SEC and Big Ten is set to widen once new media contracts and the CFP kick in.
In a future revenue-sharing era, it will become increasingly difficult to remain competitive on the field as the funding gap widens.
This is the only viable option to close the financial gap over the next decade, and if the Big 12 can remain competitive on the field and grow the brands of its 16 member schools, the risky private equity bet could pay off in the future.
2. Stability
“CVC’s investment will likely be contingent on the Big 12 remaining in existence for the long term,” Dodd wrote in the article. “That may require some assurance to CVC that a new rights agreement will be in place in 2031. This investment would certainly be a strong incentive to remain in existence, but with restructuring, that could quickly change.”
In a time of total uncertainty in college sports, private equity investment could bring some stability to the Big 12. Regardless of when the rights grants expire, nothing in college sports is completely stable (just look at the ACC rights grants and Florida State), but a third party like private equity would have a financial incentive to keep the Big 12 together.
Long-term stability is crucial for conferences outside of the Big Ten and SEC.
3. Will expansion improve your position?
The ACC and its relationship with its top brands (Florida State and Clemson) are at risk, and any change in the ACC would put the Big 12 in a good position to poach a few of the ACC’s prized schools, if backed by private equity money.
At this point in the realignment cycle, it’s unlikely that ACC schools would receive a full revenue share if they moved to the Big Ten or SEC (like Oregon and Washington have), and if those two conferences don’t want a full share, the Big 12 could make some attractive offers and land a school like Miami or Virginia Tech.
4. Access to Services and Clients
Here’s a key part of the story that’s rarely discussed: Private equity firms have billions of dollars worth of resources at their disposal. They own a lot of companies, and they could use those companies’ resources to boost the Big 12.
This is a classic private equity tactic: they use their scale to drive efficiencies across their portfolios.
CVC has investments in the Women’s Tennis Association, Grajat Titans (a cricket team in the Indian Premier League), La Liga (a Spain-based soccer powerhouse), Professional Football League (the governing body that runs the French soccer league), Premiership Rugby (England’s top league) and Six Nations Rugby United Rugby Championship (the top league in Ireland, Scotland and Wales).
They may not have college sports experience, but they do have athletic experience, and CVC’s portfolio appears to have valuable resources that Big 12 member schools could leverage.
5. Be a pioneer
The Big 12 isn’t the first conference to consider private equity investments — Florida State is considering opting out of the ACC rights concession — and whether it’s private equity or another mechanism, college sports is clearly a money-making business. The Big 12 could be the vanguard of this new era.
1. No love for college sports
CVC’s largest investment in the U.S. is Petco, and while I don’t mean to bash Petco, there aren’t many parallels between Petco stores and the wellspring of greatness in college sports.
CVC does not invest in the Big 12 for the love of college sports or the long-term health of college sports. They only invest if they see a return on their investment. Their only connection to the Big 12 is as a way to make money.
This is the dangerous element in this equation: people with no knowledge or connection to the sport can make crucial decisions that affect the people who love the sport – the fans.
2. Let them make money.
Private equity is all about money, and there are two ways private equity firms make money on their investments: through increased revenue and increased profits.
Revenue growth is the top priority. CVC’s primary concern is revenue growth for the Big 12. If revenue doesn’t grow at the same rate they expected when they invested, attention can quickly shift to cost cutting. In the absence of revenue growth, cost cutting can increase CVC’s profits.
Cost cutting could be short-sighted (personnel cuts, facility cuts, salary cuts, etc.) and could hurt the Big 12’s competitiveness in the long run.
If the Big 12 were to partner with private equity, they would want to have financial control.
3. Rocking the Boat
Private equity investments would be disruptive and would change the collegiate landscape, and the Big Ten and SEC, the two most powerful conferences, may not be happy about private equity money in college sports.
That’s a risk that needs to be considered in this equation: Could this deal alienate the Big 12 from the two most powerful conferences? If the answer is yes, the long-term impact could be devastating.
4. Be prepared to interfere
What happens if the football program is underperforming, will the CVC seek to fire the coach, or even the AD?
Private equity firms tend to bring their own talent into the mix when doing deals. CVC has experience in the sports sector and while it may be different when it comes to taking a minority stake, having too much input into the decision-making process is a risk in this equation.
Think of it like a bad owner in professional sports (Cough cough New York Jets(A visionary owner could make it even harder to succeed on the field. The Big 12 can’t tolerate any more on-field disadvantages.)
5. The Church and BYU
BYU’s perspective on this transaction is particularly interesting: since the university’s founding, BYU’s sole purpose has been to further the mission of The Church of Jesus Christ of Latter-day Saints.
The need for financial growth and BYU’s mission don’t necessarily align. This deal will create some obstacles that will be difficult for BYU to overcome. That doesn’t mean they can’t be overcome, but it will require forward-thinking leadership. BYU’s new president Shane Reese and BYU veteran AD Tom Holmoe seem perfectly qualified for the job at this point.
