Those who know PE specifics better than I, please chime in on how I roughed this out. McMurphy reports possible PE investment of $800MM to $1 billion for a 20% conference stake.
Let’s work with the midpoint, that means a one-time infusion of $56MM per team if it all goes to the member institutions (which frankly the conference office keeps some too, but let’s say they don’t just to keep the exercise simple, and/or best-case for the schools).
I also assume that means 20% of the TV revenue each year immediately starts going out to PE, dropping each school’s annual TV income by $7.4MM. (There are other sources of conference revenue so the total PE cut likely is more than that, yet I’ll leave it at the TV money for this exercise.) But wait, I’ve also seen reports that athletic departments could lose their nonprofit status by taking on PE ventures, adding $2MM to $3MM in overhead costs on bond interest alone (not Big XII specific, national number; maybe it’s less for these 16 schools, but above I also have detailed other likely expenses I didn’t factor in so let’s say that “evens out”), you’re talking $10MM less annual revenue each year in exchange for that $56MM up front.
So the upfront infusion of cash is essentially gone 5-1/2 years into the process and after that point they’re just making about $10MM less each year.
What if they use the $56MM to create an endowment? OK, assume a 16% payout each year (lofty but they have oil-money guys in that crowd so I’ll be generous with benefit if the doubt), that’s $9MM. A strong scenario still isn’t break-even. And they didn’t really get an up-front infusion, if they invest it all.
Oh but McMurphy also reported numbers for selling naming rights. Sure, but they can do that without a PE deal so it doesn’t factor into this equation … and if they do it without a PE deal, they keep 100% of that revenue instead of paying out a proportionate chunk to a 20% stakeholder …
So y’all who deal with PE or have better knowledge of it, help me — open-ended question, what factors (+ or -) am I missing about this?
Let’s work with the midpoint, that means a one-time infusion of $56MM per team if it all goes to the member institutions (which frankly the conference office keeps some too, but let’s say they don’t just to keep the exercise simple, and/or best-case for the schools).
I also assume that means 20% of the TV revenue each year immediately starts going out to PE, dropping each school’s annual TV income by $7.4MM. (There are other sources of conference revenue so the total PE cut likely is more than that, yet I’ll leave it at the TV money for this exercise.) But wait, I’ve also seen reports that athletic departments could lose their nonprofit status by taking on PE ventures, adding $2MM to $3MM in overhead costs on bond interest alone (not Big XII specific, national number; maybe it’s less for these 16 schools, but above I also have detailed other likely expenses I didn’t factor in so let’s say that “evens out”), you’re talking $10MM less annual revenue each year in exchange for that $56MM up front.
So the upfront infusion of cash is essentially gone 5-1/2 years into the process and after that point they’re just making about $10MM less each year.
What if they use the $56MM to create an endowment? OK, assume a 16% payout each year (lofty but they have oil-money guys in that crowd so I’ll be generous with benefit if the doubt), that’s $9MM. A strong scenario still isn’t break-even. And they didn’t really get an up-front infusion, if they invest it all.
Oh but McMurphy also reported numbers for selling naming rights. Sure, but they can do that without a PE deal so it doesn’t factor into this equation … and if they do it without a PE deal, they keep 100% of that revenue instead of paying out a proportionate chunk to a 20% stakeholder …
So y’all who deal with PE or have better knowledge of it, help me — open-ended question, what factors (+ or -) am I missing about this?
