One of the main purposes of Private Equity has been to revive distressed companies. Could this industry help the Pac-12, a cash-strapped university sports conference?
Currently, the Pacific 12 Conference wants a $500 million investment from private equity partners in exchange for a 10% stake in the league’s network and other assets, per the Oregonian newspaper. This potential deal valued the new business between $5 billion and $8.5 billion. This would include other non-tangible assets like distribution rights, sponsorship rights, and more.
It’s uncertain if any formal plans have been made between future investors and the Pac-12. Frustrated Pac-12 commissioner Larry Scott discussed the plan with his leadership in November and if it passes, it could give each school out of the 12 universities within the network $42 million. This money is desperately needed since the Pac-12 doesn’t have the revenue generating power of other larger football conferences like the SEC and the Big Ten. These two powerhouses distribute more than $15 million per year than the Pac-12 does to its member universities.
Why would Private Equity firms care about this deal?
In 2011, the Pac-12 signed a 12-year television contract with ESPN and Fox worth roughly $3 billion. This deal will expire in 5 years and the future contract would provide a nice additional source of income within 5 to 7 years. This arrangement would allow the conference to still have control over operations.
A private equity firm should be mindful of associating itself with a league that is infamous for overspending on its downtown San Francisco headquarters, overseeing many football officiating errors, and producing a team that hasn’t reached the college football playoff in three of the past four years. The Pac-12 hopes to overcome these doubts by hiring FleishmanHillard, a PR agency that helps companies overcome crisis management according to The Oregonian.
After its deal with ESPN and Fox, the Pac-12 Network stated it was independently owned and would, therefore, receive 100% of the proceeds. Currently, this agreement hasn’t been very lucrative and the conference couldn’t strike a deal with DirecTV due to a disagreement over media rights. This has cost the Pac-12 millions and diminished its national exposure. Lastly, Scott has drawn controversy with his $4.8 million compensation package, per a USA Today report. This amount was more than double his Big Ten and SEC counterparts’ salaries in 2016.
Article By: SG Staff