The Big Ten’s $2.4 Billion Loan is on Life Support
As the Big Ten vigorously debates the merits of a $2.4 billion pension fund loan, we should all be speaking differently about institutional capital and college sports.
Welcome back to Club Sportico, where we break down the intersection of sports and money—with an extra bit of humor and opinion. Today, we’re talking about The Big Ten (Percent).
Tony Petitti is having a tough few days.
The Big Ten commissioner has spent months negotiating a capital infusion for the conference, and as of last week, appeared on the verge of a $2.4 billion loan from a California pension fund. Now, however, the deal appears to be falling apart.
Speaking at a Columbia University event on Thursday morning, Petitti said there was “a tremendous amount of support” for the proposal. Just a few hours later, multiple Michigan regents went nuclear on both the deal and the Big Ten’s process.
“The contrived urgency of this matter is frankly mysterious to me and to my colleagues on this board,” regent Mark Bernstein said during a meeting on the matter. “The conference needs to slow down and consider better ways to address the very real problems facing some Big Ten universities.”
“We are working to fully understand all options for funding athletics and will take the time needed to do so,” regent Sarah Hubbard said. “We will not be rushed by false deadlines or pressure from those that do not hold the fiduciary responsibilities we do.”
In response, the Big Ten put out a statement saying the conversations were “ongoing.”
The proposed plan is very similar to the private equity deals that have been discussed inside athletic departments for the past few years. UC Investments, an arm of the University of California pension system, would give the league $2.4 billion in upfront cash in exchange for a 10% stake in a new entity that will hold the league’s media rights. For the next 20 years, UC Investments would receive a cut of league revenue.
Despite the rhetoric used by people in favor of the deal, it’s a loan. In exchange for a boatload of cash now, the league is giving back an even larger sum, over the course of two decades.
I was at the Columbia event where Petitti was speaking, and he said something at one point that I had to go back and make sure I didn’t mis-hear. When talking about the structure of the investment proposal, Petitti said it was similar to the league’s billion-dollar TV deals. Here’s the exact quote.
“I don’t think about it much differently than if tomorrow our conference—or another conference—announced that they had tripled their media rights deals,” he said. “I kind of think that’s what the responsibility of a commissioner is.”
That’s crazy! One of these deals is a long-term loan, with an equity component, that the Big Ten and its members will pay back with interest for the next 20 years. The other is a commercial deal that generates annual revenue, also on a much shorter timeframe. These two things are not the same, and it’s a little alarming to hear the executive in charge of the negotiations for the Big Ten speaking that way.
(After the conference I asked the Big Ten if Petitti wanted to clarify the remark. I was told he was speaking primarily about the motivation of a commissioner to maximize revenue, not about specific deal structure.)
I’ve written before about how university leaders appear very worried about the optics of taking “private equity” money. On Thursday, Petitti also made a point to characterize UC Investments as a non-profit partner, a tidy way to talk about a deal that appears purely transactional in nature.
At some point, whether it starts with the Big Ten or with someone else, there’s going to be a flood of institutional capital deals in college sports. When that happens, the university leaders are going to publicly talk about the deal in misleading ways. We shouldn’t let them.
Here’s a starting proposal. Most people in the media are colloquially calling this the Big Ten’s investment proposal. Here’s ESPN’s recent headline: “Big Ten closes in on $2B capital agreement vote.” Yahoo’s starts: “Big Ten inches toward $2.4B private equity deal.”
At Club Sportico we’re calling it what it is. A sale of assets or a loan. Anything else seems disingenuous.
Jacob’s 🔥 Take: Every day, college football looks more and more like European soccer. The exact same debate roiling the Big Ten now played out in LaLiga five-ish years ago, as the league gave up close to 10% of its commercial revenues for the next 50 years in exchange for €2 billion ($2.3 billion), over the objections of leading clubs like Real Madrid and FC Barcelona. Now Madrid is reportedly considering allowing external investors to buy parts of the club for the first time.
I don’t know if CFB leaders should be taking inspiration from Europe’s biggest clubs, or if they should try to run in the complete opposite direction. But hopefully they’re at least studying what’s going on across the pond.
On the most recent Sporticast episode, Scott and Eben spoke with Kurt Badenhausen about his new NBA valuations. In that conversation, Kurt dropped this insane state about the Golden State Valkyries, the WNBA team owners by the Golden State Warriors 👇
Club Sportico is a community organized by Sportico, a digital media company launched in 2020 to cover the business side of sports. You can read breaking news, smart analysis, and in-depth features from Eben, Jacob and their colleagues at Sportico.com, and listen to the Sporticast podcast wherever you get your audio. Contact us at club@sportico.com.