College Sports (Football)

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#254      
the juiceman cometh
Pikeillinifan said:
I know they've had many people 'running the numbers' to show that an up front $140M or whatever it is will be worth whatever we are giving away in future $ to this new entity, but 99 out of 100 times those numbers never work out. Teams will be getting a lot of $ up front, but lose a ton in future potential revenue. Kind of like Chicago selling all the parking meters for a billion $ thinking it was a windfall, only to realize it could have been worth $75 billion if they just kept the rights.

As stated in this thread earlier, it's really hard for any AD or President who needs money today to fund capital improvements to stay ahead of the rest of college football to pass up that money when they can make the future percentage of lost revenue a problem for another day or another AD or President.

Perhaps they think this new entity can improve overall B1G revenue via merchandising and new media/streaming/advertising deals (outside of the big TV deals), and that will make up for the revenue they are losing to pay out the additional shares, and it will be a net gain.

I read somewhere that OSU sold the rights to its stadium parking for 50 years for $500M up front; maybe these things can be worth it.

I guess time will tell, and I hope it benefits the Illini and we can make it to the next level in football - and stay there.
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I'm with you, I'm skeptical. But my bigger concern would be for uneven distribution. If the payments were equal I'd be open to being convinced.

Thank goodness for Michigan and USC it appears (something I never though I would say and hope to never have to say again).
 
#255      
Pikeillinifan
the juiceman cometh said:
I'm with you, I'm skeptical. But my bigger concern would be for uneven distribution. If the payments were equal I'd be open to being convinced.

Thank goodness for Michigan and USC it appears (something I never though I would say and hope to never have to say again).
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Seriously.

On one hand, getting $130-$140M, but opening the door to uneven rev share and giving away unknown amounts of $ to another entity is such a huge risk.
 
#258      
Epsilon
I’m still not clear how this is both a capital investment and a 20-year deal. I get that they want to extend the grant of rights that long but is it an infusion of capital and they have an equity stake or is it something else? Is there some return of those funds in 20 years or do they just take a return based on the success of the league? Without more information I can’t say if this is good or bad but one thing is true, especially if this is true capital: if the league turns this into a successful investment it will become very expensive to buy that capital back and if it turns into a bad investment then there won’t be much money to buy the capital back. So it’s a Pandora’s box you can’t close once it’s opened - if it’s true equity.
 
#261      
Pikeillinifan
Does anyone know Josh's stance on the PC deal?

Not just if he supports it, but if he feels it's best for the B1G and Illinois, or if he's on the fence and needs $ to address our debt and improve infrastructure further.
 
#263      
sbillini
Epsilon said:
I’m still not clear how this is both a capital investment and a 20-year deal. I get that they want to extend the grant of rights that long but is it an infusion of capital and they have an equity stake or is it something else? Is there some return of those funds in 20 years or do they just take a return based on the success of the league? Without more information I can’t say if this is good or bad but one thing is true, especially if this is true capital: if the league turns this into a successful investment it will become very expensive to buy that capital back and if it turns into a bad investment then there won’t be much money to buy the capital back. So it’s a Pandora’s box you can’t close once it’s opened - if it’s true equity.
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It's a valid question because the reporting I've seen around it is a bit confusing. From what I've gathered, it's a 10% equity stake in Big Ten Enterprises (not the league itself). It seems like BTE will hold the commercial assets of the Big Ten and effectively operate more like a for-profit corporation of which the Big Ten will own 90%. I'm a racing fan and follow the business of it side pretty closely. this sounds a bit like how Formula 1 is structured, where the commercial assets (Formula One Management) are separate from the sport itself. The sport itself, i think, is technically owned by the non-profit FIA. And then FOM is owned by Liberty Media, which bought it in 2017 from a PE firm and some other co-owners (Bernie Ecclestone being the biggest minority holder).

The 20 year thing I think is technically a separate agreement on the extension of grant of rights, but is happening at the same time. the new grant of rights would then be transferred to BTE.

Long way of saying, UC Investments would own 10% of BTE, which, in turn, would own 100% of the commercial assets of the Big Ten Conference (including grant of rights). And this would be into perpetuity (until something else changes).
 
#264      
Dkayak
Pikeillinifan said:
I know they've had many people 'running the numbers' to show that an up front $140M or whatever it is will be worth whatever we are giving away in future $ to this new entity, but 99 out of 100 times those numbers never work out. Teams will be getting a lot of $ up front, but lose a ton in future potential revenue. Kind of like Chicago selling all the parking meters for a billion $ thinking it was a windfall, only to realize it could have been worth $75 billion if they just kept the rights.
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Selling your future potential for a small fraction of its value seems to be wired into human nature. Remember Jack and the Beanstalk? Envy and impatience enable concepts like rent-to-own furniture. Now Illinois is pondering the sale of its tollways to pay down pension debt.

These things tend to impoverish the seller because most of us struggle to intuitively grasp the concept of compounded earnings/expenses. NPV calculations are wonderful tools, but can easily be fudged to rationalize the desired outcome. Will B1G sell its cash cow? Why?

This reminds me of the “five whys”, a powerful problem solving tool . . . always ask “why” five times to get to the root cause. Maybe we should ask why we need to sell the cow? To build a new barn?
 
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#265      
fuddrules
sbillini said:
View attachment 44297

It's a valid question because the reporting I've seen around it is a bit confusing. From what I've gathered, it's a 10% equity stake in Big Ten Enterprises (not the league itself). It seems like BTE will hold the commercial assets of the Big Ten and effectively operate more like a for-profit corporation of which the Big Ten will own 90%. I'm a racing fan and follow the business of it side pretty closely. this sounds a bit like how Formula 1 is structured, where the commercial assets (Formula One Management) are separate from the sport itself. The sport itself, i think, is technically owned by the non-profit FIA. And then FOM is owned by Liberty Media, which bought it in 2017 from a PE firm and some other co-owners (Bernie Ecclestone being the biggest minority holder).

The 20 year thing I think is technically a separate agreement on the extension of grant of rights, but is happening at the same time. the new grant of rights would then be transferred to BTE.

Long way of saying, UC Investments would own 10% of BTE, which, in turn, would own 100% of the commercial assets of the Big Ten Conference (including grant of rights). And this would be into perpetuity (until something else changes).
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This seems accurate and thank you.

It's really not a bad deal. Maybe not a great deal long term but certainly not a bad deal. Particularly with interest rates as high as they right now getting $1xx million infusion of cash may be a good deal? You're selling 10% of BTE for 20-years for the upfront money now.

I'll guess if UC Investments can get a 6%-8% return on this money, they'd also call it a success. UC Investments has to look long term somewhat opposite of PE.
 
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#267      
Dkayak
But you still need to very carefully crunch the numbers, with realistic assumptions and sensitivity analysis. Maybe we’re selling 1 cow of a herd of 10, but should also ask why? Is it impatience combined with the glitter of a shiny opportunity or solid business decision? I’ve seen emotions get wrapped up in big business deals too. Those can end pretty badly.
 
#268      
sbillini
Dkayak said:
Selling your future potential for a small fraction of its value seems to be wired into human nature. Remember Jack and the Beanstalk? Envy and impatience enable concepts like rent-to-own furniture. Now Illinois is pondering the sale of its tollways to pay down pension debt.

These things tend to impoverish the seller because most of us struggle to intuitively grasp the concept of compounded earnings/expenses. NPV calculations are wonderful tools, but can easily be fudged to rationalize the desired outcome. Will B1G sell its cash cow? Why?

This reminds me of the “five whys”, a powerful problem solving tool . . . always ask “why” five times to get to the root cause. Maybe we should ask why we need to sell the cow? To build a new barn?
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I think it's important to understand what the numbers are telling us here before jumping to conclusions.

From what I've seen (someone correct me where I'm wrong), UC Investments is getting a 10% stake in BTE for $2.4B. BTE is supposed to effectively hold all the commercial assets of the big ten conference. So this effectively values all the cash flows the big ten makes at $24B (2.4/0.1).

So what does valuing the Big Ten's commercial assets at 24B imply?

In 2024, Big Ten's revenues were 928M. This is expected to be roughly 1.3B in 2025 with the new TV deal. This looks like it's the revenues the conference in general made (excludes school-specific revenues like selling seats, etc.). Assuming that 1.3B is very high margin (the conference itself doesn't have much expenses) and it doesn't pay taxes (which is likely true), then let's assume 90% of the 1.3B gets passed onto schools as cash (1.17B).

You can take a guess at what the discount rate should be for that cash, but if we assume it's 8%, then 24B implies that the cash flows for the conference grow at about 3-4% into perpetuity. Last year, revenues grew at 5.5%.

So i think the debate should be whether we think revenues can grow faster than the 3-4% implied in the valuation. And, i'm assuming the conference did its own math, why would they sell a stake with an implied growth rate at 3-4%?
 
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#269      
fuddrules
Dkayak said:
But you still need to very carefully crunch the numbers, with realistic assumptions and sensitivity analysis. Maybe we’re selling 1 cow of a herd of 10, but should also ask why? Is it impatience combined with the glitter of a shiny opportunity or solid business decision? I’ve seen emotions get wrapped up in big business deals too. Those can end pretty badly.
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Illinois does have an "in" with the Gies School of Business. I have a feeling Josh Whitman knows the numbers.
 
#270      
Dkayak
sbillini said:
You can take a guess at what the discount rate should be for that cash, but if we assume it's 8%, then 24B implies that the cash flows for the conference grow at about 3-4% into perpetuity. Last year, revenues grew at 5.5%.

So i think the debate should be whether we think revenues can grow faster than the 3-4% implied in the valuation. And, i'm assuming the conference did its own math, why would they sell a stake with an implied growth rate at 3-4%?
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This illustrates the puzzle and the need for caution. It’s not a black-and-white good deal.
 
#271      
Dkayak
fuddrules said:
Illinois does have an "in" with the Gies School of Business. I have a feeling Josh Whitman knows the numbers.
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Is Josh is the decision-maker on our vote? Maybe above his pay grade? Do the trustees get involved?

And we’re 1 vote among 18 universities, some of whom are jockeying for advantage over the rest. I’d be very disappointed if we voted to fuel the elite’s continued financial edge. I’m starting to sound like a Fudd myself!
 
#272      
fuddrules
sbillini said:
So i think the debate should be whether we think revenues can grow faster than the 3-4% implied in the valuation.
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I think this is the purpose of BTE. Something along the lines of: leverage the entire conference, monetize some underdeveloped areas, etc... and viola, you're growing faster than you were in the past.
 
#273      
fuddrules
Dkayak said:
Is Josh is the decision-maker on our vote? Maybe above his pay grade? Do the trustees get involved?

And we’re 1 vote among 18 universities, some of whom are jockeying for advantage over the rest. I’d be very disappointed if we voted to fuel the elite’s continued financial edge. I’m starting to sound like a Fudd myself!
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It's the president but Whitman will certainly be a big part of it and understand all of the numbers.

There is a possibility (just a WAG) - that Michigan isn't a fan of this because it *may* help the cellar dwellers more than Michigan. So Michigan says, "blank" em. Or it may be entirely some other reason :) more likely, just some odd duck board of trustee members at Michigan.
 
#275      
RabidDawgClassic
sbillini said:
You can take a guess at what the discount rate should be for that cash, but if we assume it's 8%, then 24B implies that the cash flows for the conference grow at about 3-4% into perpetuity. Last year, revenues grew at 5.5%.
grow faster than the 3-4% implied in the valuation. And, i'm assuming the conference did its own math, why would they sell a stake with an implied growth rate at 3-4%?
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I’ve learned, over my 50+ years on this earth, that people in authority who you would assume to be smart often turn out to be idiots. And when you add the promise of mega money to the equation, the idiocy intensifies (see: Mets, New York, Bobby Bonilla Deal).
 
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