https://www.on3.com/news/inside-the-big-tens-2-4b-deal-why-ohio-state-and-others-could-win-big/
Last November, from his office on Ohio State’s campus, Ted Carter, the school’s president, suggested that the Buckeyes may, one day, earn more revenue than many of their other conference brethren.
“If we get into that conversation, we certainly are in a position of strength,” Carter told Yahoo Sports in a sitdown interview then. “I think we do bring a lot more.”
Almost exactly one year later, the Big Ten is exploring an uneven revenue distribution model as part of its much-ballyhooed private capital investment deal.
Carter’s quote last November goes a long way in answering a question asked by many of the masses:
Why would Ohio State, perhaps the most successful and valuable football brand in college sports, be supportive of a capital deal that gives away a portion of its future revenues for an upfront cash infusion?
The answer starts here: the capital deal introduces a new, uneven distribution structure in which the Buckeyes — maybe more than any of their conference foes — stand to benefit dramatically. But the additional uneven monies (more on that later) aren’t the only reasons Ohio State and other big brands (Penn State and Oregon are in a richer tier too) are supporting this 20-year, $2.4 billion proposal.
To put it simply, they are supporting it because they believe it is a good deal. And they believe it is a good deal for an assortment of reasons and concepts — some of which have been misunderstood.
So, let’s clear the air.
(1) This deal is not with a traditional private equity company. It is with a public, non-profit entity that manages the capital investment portfolio of the University of California’s retirement and endowment fund and other cash assets (UC Investments), totaling $200 billion. The Big Ten’s deal is specifically with the investor’s pension/retirement fund. It is purchasing a 10% stake (at $2.4 billion) in the league’s new business subsidiary, Big Ten Enterprises, which is expected to serve as a more modernized entity to generate revenue through consolidated sponsorships, special events and other initiatives.
(2) UC Investments will hold a very limited role in decisions within Big Ten Enterprises and will have no decision-making power in the conference’s day-to-day operations. It is expected to hold a single seat on the governing board of Enterprises, giving it just a 10% voting bloc.
(3) The offer from UC Investments requires it to hold its portion of Enterprises for at least 15 years, meaning no quick sale of its 10% stake. Big Ten schools hold considerable authority on approving any sale after 15 years. In a statement it released last month, UC Investments suggested that this is a long-term play. “We consider Big Ten Enterprises a 100-year investment,” it said.
(4) The required 10-year extension of the grant-of-rights — from 2036 to 2046 — does not mean the Big Ten is extending its television agreement with Fox. The league’s deal with Fox ends in 2036. This extension only extends the bond among the schools by 10 years, not the bond among the schools
and Fox.
(5) UC Investments’ stake in Big Ten Enterprises would generally allow it to earn 10% on future media rights, sponsorships and event revenue. The other 90% would be split among Big Ten members. The investment contains no debt, meaning the league and its members do not have a repayment obligation. The Big Ten’s annual media money alone is expected to exceed $1 billion within a few years.
(6) While commissioner Tony Petitti has spearheaded the capital endeavor, Big Ten university presidents directed him to do so roughly a year and a half ago. The presidents, in fact, rejected a more traditional debt deal, opting instead for the proposal now on the table — a concept that values the Big Ten at a whopping $24 billion.
Now that we got that out of the way, let’s circle back to
why 16 schools seem to be in favor of this deal.
First off, are 16 of the 18 schools
really in favor of the deal?
You should know that Ohio State continues to hold dialogue with the Big Ten office over, specifically, governance issues within Big Ten Enterprises. While the Buckeyes seem mostly in support of some of the capital investment elements, they aren’t necessarily signed on just yet as certain conditions need to be met.
One thing that is clear: There are two schools, Michigan and USC, pushing back against the proposal.
As you probably read on Yahoo Sports on Sunday, the Big Ten signaled last week in messages to Michigan and USC that a tentative vote is scheduled for next Friday.
The league even distributed to the two programs an outline of what would happen if they voted against the deal — a strong indication that all other schools are in support, or will eventually support, the proposal. If Michigan and USC vote against the deal, the schools each have a grace period — likely a few months — to opt into the deal to receive their full capital funds.
According to messaging to Michigan and USC, if they have not opted in by a certain point — perhaps two years? — they would no longer be entitled to the deal and their grant-of-rights would expire at the current date of 2036.
UC Investments has agreed to proceed with the investment at the same $2.4 billion valuation, even without the two schools committing to the deal and extending their grant-of-rights, according to those briefed on the matter. That means the upfront payments to Michigan and USC are likely to be housed in escrow.
But enough about the schools that
don’t want to do this deal. Let’s get back to the other 16.
Why do this?
For the most prominent brands, they’ll reap the benefits of an uneven distribution structure. Along with Penn State and Michigan (if the Wolverines agree to the deal), Ohio State will earn an immediate infusion of $190 million, compared to around $145 million for the next group, Oregon and USC (if it agrees), and $100-110 million for the other 13 schools.
The upfront money isn’t the only bucket distributed unevenly. Future revenue distribution from the conference is staggered: Ohio State, Michigan and Penn State at 5.5% of league revenues; Oregon and USC at 5%; and all others at 4.9%. UC Investments collects 10%.
In addition, there’s a $50 million bonus for a select group of schools once a new television deal is struck, starting in 2037. And there are millions available in a brand and success bucket available to all programs, but likely awarded more regularly to bluebloods like Ohio State.
But why would everyone else support this deal?
It’s quite simple: stability.
“In the most unsettled time in college athletics, for us to commit together for another 10 years is massive,” says one athletic administrator at a Big Ten school.
The 20-year bond provides security for middling or lower-tier programs at a time when college sports’ biggest brands are being lured toward a more consolidated or independent structure (think super league).
In fact, during a call Tuesday evening, Big Ten athletic directors expressed their frustration toward those across the country who, they believe, are attempting to disrupt or delay the deal for their own personal benefit.
They’re not happy.
In fact, says one, “we are pissed.”
“Getting a grant-of-rights signed is so important in this environment,” says another administrator. “This is a creative way to bind all schools.”
The extension of the grant-of-rights also positions the Big Ten to maximize its TV rights in 2030 (when its broadcasting deal with NBC and CBS ends) and again in 2036 (when its broadcasting deal with Fox ends).
So, what happens now?
The Michigan regents are scheduled to meet next Thursday, a day before the Big Ten’s tentative date for a vote. The Wolverines hired their own banker to examine the UC Investments offer. Also, the American Council of Trustees and Alumni is holding a call this Friday of Big Ten university trustees, many of whom are frustrated with the process and believe they were not involved enough.
“You can’t talk to every f****** board member at all 18 schools,” says one Big Ten school official. “Sometimes this is up to the ADs and presidents to distribute the information.”
So, how will it end?
“I couldn’t tell you that. The longer it goes the less chance,” says another Big Ten administrator.
At least now, hopefully, you have clarity about the deal and an understanding of why schools support giving up 10% of future revenues.
The answer should be clear now: uneven distribution, long-term stability and an infusion of cash at a financially stressful time.
