The Big 12 needs more money fast. Is investing in Allstate or investing in private equity a good solution?

Countless stadiums, arenas, golf tournaments and bowl games have sponsors in their titles. The most popular soccer league in the world was called the Barclays Premier League until 2016. Private equity firms currently hold ownership stakes in more than 60 sports franchises in North America, According to Pitchbookin addition to many of the best football clubs in Europe.

But when news broke Thursday that the Big 12 was hosting a potential sponsorship deal with insurance giant Allstate and a $1 billion private equity partnership, you could almost hear the collective reaction: “How dare they?!”

Kirk Wakefield, a marketing professor at Baylor University, had a very different reaction to the potential title sponsorship.

“You wonder why people haven’t done it already,” said Wakefield, who runs a research firm that studies the effects of sponsorship on sports leagues and brands. “It’s a clear opportunity.”

David Carter, a sports business professor at the University of Southern California, looks at the plight of the Big 12, which lag hundreds of millions a year in revenue behind the Big Ten and the SEC, and sees private equity as a matter of Darwinian survival. To win national championships, Big 12 schools must be able to spend, like their competitors, on coaches’ salaries, recruiting, facilities and, perhaps soon, on athletes’ salaries. This may mean changing funding sources and relationships between universities and their investors.

“You either raise money one way or another, or you risk losing relevance,” Carter said. “Some presidents and chancellors may say: ‘This is not right.’ So what is the alternative? If you do not like this, do you agree with your university or conference being relegated to the first division?”

Big 12 commissioner Brett Yormark, who was hired in 2022 from Roc Nation, has a reputation for taking unconventional approaches to boosting his conference’s brand after Oklahoma/Texas (the schools will play in the SEC this season). Renaming the league as “Allstate 12” or selling 20 percent of the conference to a private equity firm in Belgium would certainly fit that approach.

Either or both proposals would certainly make college sports traditionalists wary. In fact, it is not certain at this moment that his bosses will approve either or both initiatives.

But from a purely financial standpoint, there is ample logic behind both scenarios. Simply put, the Big 12’s athletic departments need to raise more money. quickly.

The conference’s new deals with ESPN and Fox, which will begin in 2025-26, will pay its members an average of $31.7 million annually through 2031. While the cap is up for the league given the losses to Oklahoma and Texas, it’s still far less than Big Ten schools (about 65 million dollars on average per year) and SEC schools (north of $50 million) will make in the coming years.

Meanwhile, the Big Ten and SEC recently muscled their way into a new College Football Playoff contract in which they will make nearly twice as much annually ($21 million per school) as the Big 12 ($12 million).

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Perhaps most pressing is that the pending settlement in the antitrust litigation in House v. The NCAA would allow schools to share about $22 million annually with athletes. For Ohio State and Texas, this is a rounding error. For Kansas, that’s nearly a quarter of its annual revenue. Her university might have to consider subsidizing athletics — either through direct support, charging students fees or both — as new members Cincinnati, UCF, and Houston have done for years in the AAC.

“Every organization is looking at private equity,” said one Big 12 athletic director. “You should at least explore it.”

The sponsorship deal, while strange, seems less controversial, given that college football teams already play in the Pop-Tarts Bowl and Duke’s Mayo Bowl. Allstate itself is literally everywhere in the sport, from the Allstate Sugar Bowl to the branded nets behind the goalposts.

No doubt it would be jarring at first for the entire conference to become a corporation. But NBA jersey patches were also controversial, when they were introduced in 2017. Now it’s common to see those Rakuten logos on Golden State Warriors jerseys.

While the Big Ten and SEC branding dates back to 1917 and 1932, respectively, the Big 12 name is still fairly young, having originated when the Big 8 added four Southwest Conference schools in 1996.

“It just goes against our feelings about tradition that we don’t want Coca-Cola to be the SEC, or whatever,” Wakefield said. “That’s not quite true for the Big 12. You’re less committed to tradition in the Big 12.”

Wakefield estimates that a deal like this would be worth “a multiple” of the $15 million to $30 million a year that NFL stadiums get for naming rights: “The Big 12 is 16 teams, multiple sports, year-round. If You price that at the level of exposure, that would be a really huge number.

The discussion of private equity is much more complex.

A potential partner for the Big 12 is CVC Capital, a firm that has invested billions in Spain’s LaLiga, France’s Ligue 1, the Women’s Tennis Federation and several rugby properties. It was previously owned by F1 before being sold in 2016.

European sports leagues embraced private equity long before North American sports organizations, but since 2019, when Major League Baseball first allowed institutional investments, equity firms have taken stakes in the Chicago Cubs, Houston Astros, San Antonio Spurs, Tampa Bay Lightning, and many other franchises. .

It’s no secret why. From 2004 to 2022, professional sports franchises in the United States generated returns significantly higher than the S&P 500, According to Wealth ManagementWhich calculated the rise in NBA ratings at 1,079 percent versus 317 percent for the stock index.

A private equity firm values ​​Michigan football at $1.5 billion. (Photo: Detroit Free Press)

While college football teams do not maintain individual ratings, conference television deals serve as an unofficial proxy. The Big Ten’s value more than doubled from 2017 to 2023. Even ESPN’s much-hit ACC deal, valued at $240 million annually, represents a 330 percent jump from what the league was making a dozen years ago. Jerry Cardinale, whose company RedBird Capital recently launched New box A college sports-oriented organization told the New York Times in January that Michigan’s football team alone would be worth $1.5 billion.

But unlike professional sports, a profit-driven industry, college athletics has long been treated as a nonprofit extension of larger academic institutions, even as growing television revenues have turned it into a multibillion-dollar industry.

The landscape is changing with direct revenue sharing with athletes on the horizon, but it’s still new territory.

“Athletic departments have always been about finding ways to spend every dollar they make,” said one Energy Conference executive familiar with the department’s finances. “Not making a profit.”

CVC is betting that the Big 12 will at least double its six-year, $2.28 billion deal when it comes back in 2031, which, when combined with sponsorships and other conference revenue, could net the company a huge return. But in doing so, the company effectively becomes the 17th member with $1 billion in influence over the other 16 members.

“I wonder what the problem is,” said the energy conference director. “It is impossible for these companies to invest hundreds of millions of dollars in a school and not expect some degree of impact in return.”

SEC Commissioner Greg Sankey expressed similar reservations last month. He cited Red Lobster, which recently filed for bankruptcy a decade after being purchased by Golden Gate Capital, as a “cautionary tale.” But the Sankey Conference does not face the same financial challenges as the Big 12 Conference.

In 2019, former Pac-12 commissioner Larry Scott, whose league was far behind the Big Ten and SEC financially, presented his board with a similar private equity opportunity. The chiefs had reservations and rejected them. Four years later, the conference collapsed, and the Big 12 became top school hunters.

A more experienced dealmaker like Yormark, whose previous stops include NASCAR and the Brooklyn Nets, is better equipped to navigate this terrain than presidents and athletic directors. CVC will not have a controlling stake in the conference and, according to a person familiar with the discussions, will be barred from participating in any sporting decisions.

When asked at the last 12 spring meetings about private equity firms’ interest in college sports, Yormark welcomed it.

“In some ways, (the interest in) private equity is confirmation of the direction this industry is headed and its growth trajectory,” he said. “So I don’t look at it as a bad thing.”

Ultimately, the heads of the Big 12 will have to acknowledge the undesirable but inescapable fact that their “academic” enterprise is no different from professional sports at this point.

“Before, (college sports) was about coming back objective. “College sports had this fabric of society, what were our graduation rates and all that,” Carter said. “Now it’s like professional sports: how do we increase value for sponsors, how do we keep our investors happy? It’s all going in terms of trying to generate revenue.

Yormark appears to have found two potential sources of generating more revenue. His conference may not be in a position to reject these proposals.

(Photo: Ron Jenkins/Getty Images)