As Big Ten inches toward $2.4B private equity deal, a resistance has formed that may delay or nix the project entirely

On Saturday in Los Angeles, Michigan and USC’s football programs battled at The Coliseum.

The Trojans won, 31-13. But what happened off the field, in and around that game, is perhaps more interesting and impactful than the game itself.

At fancy parties in the hills of California and within luxury suites high above the football field, influential donors and university board members of these two storied programs met, mingled and dished on the latest big story from their conference: Is the Big Ten really about to enter into a $2.4 billion capital deal with a California pension fund?

“We don’t have any reason why we need to do this particular deal,” said one university board member who requested anonymity.

“The more people understand this, the more people have questions,” added another.

This is straight out of a Hollywood movie script: A week before Big Ten schools appeared poised for a definitive conclusion to the landmark capital proposal, the powerbrokers of two blue bloods were strategizing over, at the very least, delaying the deal while their two football teams clashed.

As explored in a story last Friday at Yahoo Sports, the Big Ten’s year-long pursuit of private capital cash is nearing a decision. The league is in deep negotiations with its membership over a 20-year partnership with the University of California pension system’s investment fund, UC Investments.

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The fund would infuse $2.4 billion in upfront, uneven payments to the Big Ten’s 18 schools (an average of $135-140 million per school). The league would secure a 10-year extension of the grant of rights (through 2046), create a business subsidiary (Big Ten Enterprises) and establish a new uneven distribution of conference revenues (three schools would get a slightly bigger portion than others).

It is a significant undertaking that, for the most part, many of its members overwhelmingly support.

But as a decision nears, detractors are emerging, not only from Michigan’s influential board of regents, as previously thought, but at USC, too.

“They aren’t on board,” said one person with knowledge of the position of USC’s board of trustees, as well as some within its university and athletic administration.

That’s why the weekend’s confluence of events — leaders of the two programs together in LA — provided a timely marriage of like-minded people ahead of this week’s potential decision.

Could two of the league’s biggest brands stop or delay the entire thing? Could the other 16 agree to a portion of the deal without them?

“We should vote no matter what,” said one Big Ten school athletic administrator supporting the capital deal.

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It is more clear than ever that a decision is upon the conference one way or another. In fact, the schools received 200-plus pages of governance documents over the weekend detailing specifics of the agreement with UC Investments. The conference office has also scheduled a meeting for late this week with its presidents.

A vote must be unanimous among the 18 schools under the current terms of the proposal from UC Investments. Without unanimity, it’s unclear if league officials could create new terms that would extend the grant of rights and distribute capital to only those opting in. While that seems unlikely, it’s possible, says one person with knowledge of the deal.

The University of Michigan Board of Regents has a previously scheduled meeting for Thursday, where the capital proposal is expected to be discussed, and the USC Board of Trustees has scheduled for a meeting next week.

The role of university boards in the decision remains murky. At many of the 18 Big Ten schools, university administrators and conference executives have disseminated a message to board members: This decision rests only with the Big Ten presidents and chancellors. The presentation given to several board members was described as “informational only,” as it is not a voting issue, they were told.

But there is a differing opinion on that thinking, especially at the two universities, Michigan and USC, with interim presidents. The eight-member elected Michigan Board of Regents holds considerable sway, as does the 40-person USC Board of Trustees, over a decision that could impact the school for years to come.

In an interesting wrinkle, Michigan’s last president, Santa Ono, served as chair of a Big Ten subcommittee related to the league’s capital pursuit.

The USC Board of Trustees heard the UC Investments presentation on Friday morning from commissioner Tony Petitti and Big Ten executives, as well as the league’s consultants and its investment banking advisor, Evercore. Other boards — at least Penn State, Michigan and Ohio State — received details in meetings over the last 10 days.

“Tony is trying to be the best steward of the Big Ten,” said one university board member who heard the presentation. “But why lock yourself into a 20-year grant of rights? The world is changing every three minutes.”

Those in support of the plan see the grant-of-rights extension as providing security and stability among Big Ten schools by binding them amid the threat of super league concepts and media rights consolidation attempts. But those against the plan see the extension as “cementing” the league during an unpredictable time and impeding what they believe to be the real long-term solution to college athletics’ financial situation: the consolidation of media rights — a concept of pooling league television packages to generate more revenue.

The extension of the grant of rights is not the lone hurdle for the powerbrokers at USC and Michigan.

Those at USC are against the uneven distribution structure of both (1) the upfront $2.4 billion and (2) the future conference revenues. The Trojans are behind Michigan, Ohio State and Penn State in the payouts of the uneven structure, according to those who have seen details of the plan.

Though figures continue to change, the three legacy Big Ten programs stand to earn as much as $190 million each in upfront payments as well as more in future annual distribution percentages. However, the league’s new distribution model features a performance and marketing mechanism most similar to the ACC’s success-initiative concept, providing a path for schools successful in football and basketball to achieve a higher rate.

On Sunday, another event caused more anxiety among those against or uncertain about whether to support the deal.

Officials at one of the conference’s biggest brands, Penn State, made the decision to fire its football coach, James Franklin, and pay a buyout of nearly $50 million — the second largest in the history of the industry. As part of the agreement with UC Investments, schools can use the upfront capital any way they see fit — perhaps that includes paying at least a portion of a football coach’s buyout (Franklin’s contract does include mitigation if he were to be hired elsewhere).

Those unsure of the capital deal are asking a question in light of Penn State’s decision: Should the financial stressors at one school be reason enough for others to give away future revenues for immediate capital?

Those against the Big Ten’s investment proposal offer several alternative financing plans, such as a “securitization” deal or a traditional “debt deal,” where schools borrow from future television revenues at a lower rate than a long-term capital investment.

Many contend that, in a way, that is what the Big Ten is doing. UC Investments would earn an annual cut of conference distribution over the 20-year deal with the option to sell after 15 years.

“It’s a good deal,” said a proponent of the capital proposal. “We’d be silly not to do it.”

But not everyone feels that way.

The Big Ten is perhaps days away from striking a first-of-its-kind capital agreement in college sports history. Or, it is days away from yet another failed foray by a college conference or school into the investment world.

“The more light shed on this, the more you ask, 'Why are we doing this now?'” said a board member. “The world is changing at breakneck speed.”