The Big Ten’s 20-year investment deal is now in a precarious position.
The Big Ten’s capital investment deal is in a precarious position.
During a scheduled meeting on Thursday, the University of Michigan Board of Regents solidified its position in opposing the league’s 20-year, $2.4 billion investment proposal, sources tell Yahoo Sports.
The decision was not unexpected. Board members at Michigan and USC have raised concerns over the Big Ten’s potential capital agreement with the University of California pension system’s investment fund, as reported Tuesday morning at Yahoo Sports.
The pushback may impact any approval of the current structure of the capital proposal as it requires unanimity among the 18 schools under current terms of the deal. At best, a decision is expected to be delayed and any vote tabled from Big Ten membership, something many expected to occur this week.
Big Ten presidents and athletic directors are scheduled for a call later Thursday evening, where an update is expected as well as a review of the latest details around the capital concept. The current terms of the proposal with UC Investments requires a 10-year extension of the Big Ten grant of rights from 2036 to 2046 — a move that commands all 18 schools to support the measure if all 18 are to be bound for 20 more years.
In an unexpected marriage of two of the conference’s biggest brands, Michigan and USC board members met over the weekend — their two teams played in LA on Saturday — and exchanged misgivings over the capital proposal, which not only would infuse billions in upfront payments to schools and extend the grant of rights but would establish a for-profit business subsidiary (Big Ten Enterprises) and create a future uneven distribution of league revenues.
In fact, the USC Board of Trustees — and even some of its athletic administrators — are adamantly opposed to the current terms of the deal. Those at USC are against the uneven distribution structure of both the upfront $2.4 billion and the future conference revenue structure. The Trojans are behind Michigan, Ohio State and Penn State in the payouts in both uneven structures, according to those who have seen details of the plan, which were explored in detail by Yahoo Sports last Friday.
Meanwhile, both UM and USC board members are opposed to extending the grant of rights at a time of uncertainty within the college sports space — a potential way to give them flexibility at an uncertain time in the industry, where super league and media rights consolidation concepts are being floated.
The move from Michigan and USC — to stiff arm their 16 conference mates and league office — is certain to drive a wedge among the group of 18, with some now questioning the long-term commitment and intentions of the two storied brands. In fact, several officials in support of the capital proposal believe that the conference should continue with the concept without USC and Michigan.
Presumably under this plan, league officials, with approval from the investment fund, would create new terms and only extend the grant of rights and distribute capital to those 16 supporters. It’s not clear if this is even possible. The absence of two of the country’s most historic athletic programs is likely to adversely impact the value of the deal, especially if the two schools are not committing to the final 10 years of the agreement.
The Big Ten now stands at a seminal moment in its history.
For more than 15 months, Big Ten commissioner Tony Petitti and his executives have worked to amass a plan that they believe addresses four main priorities from their membership: (1) long-term stability (grant-of-rights extension); (2) the creation of a privatized business entity to better monetize the league’s assets (Big Ten Enterprises); (3) immediate cash at a financially stressful time (the $2.4 billion that UC Investments agreed to commit by purchasing 10% of Big Ten Enterprises); and (4) the establishment of uneven revenue distributions (keeping happy its big brands).
What happens now is uncertain.
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The conference likely has alternative financing models and contingency plans, but it’s unclear if it will immediately pivot or try to adjust the UC Investments deal to appease the two detractors.
Since a story was published Tuesday by Yahoo Sports about USC and Michigan’s issues, officials from the 16 supporting schools — most notably Ohio State — have reached out to those at UM and USC in an effort to encourage them to support the measure. The lobbying effort has seemed to fail.
Though USC’s board does not meet until next week, trustees along with athletic director Jennifer Cohen have privately expressed opposition to a deal that puts the school on a separate tier from Michigan, Ohio State and Penn State. Those three schools stand to earn as much as $190 million in upfront cash from the $2.4 billion — or about $50 million more than USC and Oregon. The other 13 schools are expected to earn less than $140 million in upfront money.
USC also earns a smaller percentage of future annual conference distribution than Ohio State, Michigan and Penn State. The three legacy programs are to get an annual cut of about 5.5% of league revenues with other schools at 5% or lower, according to those who have seen details of the deal.
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.
USC officials expressed concerns over governance issues of Big Ten Enterprises as well, where the business will be managed by a board with weighted voting and seats for the UC Investment fund and league itself.
If the deal is stymied, it will be the latest private equity or capital plan having failed once it nears the finish line. The Big 12’s presidential board has twice seriously examined capital infusion and equity deals over the last 16 months and continues to pursue them under commissioner Brett Yormark. Others, like American commissioner Tim Pernetti, are working towards similar agreements too, and at least a half-dozen schools have seriously pursued or are seriously pursuing capital and equity partnerships.
The Big Ten was close enough to striking this deal that it sent league members 200-plus pages of governance documents related to the capital proposal over the weekend. Many board members have not had access to those documents, they tell Yahoo Sports.
In fact, the role of university boards in the capital 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 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.
The USC Board of Trustees heard the UC Investments presentation on Friday morning from Petitti and Big Ten executives, as well as the league’s consultants and its investment banking advisor, Evercore. The Michigan Board was expected to receive the fuller presentation on Thursday during its meeting, but that did not transpire.
Category: General Sports
