Regional football power heads to Wall St.

Sherrone Moore tore his world apart and everyone had to watch. This is a Life story not a Sports story. Who is going to be Michigan’s next coach? Sports story. The details surrounding Moore’s detainment? Life story. The reality? Sports can’t be broken apart from real life. We don’t actually want it to. Sports isn’t escapism. They’re the highest form of recreation and recreation is a huge component of the Real World. When that recreation starts to have tragic implications, and when the protagonist is the perpetrator, our model for how the world should work breaks. And when it breaks, all we can do is try to piece it back together. I hope any and all victims receive the support they need. I hope Sherrone Moore gets a fair and honest day in court. I hope Michigan finds a better leader for their football program. And I hope to not write too many of these pieces.

Sports Finance Capitol of the World: Salt Lake City. That’s right. Even the big bucks in Provo can’t top what the Utes just did. The University of Utah has become the first college to spin out their athletic department into a private entity, and private equity firm Otro Capital is funding it.

The University has been quick to announce two things:

- They remain in control of the new organization. They control the board and all athletic decisions will be made by the Athletic Director.

- Not all sports will be impacted. Only “select revenue generating opportunities” are included in the new company. Football and basketball. Just say, “football and basketball”.

This arrangement is the first of its kind and likely to followed very quickly by other schools. Here are a handful of unconnected thoughts:

- How will private equity generate a return on their investment? Honest question. I’m not understanding the investment thesis, because the nexus of the fundraising is that schools need to spend considerably more money to compete on the field. Because players are now employees, and paid on the open market, schools are throwing buckets of dollars at players that they previously got for free. College football teams haven’t actually been quality investments. They’ve papered over losses with donor money for coach buyouts, new stadiums, and illicit recruiting payments. In Utah’s case, they’re now offering equity shares in the new company to donors that previously extended contributions as gifts. If the losses continue, but they’re owned by donors, that’s fine. NYC PE firms don’t like holding losses in Utah though. What’s going to give?

- Believe it or not, PE money is finite. How do athletic departments in the very near future shore up their books, facilities, and outlooks to attract the best valuations? Utah’s had Kyle Whittingham as their Head Ball Coach for 20 years. They have no buyouts hanging over their head like LSU or Penn State. Were they one of the most profitably run athletic departments, and thus, the most attractive investment?

- What happens to non-revenue generating sports? Hopefully nothing. Football and basketball should be considered independent of every other sport in the portfolio. Leave tennis alone!

- I’m not worried about the players. If anything, this investment should see their wages grow. And remember: 99% of college athletes don’t make it to the big leagues. This means 99% of athletes should get very real education and earn a very strong wage while in college. That’s awesome. I made $7.25 an hour at Gus’s Grocery and when they offered to make a manager, it came with a 10% (70 cents) raise. Sick. There’s 11 starters on both sides of the football. In the future, a really strong linebacker (who isn’t going pro) can walk out of college with a degree, a national championship, and a couple million dollars. That 100% doesn’t ruin the sport. I think the degree part is a very real compensation element that a person wouldn’t otherwise receive in some hypothetical minor league. Private equity: for the kids!

If there’s one truth to the situation it’s this: athletes have been so criminally underpaid relative to revenues that even if wages grow, Wall Street still sees an opportunity for return. And yaknow what, that kinda sounds like KMARK. So, Otro Capital, give me a call. Let’s make a deal!