CS Insights: PE's Interest in College Sports Shows Importance of Getting Message Right

Private equity has been an increasing factor in the sports world, with more firms investing in professional teams as leagues relax ownership rules. Now, PE has turned its sights on college athletics, with interest spanning individual universities (Utah) to the conferences themselves (Big Ten and Big 12).

These investments, which were largely viewed as non-events for fans of professional teams, have invited far more scrutiny at the collegiate level. There, college administrators, alums and fans have forcefully questioned the rationale of PE investments in academic adjacent institutions. Those questions have led to pushback, with at least one deal (Big Ten) sidelined after major opposition from several universities.

As additional schools and leagues consider professional investments, it’s important that the various parties in a transaction carefully plan for how an announcement is communicated. Failing to get the message right can easily torpedo a deal even before it’s finalized.

Engaging with the media and getting the story right from the first leak is essential.

M&A reporters excel at breaking deals. Sports reporters are equally good at scooping news in their space.

It’s crucial that a PE firm and its university counterpart prepare for the inevitability that their deal will leak before it’s formally announced.

This was on full display when talks between the Big Ten and UC Investments leaked earlier this year. While aspects of the deal were reported publicly, very few stories articulated why the Big Ten and its member schools supported a transaction besides the need for upfront capital.

Foes quickly seized on the information vacuum and filled the gap on social media with negative commentary about private equity. This included members of Congress and even a regent for the University of Michigan. A deal hadn’t even been signed, and the negative narrative was already set.

For now, the deal is on pause.

Communicate the benefits beyond the upfront capital

Coverage of the rumored transactions has largely focused on why university athletic departments need money. However, very few college administrators and professional investors have made the case for why a PE investment is the most value-additive source of capital.

Universities and colleges considering these investments need to articulate the benefits – and costs – in a concise manner. Most sports fans assume that maximizing revenue means increasing ticket prices and operating more efficiently means cutting costs.

In a world where most consumers view PE involvement negatively, you must clearly articulate the benefits beyond the need to spend more. Consumers tend to equate these capital infusions as loans that will need to be repaid. Without additional details, fans will assume the worst for their wallets and for the integrity of their institution.

Recognize most consumers view PE the same

The average American does not understand the difference between growth equity investments and a leveraged buyout. As a result, when a fan hears that PE is investing in his or her favorite college team or league, they will consider the worst-case scenario.

Of course, industry participants know that not every PE deal is the same. Many investments are successful for both the firm infusing the capital and the entity receiving it. However, a PE firm should not expect the average college fan to instantly warm to their involvement. These are rabid consumers whose entire identity may be tied to their fandom. The emotional rationale will matter just as much as the financial one.

Pay Close Attention to Reddit

PE interest in college sports garners attention on every social media platform. But it really thrives – in a negative way – on Reddit.

Last year, there were 16X the interactions on posts referencing private equity investments in college sports on Reddit as the second closest platform (Instagram) per data from NewsWhip.  There, the detractors greatly outweigh the supporters by a wide margin.

Universities would be wise to consider how their fans will learn about these investments and the platforms that will shape their viewpoints. A traditional PE announcement strategy will likely fail to take into account the various online audiences and platforms that will quickly scrutinize the details. To win over fans, a university and PE firm will need to lean heavily into a digital-first strategy that can win online.