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Inside report. Want to talk private equity and college athletics
in this segment with a man that I trust. Love
talking about business, entrepreneurship and just just college athletics with
this guy. He's been a friend, longtime friend, and I'll
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Ryan Elders will take care of you. All right, let's
get out tell the hotline. Welcome in, my good friend.
He's an entrepreneur, obviously co founder president of Vivid. He's
also been a part of the OI athletics for a
long time. He's part of the athletic director circle both
at BYU and for UVU Basketball. Welcome in, Keith Now
listen to the show Keith, How the heck are you?
And also former co host. He has coast with me
a few times on the show, Keith, how are you?
Speaker 3: Buddy?
Speaker 4: I'm doing great?
Speaker 2: Then, how are you doing fantastic? I appreciate you spending
some time with me. I know you're spending some time
with your wonderful daughter right now as a girl dad,
so I appreciate you spend a little bit of time
with us. Look, hey, the university, if you broke this
this I don't know what you'd call it, maybe private
equity ceiling here. Many people had flirted with private equity.
Many athletic departments have evaluated allowing some sort of influx
of cast coming in and outsourcing or rather biprecating their
university their athletic department and creating a for profit entity
and allowing these private investment, these private equity firms to
come in and buy portions of their athletic department.
Speaker 3: But Utah decided to go forth with it.
Speaker 2: Was that a surprise to you and give me kind
of like your overall view of private equity and sports
your opinion.
Speaker 4: Well, first of all, and this is just my opinion, right,
but I think Utah's in Utah's in a difficult spot.
And if you remember this last legislature, there was a
lot of cuts to higher education, and the University of
Utah is the largest benefactor of money from the legislature
and they got a big cut. So right now, the
kind of like the table stakes in college sports, especially
at the powerpoard level, is are you going to have
a full reb share? Right If you don't have a
full rev share, it's like you're not even in the game.
And you saw that in Kelowney's negotiation. It was, Hey,
we're going to have a full reb share and we're
going to have an IL on top of it. And
so I'm sure that the people there at the University
of Utah sitting there saying, hey, we're getting all this
funding cut, right, We're going to have to we're cutting
all these you know programs out there, and then we're
going to go ask for more money for athletics. And
so I think they're in a situation there where they
were like, we have to do something different. And you know,
my experience with private equity is they don't really take
a lot of chances. They kind of understand what they're
getting into. And you remember Peter Pilling at BYU. He
came into BYU through IMG, and IMG had this model
back then that hey, we can do marketing for you
better than you can and you're not going to have
all the expenses of this marketing, right, so you don't
have to have a marketing department. You hire us, will
pay you a million dollars for that, right, and once
we've recouped a couple of million dollars, then we'll share
with you going forward. And they were very successful doing that,
and then the universities realized, Hey, there's a lot more
money out here for us to go and get. And
so I think that this is just kind of a
little bit of a twist on that. And when I
you know, I've read the same articles you've read. No
one really knows exactly what's going on, but it seems
to me what they did was they went and took
the revenue generating assets within the University of Utah, which
are ticket sales, sponsorships, events, you know, any marketing collateral
that they can go out there and sell, and it
looks like even fundraising. And they basically said, we're going
to take these assets and we're going to put them
in this new entity, and that new entity is going
to be funded by this outro capital and we're going
to get a piece of that capital. And I'm betting
that they're going to use that piece of cap to
right now make it so they have a full rep
share and also to probably go and invest money in
the assets there can they can actually produce revenue in
the NFL, it's all about new stadiums and luxury boxes
and all that type of stuff. I'm sure it's going
to be the same thing here and have it done
with people that have a for profit motive, like how
do we grow this? How do we make more money?
And within universities, it's usually not that type of a person, right,
It's not someone who's hyper aggressive. They just you know,
they won't work at a university. And so to me,
that's what's happened here. And the bet that the University
of Utah is making is that these people can grow
this faster than they could and that the money that
the private equity cas you know, so, so if it's
worth two hundred million dollars today, let's just say that
in five to seven years, it'll be worth six or
seven hundred million dollars and that will only be because
the revenue is so much greater. But to me, this
is more about how do we how do we get
capital that we can no longer get from the legislature,
and how do we make sure that we can you know,
fund a full rep share because right now, if you
can't fund the full REP share, good good luck and recruiting.
Speaker 2: Yeah, what can we take away from the five hundred
million dollar amount? If we pull up US Department of
Education numbers? Now I don't know how accurate these p
and ls are from the universities that they distribute to
the university or to the US Department of Education.
Speaker 3: But let's say, like the.
Speaker 2: Athletic department of the University of Utah, with all their
student fees, their TV money, all those things that you
just mentioned, the profitable elements of the athletic department comes
up to like one hundred.
Speaker 3: And fifty million, let's say.
Speaker 2: And that may be higher than what it actually is,
because I think BYU in twenty twenty three did about
one thirty with out having the TV money that Utah
has been benefiting of for over the last thirteen years.
So let's say one hundred and fifty million that they
actually generate. And that's not obviously probably because we all
know that these athletic.
Speaker 3: Departments run in the red.
Speaker 2: So you take the five hundred million dollars, you say, Okay,
well they they in twenty twenty three they did one
hundred and fifty million. What do we make of that? Like,
when you see those numbers, what do you think.
Speaker 4: About Well, first of all, I mean, p I don't
believe that they went and put five hundred million dollars
into a capital investment of five hundred million dollars on
one hundred and fifty million dollars revenue, right, and that
they're a minority partner. That makes sense? Like that That
math doesn't make sense to me, is right?
Speaker 3: Like? Okay? So and some private odd about that.
Speaker 4: Yes, private equity will make sense. Okay. And so if
you went and said, hey, we're going to have like
this entity, Okay, let's say let's say they have one
hundred and fifty million dollars in revenue, They're going to
have limited expenses, right because they don't have to pay
for anything other than the salaries and costs to make
that money. This money, you know, their P and L
is only going to be people that are out there
selling sponsorships, raising money, managing the tickets. Right, They're not
going to have to do They're not going to have
to pay for the athletic department. People who think that
somehow this is going to come in and they're going
to cover all the costs of that athletic department. That's
that's they're going to go out and grow that one
hundred and fifty million dollars and no pride costs them.
You know, millions of dollars to do that, and then
I see, I see that entity being very, very profitable,
right because you're getting all of the revenue and none
of the real costs that it costs to deliver that product.
That's how I see this happening. So let's just say
they came in and they bought you know, so we
have easy math here. Let's just say they came in
and bought twenty percent or twenty five percent. Let's say
they've come in and bought twenty five percent of this thing,
and they go out and this year they bring in
one hundred and sixty million dollars of revenue, and the
costs to generate that were twenty million dollars. So now
there's one hundred and forty million dollars of revenue there.
They're going to get twenty five percent of that, so
that's thirty five million, and the university is going to
get one hundred and five million. You say, well, why
would the university do that? Well, the university does that
because they got an influx to capital right now, you
know that they can use. And then the goal is
that in a couple of years now it's doing two
hundred and fifty million dollars in revenue. Right now, two
hundred and fifty million dollars in revenue will cost twenty million,
So you got two hundred and thirty million and now
twenty five you know, seventy five percent of that is
more than they were getting before, and they still got
the capital that came in. That's the only way this
thing makes sense to me, because private equity. I've never
seen a private equity deal that does not have some
sort of a preferred return in it for the private
equity people. And you know that sometimes that preferred return
is in cash, sometimes it accumulates. Does that make sense?
You know?
Speaker 3: Uh?
Speaker 4: And hopefully, like when we did private equity at visn't
the guys the preferred didn't matter. They did so well
on it that we all just split the profits according
to the waterfall. So I don't Again, I view this
as someone's trying to grow a revenue and they can't
do it right. They don't have their fertise the people
they don't have, and they also don't have the capital right,
And so they went out and hired that out to
someone that someone brought them cash that shall solved their
short term issues and and the hopes are in the
and and they will grow it better than a university,
where university's just they're inefficient, right, they're they're not for profit, right,
they're they're they're they're they're bureaucratic and tenured and all
that time. None of that works in the business world, right,
like like like do you want do you want Todd
Peterson running it or do you want some guy who's
you know, never had the You want an aggressive guy
like Todd in there getting it done so and and
and I really do I think that I think that. Uh,
I'm not saying I if I was in their shoes,
given the constraints I think they have, which is the
legislature's not giving us any more money. In fact, they're
taking money away. Could you imagine being ramble up there
saying we're gonna, hey, we just canceled these hundred programs
over here that all of you professors like, and and
you know, we took sixty million dollars out of the budget,
and we're going to give twenty five million dollars to
the football program. I mean, there'd be anarchy up there,
so they can't go to their owner. Their donor base
is I don't know who their donor base is, right,
I mean, you always hear the names you always hear
are the names that you've heard for a long time.
Speaker 3: Yea.
Speaker 4: So it's not the young, vibrant donor base that BYU has.
And there's a lot of people that maybe might have
went to Utah but are now kind of BYU fans.
There's there's there's quite a bit of that. So I
think this is just the way they had to do
it to compete because, in my opinion, if you don't
have full revshare right now, that's gonna be tough in recruiting.
Because BYU and Texas Tech, not only do they have
full rev share, they have another fifteen million dollars on
top of that, and that's a different.
Speaker 3: Game, no doubt about it.
Speaker 2: For those that you know, I was seeing some quotes about,
you know, the this type of influx of cash from
private equity is akin to a payday loan. How accurate
is that? When Michigan board chairman Mark Burns, I don't
know what his background is, says that that some of
these these these proposals maybe from private equity firms or
a can do a payday loan? Is an accurate depiction,
is that a little bit off off beat.
Speaker 4: I think that that's an in their accurate production because
that means that they payday loans means you're taking advantage
of someone, right. I think what they mean by private
equity being payday loans or if they're trying to say
that type of thing is number one. Usually they get
really good returns like payday loans do. But I think
it's it's uh because you think like you're going to
give a lot away. Does that make sense? Like at
the end of this, if they've grown this thing, and
then the U has to know these like, oh, they
only gave us so much money and now they you know,
quadrupled this. And then the other thing that maybe is
is is they have so much downside protection. Usually, like
typically private equity deals go one of a few ways, right,
Either it goes really well and everybody loves it, or
they load them up with debt and the private equity
guys might have made a little bit of money and
then the company is saddled with debt and they go bankrupt.
But typically the private equity guys kind of lock in
and in this situation, they've it's probably a pretty nice
little deal for them. They have limited downside and they
have the ability to have quite a bit of upside.
And if they make this work, what private equity really
likes to do is go duplicate it like they love that.
There'll be these these thesises out there or these you know,
we're going to roll up you know there. For a
while it was or we're going to roll up movie theaters,
or we're going to roll up you know, car washes
or what they Once someone does something, then they all
hopp oh, I'm going to go do that because what
they're good at doing is leveraging money. Their inventory is money, right,
That's what they have and expertise. These guys will say,
we have this expertise in athletics, in marketing and all that,
and so that's what they that's what they have to sell. Right.
They don't have widgets, they don't have players, they don't
have any of that type of stuff. What they have
is money and and smart people, and that's what they're
going to come in and and but this is going
to have to grow. What I'd really love to see
is what the downside protection is. There's rumors out there
that there's a put call, which means that the private
equity company can put it to the university you taught
to buy it to buy their share out, or the
university can call it and buy that. I'd love to
see what the terms of that are because that would
tell you really how much risk the private equity firm's taken.
Speaker 2: Yeah, explain put call a little bit more, if you could,
Forrest Keith, because I've heard the same thing, kind of
this five to seventy year mark of a put call mechanism,
and I don't think everyone understands that.
Speaker 4: So it's just simply that you have a predetermined amount
that you can as a private equity firm. You can
go to him and say, I'm going to put this
to you. You have to buy my share back. I'm
going to put it to you, and this is the price.
And usually the price is a formula, right, and both
both sides have to be sophisticated. And then on the
other side of the university Utah has a call which
means we can go to you over a period of
time and we can buy it back from you at
a price. So typically the put price is less than
the call price. That makes sense. So the private equity
firm could put it to you. And I don't know
if there's a guaranteed return in that, if it's below
what they paid for, if it's a if it's a
formula or whatever. But you would have to have something
like that as a private equity firm, because private equity
firms are funded by a fund, right, So they go
raise a fund of money and then they invest that
money from that fund and it's ill liquid for a while.
But the idea is that five, seven, ten years they've
sold all the assets of that fund and return the
money to the investors in that fund. So private equity
can't be tied up in things into perpetuity, and this
would be something you'd be tied up, you know, if
you're just a normal investor in an athletic department. It's
not like there's a market out there. I mean, maybe
you could go sell it to someone else, but I
don't think a private equity firm would do that because
it's not their capital.
Speaker 3: Right.
Speaker 4: They have investors capital, and they have to they have to,
you know, provide sound business decisions, and they just can't
go out and just say, oh, we think this is
cool and we're gonna go put this money in.
Speaker 2: Yeah, Keith Nellison here on ESPN the Fan. He's a
co founder and president of vivint and obviously entrepreneur. You're
CEO of New Vee. You've been a part of the
athletics world for a long time as well. So I
really I've enjoyed this conversation because of your expertise too.
I mean, Otro Capital is sports media and that's their specialty.
It's operator driven apparently and led and so they have,
as you mentioned, very smart people that have been in
this world for a long time, and they have a
lot of funds. They had to have vetted this and said, hey,
there's this is an undervalued entity because it's been run
inefficiently in a bloated, you know, archaic manner, and so
they see an opportunity to make a lot of money
off of it.
Speaker 4: Yeah, yeah, for sure, for sure. I mean they're they
private equity. Those guys are paid to go get returns, right,
that's their job, and they make a lot of money
if they go and get big returns for people. And
so yeah, I have no doubt. But that's why I
think a lot of this money is going to be
invested into I'm just going to call it collateral that
they can sell. Right, the easiest thing to say is
we're going to make We're going to go in and
we're going to invest one hundred million dollars in new
luxury boxes that we can then go and sell for
all this money, or we're going to invest money in
or through our network of marketing people, we can sell
more you know, advertisements and this and that. Or maybe
it's it's underbound. I mean when vividt first, I was gone.
But when they went and named the Delta Center, I
thought it was crazy, right, the amount of money they
were paying to do that, you know, the Viviant Smart
Home Arena, I thought man ended up being tremendous. For
vivit huge, huge, It gave them national brand recognition and
for the guys out there knocking it, it was a
big deal. So you know, there are they know what
the collateral is, they know what the market is for that,
and they must have seen that. But I think they
also saw probably someone that needed this capital. If you
don't go to private equity, if you don't need capital,
or you know a lot of us go to private
equity because we want to take some chips off the table, right,
we don't want.
Speaker 2: To knocking on the University of Utah's door. Utah went
knocking on Otro's door, is what you're saying.
Speaker 4: It might have been both, right, but they needed someone
that needed the capital because they're sponsoring organization. Again, I
think the legislature is a big deal of this. I
think the amount of money that was pulled out of
higher education, and I just don't think that that the
President Randall can go and say, hey, hey again, we
just cut all these great liberal arts things. The professors
were going crazy, you know, there was all that DEI
stuff with Trump and blah blah blah blah blah, and
then we're going to go ask the legislature for all
this money put to put into athletics. And I just
think there's been.
Speaker 3: Amusiizing everything else. So you're taking football out of the equation.
Speaker 2: How how are these other these these not for profit
school government university governed entity sports, right, Like, how how
are they going to survive when you don't have the
subsidization of a football revenue being split and waterfall down
into those other other teams and sports.
Speaker 4: You know, Ben, that's the big catch twenty two in
the NCAA, right, is because the way they calculate things,
you know, with Title nine and stuff. If you have football,
you have to have all these other things, right, and
you can't cut those other things that don't generate money
unless you're cutting just men's programs, because then you're out
of compliance with Title nine. Right. So so this is
a this is and then now they got to come
up with twenty million dollars, you know, or at least
whatever the amount of money is they have to fund,
you know. And I've had this conversation before, and I
don't want your fans to get mad at me. And
I'm a girl dad, So I'm saying this as a
place the heart of it. But there are only two
sports that matter in the revenue and the business of
college athletics, and it's men's basketball and men's football. Everything
else is you know, they are there on the coattails
of that from a monetary perspective, and football is definitely
but I mean, I mean, hell, who would have thought
that Ohio State was running a thirty something million dollar deficit?
I mean, you would think that that it must be
just amazing. And you know, I think there is a
difference in inn alumnized basis. I've been amazed and I
believe it's the new president that he allows athletics to
be a heart I'm talking about it b YU. He
allows athletics to be a part of the fundraising. Now
it used to not be, not even close. And I
think that with NIL now being legal and all of that,
the donor base was actually happy to do it right
in the past there and there's been money in sports forever.
I've been out on the recruiting trail with coaches, I've
been to AA tournaments. Anyone who thinks that there's not
money out there is just has their head in this end.
Now it became legal and all of a sudden, BYU
has plenty and uh and I just I just think
that that that's and b YU always had to function profitably,
you know what I mean, And so I think right
now b YU has a huge advantage. They're a profit,
profit centered business that has always operated that way, and
now they can go out and tap these bigger markets.
And and I think that you have I'm going to
call them like dynamic donor bases. I put BYU in there,
I'd probably put like Notre Dame in there, and then
you have the Texas schools, which is just a whole
different It's a whole whole different animal. Like, I've spent
a lot of time in Texas. I do quarter horse racing.
We breed in race and a lot of Texas people
Texas money, and the money down there is just different.
There are people that are worth hundreds of millions of dollars,
aren't giving ten percent to their church, and they love
the Texas tech Raiders. I mean, I had ten guys
they're like, hey, I got a box for the game.
You coming down? Like no, I'm going to be with
my daughter, right, But the money in Texas is just stupid.
And everybody's going to be trying to catch up with
those three schools down there, I can promise you that.
And they're gonna sell. They're going to sell part of
their program to do it. They're going to sell their
future revenues to try to keep up with this. You know,
just wild wild West and those boys in Texas they're wildcatters, right,
they're oil well drillers. They love the wild wild dress
and risk, that's right, that's right. They take risk and
they love it. And then some of those families they
haven't even spent the money from the nineties. It just
pumps out every day. Every day, it just comes out.
Speaker 2: So generational impact. Ronald's in my area. He's getting me
to go to break. But I have one last thought
for you. Is there any possibility like in that discovery
mode that a private equity firm such as Ultra Capital.
I imagine this is a well respected firm in this in
this industry. Maybe it's a new age, new era industry,
that discovery.
Speaker 3: That that auditing.
Speaker 2: Like there's no way that a university could have like
creative accounting to cook the books and fool you or
something like that. Right about it's revenue generation and like
it's top line revenue, right, Like, that's not that's an
impossibility in all this correct.
Speaker 4: Yeah, I mean, especially if we're just talking about the
revenue coming into athletic program right, it's cash, right, It's
not it's not. Yeah, I couldn't see, you know, there's
not like deferred revenue and all that type of crap.
There isn't all of you know, I don't know how
like luxury box leases and all that type of stuff work,
But I think it's a pretty seasonal type of a business.
Right you have your season tickets, you have your game
day tickets, you have your revenue from from the you know,
most of the media revenue comes through the conference, right,
you have your Bowl games, you have your NCAA tournament.
So most of that revenue is pretty easily seen. And
I couldn't see much cooking of the books. I think
it's mostly cash. I think it looks a lot more
like you and mice checking account than it does a sophisticated,
you know, SAFS based business that could be doing or
as we hear all the time out there with these
AI companies, that that sounds a lot like, hey, you
buy from me, I buy me and the money never shared.
I'm pretty sure that this is this is not that way,
And in fact, they like those businesses. They like businesses
that are cash transparency, right, yeah, and it's cash. They're investors.
I mean, at the end of the day, us as investors,
we'll get these things from private equity firms. You're up
twenty two percent. I'm like, well, it doesn't matter until
the end. In the end, I gave you one thousand
dollars and how much did you give me back at
the end, and how long was it out there? And
that'll determine my return. So they like those businesses in
private equity at all. At the end of the day,
at some point in time has to turn into cash.
Or the only time it's not cash is if it
turns into public market stock. They invested in company, the
company went public, and they distributed the shares to the
to the investors. And usually even in that they sell
the shares and distribute the money because they want their money.
They want every little dime they can get.
Speaker 2: So yeah, I never understood that the tech startup Balloon
Pop propped up valuation.
Speaker 3: See the one hundred billion dollar value. I'm like, man,
where's what's going on.
Speaker 4: Yeah, that's venture capital. Yeah, venture capital is different than
private capital. This private equity capital. They don't take that.
They don't take that risk. They want those returns, but
they don't take that. That's safe, take that risk.
Speaker 3: Keith love it.
Speaker 2: Appreciate you man, Thanks for spending some time in educating
us on all these facets. We appreciate you. Thanks for
hopping on. I'll catch up with against soon.
Speaker 4: Brother, All right, take care, there you go.
Speaker 3: That's Keith Nellison. Appreciate him. Former. He was a co
founder and president of Vivid.
Speaker 2: Also, he's part of the BAU Athletic Director Circle as
well as VU Basketball Donor circle as well.
Speaker 3: He's been in the finance and.
Speaker 2: Entrepreneurship world the tech world here he was a former
CEO and owner operator Believe of.
Speaker 3: New v as well. So great insight, great knowledge.
Speaker 2: He's been at those in those board meetings and was
able to give us a lot of detail on this
private equity deal at the University of Utah.
Speaker 3: Let's go to break, Please don't go anywhere.
Speaker 2: Still plenty to get to and I apologize Ronald that
we went so long there.
Speaker 3: Love and appreciate you man.
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