Speaker 1: It's time to celebrate the previous team sport known to man,
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Speaker 2: We got the tax More playbook that I think you'll
be very interested in. Course strategies for high income and
accredited investors. Any stop for little college football. We're gonna
talk private equity and the good, the bad, the ugly
of it. What happens if private equity in college sports
fails up on the hill in Suli City. That is
a question everybody wants to know. We're gonna delve into
it with a college football insider here momentarily. It's going
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Speaker 3: Know it's answer butts about it. Let's get out to
the hot line.
Speaker 2: Welcome in Matt Brown of Extra Points college football Insider.
Speaker 3: What's up, Matt Hey, Good to be back here.
Speaker 4: This this market kind of refuses to calm down enough
for me to kind of to focus elsewhere. Wasn't expecting
this to dominate dominate today. But it's a huge story.
Glad we we can talk about it.
Speaker 2: Yeah yeah, So break it down for is what has
occurred over the last twenty four hours.
Speaker 4: So the University of Utah is going to do something
that several other schools have thought about but nobody else
is actual has actually done yet, which is is substantially
partner with a private equity firm to help finance the
athletic department. Based on the various reports here, because the
actual trustees conversation that was in the public was very
light on details, Utah is going to be moving their
revenue producing units in the athletic department to this new
LLC Utah Brands and Entertainment. It's going to be co
owned by a private equity firm, Utro Capital. Utah will
be the majority shareholder and will get a significant upfront
amount of money somewhere in the neighborhood according to reports
of around five hundred million dollars, and the private equity
firm will own a significant state in this new LLC,
and there will work to try and grow Utah's revenues
to the point where then they can you know, they
can sell the thing back in five, six, seven, eight years,
either sell it back to Utah or to some other party.
So this represents a very significant, like upfront financial investment
for Utah Athletics. But there's some meaningful risks and not
just what to do with this money, but how to
make sure you're growing the revenue enough to to to
play cake your new business partners.
Speaker 2: So what are the risks that they're running here by
going with private equity. Why is it that Utah is
the first to do this?
Speaker 4: Yeah, well, I think that would be interesting and I
want to hear more on the Utah side about what
kind of you know, push the urgency to do this
before say Syracuse or UNC or Purdue or any number
of other institutions that have been kicking around these ideas
are taking these meetings. I think one of the significant
risks for me is how much more you can meaningfully
grow your athletic department revenue in the relative short term, right, Utah,
just like BYU their television deal that's fixed, that's that's
already sold for a number of years, it's negotiated through
the Big twelve. There's very little any individual school can do.
Speaker 1: To change that.
Speaker 4: The area where everyone seems to be focusing in this
industry is, Hey, if we bring in the right partners,
we can make more money in corporate sponsorships. We can
make more money selling tickets, we can make more money
through licensing and concessions and everything else during the current
game day experience. And I think that that's true. Most
schools are leaving money on the table in some form
or fashion with those systems. But Utah sells out or
comes close to selling out most of their football games.
Stadium make that big. There's only so many more tickets
you can sell or how you know, raise ticket prices
so much. Basketball is a little bit of different, a
little bit of a different story. I'm a little concerned
about how much more corporate sponsorship opportunities are available. I
know that the metropolitan Salt Lake area is growing quite
a bit. I know, but there's lots of new potential
donors and new businesses popping up. But this is still
not that big of a city. And you have the Jazz,
you have the NHL team that's taking up a lot
of that potential corporate sponsorship money. You might have a
baseball team in five years. You've got BYU down the road,
and you have a ton of other Division one institutions
that offer way cheaper sponsorship packages that suck up some
of the available money. And for a lot of industries,
buying a gigantic billboard space, you know, next to campus
or or your stadium activations are too expensive. There's generally
only a handful of industries that buy in here. So
I'd be a little bit worried. Based on the amount
of money that UTAH already makes from tickets and you know,
multimedia rights and licensing, it's about twenty eight million dollars
I checked. I don't know. I'm sure the number could
go up, Like, could I go up to eighty? I don't.
I don't think so. And if it can't, or are
you handicapping yourself here by giving up too much of
your future revenue to a third party?
Speaker 3: Yeah?
Speaker 2: If it fails, what's what happens then? So, like, let's
say it's not profitable, and what does that mean?
Speaker 3: Fail? Right? Is it not profitable? Do they go bankrupt? Right?
Speaker 2: We know that that many institutions have their universities have
kind of subsidized the failings of an athletic department that
is trying to keep up with the Jones, the Joneses,
the arms race. Essentially, give me your perspective on if
these ventures are not profitable?
Speaker 1: Well?
Speaker 4: Would? I would caution everybody to be careful at making
assumptions about profitability when looking at the financial statements we
have in schools right now. We've talked about this a lot.
Utah Athletics prior to this arrangement wasn't trying to make
a profit. There was really no incentive for it to
take a profit because there's no investors. Your incentivized suspend
every dollar that you make because you're judge based on
what happens on the field, not on your own individual
financial management. And there's a lot of funny accounting that
happens with the university MSRs reports. That becomes a little
bit different when you're now partially accountable to a for
profit entity that didn't get in the entertainment business for
charity or because they care about Utah's to athletic traditions
or what it means for the community. Now there's a
big New York City investment firm that's here to make money,
which means you got to help make money too. There's
some limitations about how deep Utah can make cuts because
they still have to comply with Big twelve conference regulations,
the NCAA Regulations Title nine. They can't exactly shave themselves
down to just five sports. But by making this kind
of arrangement, where both parties are assuming some risk. The
other firm is getting a percentage of revenues that come
from all these other areas over the coming years. If
the revenues don't grow, then Utah's kind of handcuffed itself
a little bit here, loses some decision making power, and
then even if they get a bunch of money up front,
will be in a worse financial situation seven or eight
years down the line when they're only getting sixty percent
of the money but they should be getting because they
got to pay off these other guys, or they might
sell it to somebody else that Utah isn't as excited
about working with. It's it's not as risky as maybe
a private equity involvement in say, many newspapers or nursing
homes or the real estate market or anything, but it
is it is making a bet that I think is
far from certain.
Speaker 2: Why do you think Utah was the first domino to
fall on the private equity in sports dominoes?
Speaker 3: I guess you know.
Speaker 4: I can only I can really only speculate. I don't
I don't know this for certain. I know that of
the other schools that I've talked to and know that
I've taken some of these meetings. A lot of the
hang up has been about the very specific financial terms.
So it may just be Utah just found a better
cultural fit at a better valuation than North Carolina or
Syracuse or some other places they've been able to do,
or the Big Twelve for that matter. For those conversations,
I can also understand why Utah might feel may be
some more unique urgency, given that I don't think this
is a state secret. There's a lot of people that
give money to the Utah or care about Utah that
don't want to be in the Big twelve in ten years,
or think that there's going to be some other kind
of realignment or reconfiguration around college sports and want to
put themselves in the best position to be in that
top group, whatever it is, whether it's Big Twelve, Part
two Champions League, the Big Ten with twenty seven teams.
Who knows, man, I don't know anybody who says they
do know is selling you something. So you have that incentive,
but you're not making the money. But the Big Ten
and the SEC are you don't really have access to
any of those immediate revenue streams. And some of there's
there's some relatively significant capital projects down the line that
are going to be expensive, Like you know, correct me
if I'm wrong. Like my understanding is that they want
to completely move the basketball arena and you know, make
some pretty significant renovations there those prop into it.
Speaker 2: No one goes to the games because it's not easy
to park and get into and all that stuff.
Speaker 4: Sure, and even even then, it's kind of old and
you don't have the same luxury box situation that you
might have in the Delta Center or anything else. Like
I get all of that that stuffs expensive. So if
you have ambitions at one level facility or capital needs
that are going to be expensive, and you don't have
access to the traditional revenue streams that the big schools have,
I can understand why you'd be picking up the phone
and talking to these private equity firms and UTAH I
thinks fit some of those categories.
Speaker 2: How will Otro Capital and JMI Sports coexists? I believe
they both operate in this revenue generating world for the utes.
Speaker 3: What does it mean?
Speaker 2: I think that the deal runs through what two thy
thirty four? I don't know any thoughts there.
Speaker 4: That's part of what I've been trying to figure out
today because honestly, I don't don't. I don't personally see
a way where they would want to coexist. I don't
think you'd want to give up this much equity and
bring in subject matter experts through this private equity firm
if you didn't want to take all that upside yourself.
If you suddenly have to split this corporate right, this
new corporate fundraising with JMI and Otrow, I don't think
there's any way that you're gonna be able to make
enough new money to offset both of those things. My
assumption when I heard about this was, oh, I don't
they just signed that Jmidal like last year. I guess
they're going to buy their way out of it. And
that's just me speculating because I don't know, and I
haven't talked to anybody on the phone yet, But it's
difficult for me to see why you would do both
of those things. The other schools that have kind of
moved you created LLCs or try to, you know, financially
separate some of their corporate sponsorship stuff, they either handle
their MMR in house or they say like, no, we're
going to elevate our MMR partner, but they're not selling
equity to somebody else to help them grow those revenues.
It feels supicasive to me. Did I lose you? Hello,
go and.
Speaker 3: Take over, Ronald? You got me?
Speaker 2: Okay, Sorry, I don't know I lost connection there for
a second, Matt.
Speaker 3: I apologize, but I heard what you said.
Speaker 2: The the you know, the future of athletics, I mean
is is optimistic, I believe because there's so much money
in it, right, Like, we're in a very affluent society.
This is modern day gladiatorial type of work. We are
the modern day Romans, if you will, in the United
States of America. The money is flowing, right the money
is flowing into the sport.
Speaker 3: Where do you really want it to come from? Is
the question?
Speaker 2: Would you though that universities have have you know, have
been operating and trying to govern these athletic departments in
a way that they are probably incapable of sufficiently maybe
operating them, like maybe they don't have the core competencies
to operate them now that they've become two hundred million
dollar organizations within their universities.
Speaker 4: So I think there is some truth to that. And
if you talk to folks that you know maybe have
worked for the Jazz or worked in the NHL, or
worked in in the NFL and then come to work
for BYU or the University of Utah. Most of them
are going to tell you. And this isn't me crapping
on you know, eight oh one area institutions. This is
true across almost all college athletics. The maturity of like
the internal infrastructure and college sports is usually substantially behind
what's what's in pro sports in terms of how they market,
how they collect fan data, how they handle licensing, like
the pros do all of those things better. And I
think there is some truth to the fact that, like, yeah,
universities are not going to be as good as those
things because they're they haven't been trying to run their
athletic departments the same way as the pros because again,
they're not trying to maximize profit. They have other goals,
other KPIs besides just the dollar. And this this industry
has only become more and more complicated as more and
more money has flown into it, Like I think you
could afford to run a department this way in nineteen
eighty one, when big television money wasn't really a thing,
and your biggest revenue was coming basically just from ticket
sales and like one golf outing that you would do
every year, and now eating at a place like Utah,
which is not that big of an athletic department. We're
looking at what one hundred and forty one hundred and
fifty million dollars in revenues a year for a school
like Ohio State. It's two twenty and that's only rising,
So it would make sense that you would need a
different governance model. The challenge is that even with you
bringing in private equity, I don't think that the kind
of the struggle between full straight professionalism. Money is the
only you know, metric we care about and all the
other things that go into college athletics. You can't serve
two masters, and that's been the major struggle on commun
in many ways for one hundred and fifty years, but
I think especially in the last twenty five and I
don't think this kind of deal fixes that. And that's
not a University of Utah problem. I think that's a
BYU problem, an Ohio State problem, and a Weaver State problem.
Doing this kind of deal came Dan. If you do
it right, gives you better quality of management and corporate strategy,
and chasing some of this money, it also runs the
risk of mecapping the very stuff that makes college sports compelling.
And then you might just have a gentrified version of
you know, Utah's minor league hockey team that you guys
used to have, and nobody really cares about who's on
that team, right, Like that's a difficult bounce.
Speaker 3: Let me ask you, this is the.
Speaker 2: Is the future through of athletics sports athletics at the
collegiate level?
Speaker 3: Is it through private equity?
Speaker 2: Do you think this is going to be the trend
going forward after since Utah's now gone this path, do
you think more jump in?
Speaker 4: I want I want to be more conservative here, which
I know does not always make the best sports talk radio.
I believe it is probable that other schools will follow
Utah's lead. Plenty of schools have been curious and been
doing their due diligence on these kind of proposals as
best as I know, for at least twelve months. I
imagine at least a couple of them will Will the
majority or will everybody? I don't think so, and at
least not in the short term. And part of that
is because I think a lot of people want to see,
let's watch this for eighteen months and see if it works,
or you know, if they do it and then they
raise ticket price twenty five percent, or they lay off
some popular people, or to do some popular things and
donors revolt. Maybe we don't want to do this. You know,
there's there's gonna be some people that are a little
bit more conservative than others in jumping into it. What
I feel confident about is that everybody big school, medium school,
small school, probably down to what Westminster done in Division
three round here, everybody's worried about revenue. There's a couple
of different ways you can grow revenue. Partnering with a
private capital firm is one of those ways you can
bring in outside capital as a passive investor, like the
Big ten was considering, where you don't give up the
kind of more managerial control. That's another way. You can
also do it yourself, which is what Clemson in Kentucky
and Michigan State are trying to do. I don't know
if there's going to be one best solution. We're just
gonna have to kind of wait and see what happens.
I have a lot of I'm more skeptical of private equity,
but I also recognize part of that as my own
personal bias as a report or whose industry has been
especially farmed by many of these entities. I think if
we were if you were interviewing me after I'd spent
ten years working in nursing homes, I think I would
I would feel just as skeptical if I spent the
last ten years in F one or working in La Liga.
Maybe I wouldn't see this as risky at all, because
that it's more standard and there haven't been as many
catastrophes with these kind of companies. We're just gonna have
to see what happens.
Speaker 2: So I think the biggest concern that individuals have, at
least in the state of Utah, is that their tax
funds are going to subsidize any failures, will continue to subsidize.
Speaker 5: Ye'll leave you again, Kritil, you get out of game, Matt,
But no, I'm here, Ron We with the executive producer
coming in right now to help out for Ben Cridliz.
Speaker 6: We're having a few technical difficulties. You guys apologize, that's
just how radio radio works, Matt, I just want to know, like,
long term wise, is this sustainable, especially with nil because
from my standpoint of how I'm looking at this, and
tell me how you view this, I don't know if
a one time you know, cash pump into a program,
if if that can be sustainable, Like, how do you
manage this going forward? Because if you do this one time,
it's great, but if it fails, then there's a lot
of backlash, bankruptcy, a lot of things that can come
with this.
Speaker 4: Yeah, what I think sustainability is a tough question. But
if you're going to try to get you're going to
get a five hundred million dollar lump sum. The only
reason you'd ever pursue that is if you're planning on
using that money to build stuff that will give you
revenue down the line. I don't think you know, you know,
I'm speaking hyperbolically here, like Utah is not going to
take that five hundred million, throw it all into athlete
revenue share and year one outbid the Denver Broncos for
talent and and try to wrecks out like one that
that's not illegal, but it would also be a really
bad use of this money. They're going to try to,
you know, put this into things that they think will
will will generate future returns, whether that's the facilities, whether
that's in new salespeople, whether that's in new revenue streams,
or changing what they do with their own earned media.
And some of that stuff's you know, interesting to consumers.
Some of it isn't. If you take this and you
give up future equity and you don't invest it wisely,
you absolutely hurt yourself long term, and that happens to
businesses in this country all the time. It would be
the same thing if we took out a loan from
the bank and we don't grow, and now suddenly we're
stuck with those onerous obligations. If you're if you're trying
to compete with Texas and Ohio State and Alabama, you
don't have those resources, though, you're going to have a
different risk profile. And that's you taught what that's things
to what UTEL is considering right now. And they're not
the only ones to be doing.
Speaker 3: That, Matt.
Speaker 2: Many are concerned here the state that somehow their tax
dollars will continue you to fund Utah Athletics. Kyle Whittingham
is the highest paid employee in the state of Utah.
I imagine some of those those tax payer dollars go
to him right now, How does that all work out?
Speaker 3: Do you think?
Speaker 4: I think if you are a tax payer, you're going
to have to come to terms with the fact that
part of being a taxpayer means paying for stuff that
you don't always directly use, whether that's for helping to
pay for your local K twelve pro you know, school,
even if your kids are homeschooled or go to a
private school or out of district. And part of that
is that it's going to go to on many levels
to help subsidize in state universities kids, there is always
a direct neat line between you know, this dollar fifty
from taxpayer and draper that goes directly into Kyle Whittingham's pocket.
Probably not. There's I know of a couple of universities
where there are direct appropriations to athletic departments, but usually
that isn't how it works. But if it's the money
that goes to the university general operating budget one year,
it could get you know, moved around and end up
as a subsidy to the athletic department in eighteen months. Yeah,
like those those kind of things happen, and I would
say that, you know, every athletic department needs to be
a good steward of the money that they get from taxpayers,
and the universities need to make sure they're not wasting
that it's it's it's important money. But not everything that
gets taxpayer money necessarily needs to be immediately profitable. I
don't think we ask if our roads to non profit
or if if some of the other places that we
that we spend money. I look, if it's if somebody
wants to get super fired up about that, I think
it would not be difficult for a Utah fans to
cut to come up with maybe some of the other
special tax advantages uh that BYU aligned institutions might get.
And I I for me, as an outsider, I think
that's just a silly war that's not worth fighting.
Speaker 2: Yeah, it's uh you well, that's why I like it's
Otro Capital and the University.
Speaker 3: Of Utah that own this venture.
Speaker 2: It's like, okay, well there's going to be like this
is what I know about universities, and this is what
I know about about corporate America and even private equity.
Creative accounting occurs all the time. So that's the fear
right of this creative accounting that will subsidize failure as
well and mortgage like essentially you're mortgaging the potential failure
of this institution as a taxpayer.
Speaker 4: I mean it's possible. It's difficult for me to speak
with real certainty about some of this stuff because the
university hasn't responded to a bunch of people's grandma requests.
We don't have the specific financial terms of this arrangement,
and we don't as the public, don't know exactly what
happens if it doesn't work out. One of the things
that comes to being a taxpayer in general. If you
have a public university that you know, engages in an
expensive new physics building, or buys an online private university,
as a couple of public schools have done in the
Mountain West, or any number of initiatives. Sometimes these things
don't work, and sometimes you can offset those failures with
income from other places, and sometimes you get a bailout,
and then you have to see, Okay, does our state
have a structure where there's an accountability or force changes.
If there's that kind of bailout, is there a potential
taxpayer risk for this particular private equity deal. Maybe I
don't know enough to speak to how big of a
risk or how over how long an event horizon, But
I don't think that what I know right now that
there's way more taxpayer risk. I think I think there's
more risk just to the day to day operations they
have the athletic Department than there would be for Joe
Q taxpayer.
Speaker 3: Matt Brown, Ladies and gentlemen, Matt best way to support you?
What you do, how you do it? Over at extra Points?
Speaker 4: Yeah, well, I mean the best way to support me
is probably just mail me a check, which you know.
Speaker 7: I'm yeah, you get Matt Brown, Matt dot Brown, Matt
dash Brown, ep on venmo I think, but no, the
best way is to read extra Points.
Speaker 4: You can find it at extra Points mb dot com.
There's several free newsletters there on business and policy issues
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data library full of contracts and financial reports, including the
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And then you can also upgrade to a paid subscription,
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Speaker 2: Matt Brown, we should let you appreciate you man, always
great content, always right insight. I appreciate you hopping on
to discuss private equity and sports, especially up on the
hill at the University of you up.
Speaker 4: Of course, can I can I throw one quick bomb
here into the mix while I have you on the
air before I go all right this, I want to
be careful here. What I am about to propose is
not something that I think has currently happened. I am
lightly trolling about where this opens. But let's let's say
hypothetically the University of Utah and Outrol Capital, this deal
works out. In seven years, OTRO decides to sell their steak.
They want to sell their steak, maybe not back to
the university, but maybe some other kind of gigantic managed
investments fund that has you know, bits and pieces of
all kinds of industries all over the world, and all
kinds of of excellence, I mean, of operational expertise, but
has a particular interest in things that happen in and
around Salt Lake City. What I'm proposing, of course critical,
is that the people that buy this next would be
Ensign Peaks. And if you're going to sell your athletics
department to institutional investors, who's to say who ends up
buying it next?
Speaker 3: Yeah?
Speaker 4: Could it be the LDS Church. I look, my job
is just to ask questions.
Speaker 2: I'm I'm sure there's a there's gonna be some sort
of caveout where Utah has to has to approve the
venture the sale, that that's something that they would.
Speaker 4: Aide when there's a will, there's a way. And I joke,
but like we thought we had that role here in Chicago,
and we accidentally sold all of our parking meters to
like the UAE because the firm that we sold it
to flipped it to somebody else, And now you can't
close the street in my neighborhood without going to the
Middle East. I say this jokingly, but there is always
a risk that the deal that you create isn't the
deal you end up within ten years when you start
selling stuff on the market. And I think that would
be very very funny if if if the church ended
up in a roundabout way buying part of Utah.
Speaker 3: The Athletic Department, that would be tremendous. Let's go. Thank you.
I appreciate that. Thanks so much, Matt Brown. Great, great, yeah,
thank you.
Speaker 2: There you go by the way. Tis the season to
be given cougarnation. We preating Matt Matt Brown, so get
back to him. Check out at Extra Points MB dot com,
ESPN the Fan of the Rocky Mountain Chevy Dealers invite
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Speaker 3: Today, let's go to break, don't go anywhere, get your prep.
Speaker 2: Getting you ready BYU versus Clemson On the hardwood This evening,
Kevin Young will discuss what's going on and how his
roster's looking right now is in the lead up to
Clemson That Clemson matchup.
Speaker 3: This is Cougar Sports on one O three nine ninety
eight point three.
Speaker 4: Yes,