As Big Ten inches toward $2.4B private equity deal, a resistance has formed that may delay or nix the project entirely

On Saturday, the football programs of Los Angeles, Michigan and USC competed at The Coliseum.

The Trojans won 31-13. However, what happens off the field, in and around that match, is perhaps more interesting and impressive than the game itself.

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At lavish parties in luxury suites in the California hills and above the football fields, influential donors and university board members of this two-story program met, mingled and briefed on the latest big story at their conference: Is the Big Ten really about to enter into a $2.4 billion equity deal with a pension fund in California?

“There is no reason for us to do this private deal,” said a university board member who wished to remain anonymous.

“The more people understand this, the more questions they’ll ask,” another added.

It’s straight out of a Hollywood movie script: A week before the Big Ten schools appeared poised to reach a definitive conclusion on their landmark capital bid, power brokers for two blue bloods were devising strategies to at least delay the deal as the two football teams clashed.

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As explored in a story published on Yahoo Sports last Friday, Big Ten’s year-round quest for private equity cash approaching a decision. The league is in deep talks about membership through a 20-year partnership with UC Investments, the investment fund of the University of California retirement system.

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The fund will make $2.4 billion in upfront unequal payments to the Big Ten’s 18 schools (an average of $135-$140 million per school). The league will secure a 10-year extension of the rights grant (to 2046), create a business subsidiary (Big Ten Enterprises), and create a new and unequal distribution of conference revenues (three schools will receive a slightly larger share than the others).

This is an important initiative that most of its members overwhelmingly support.

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But as the decision draws closer, detractors are emerging not only from Michigan’s influential board of regents, as previously thought, but also from USC.

“They’re not on board,” said a person with knowledge of the position of USC’s board of trustees, as well as some in the university and athletics administration.

So the weekend’s confluence of events — leaders of the two shows meeting in Los Angeles — has led to a timely marriage of like-minded people ahead of this week’s potential decision.

Could two of the league’s biggest brands stop or delay everything? Can the other 16 people agree to part of the deal without them?

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“We have to vote no matter what,” said one of the athletic directors at the Big Ten school who supported the equity deal.

It is clearer than ever that one way or another a decision will be reached at the conference. In fact, schools were given a 200-plus page governing document over the weekend detailing the agreement with UC Investments. The conference office also scheduled a meeting with its presidents later this week.

Under the current terms of UC Investments’ proposal, unanimity is required among 18 schools. Without unanimity, it is unclear whether league officials could create new terms that would expand the granting of rights and distribute capital only to those participating. A person with knowledge of the deal says it is possible, though unlikely.

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The University of Michigan Board of Regents has a scheduled meeting on Thursday; the capital proposal is expected to be discussed there, and the USC Board of Trustees has planned a meeting next week.

The role of university boards in the decision remains unclear. At most of the 18 Big Ten schools, university administrators and conference administrators have spread a message to board members: This decision rests solely with Big Ten presidents and chancellors. Several board members were told the presentation was “for informational purposes only” and that it was not a matter for a vote.

But there are differing views on this idea, especially at Michigan and USC, two universities with interim presidents. The eight-member elected Michigan Board of Regents and the 40-member USC Board of Trustees have significant influence over a decision that could impact the school for years to come.

Interestingly, Michigan’s last president, Santa Ono, served as chairman of the Big Ten subcommittee on the league’s search for capital.

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The USC Board of Trustees heard the UC Investments presentation Friday morning from commissioner Tony Petitti and Big Ten executives, as well as the league’s advisors and investment banking advisor Evercore. Other boards (at least Penn State, Michigan and Ohio State) have gotten details in meetings over the past 10 days.

“Tony is trying to be the best manager in the Big Ten,” said a university board member who heard the presentation. “But why lock yourself into 20-year rights? The world changes every three minutes.”

Supporters of the plan think the extension of the rights grant would provide security and stability among the Big Ten schools by binding them against the threat of attempts to consolidate super league concepts and media rights. But opponents of the plan say the extension “solidifies” the league for an unforeseen period and hinders what they believe is the real long-term solution for the finances of college athletics: the consolidation of media rights — the concept of pooling league television packages to generate more revenue.

The extension of rights isn’t the only obstacle facing power brokers at USC and Michigan.

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Those at USC object to the unequal distribution structure of both (1) the $2.4 billion upfront and (2) future conference revenues. The Trojans rank behind Michigan, Ohio State and Penn State in paying for the unregulated structure, according to those who have seen details of the plan.

Although the numbers continue to change, each of the three former Big Ten programs will earn up to $190 million in upfront payments and more in future annual distribution percentages. But the league’s new distribution model involves a performance and marketing mechanism very similar to the ACC’s success initiative concept, providing a path for schools that excel in football and basketball to achieve a higher rate.

Another incident on Sunday caused further concern among those who oppose the deal or are undecided whether to support it.

Officials at Penn State, one of the conference’s biggest brands, decided to fire football coach James Franklin and buy him out for nearly $50 million (the second-largest acquisition in industry history). As part of the agreement with UC Investments, schools can use the upfront capital in any way they see fit — perhaps that includes paying at least part of a football coach’s buyout price (Franklin’s contract includes relief if he’s hired elsewhere).

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Those unsure about the capital deal are asking a question in light of Penn State’s decision: Are financial stressors at one school sufficient reason for others to fork out future revenues for emergency capital?

Opponents of the Big Ten’s investment proposal offer a variety of alternative financing plans, such as a “securitization” deal or a traditional “debt deal” in which schools borrow money from future television revenues at a lower rate than a long-term capital investment.

Many argue that, in a sense, that’s what the Big Ten is doing. UC Investments will receive an annual conference distribution cut over the course of the 20-year deal, with a put option after 15 years.

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“It’s a good deal,” said one proponent of the capital bid. “It would be foolish not to.”

But not everyone feels this way.

The Big Ten is perhaps just days away from making a capital deal that would be the first of its kind in college sports history. Or a college conference or school is still days away from a failed foray into the world of investing.

“The more light is shed on this issue, the more we ask, ‘Why are we doing this now?'” one board member said. “You ask so many times,” he said. “The world is changing at a dizzying pace.”