The Dan Le Batard Show with Stugotz - The Sporting Class: Will TNT Steal Back Some NBA Rights? Private Equity Has Come for the Colleges!

Episode Date: May 31, 2024

Welcome to The Sporting Class! Meadowlark Media CEO John Skipper and David Samson are back with Pablo Torre! We start with more NBA media rights talk! The ink is still not dry on the NBA’s deals with ESPN, NBC, and Amazon. Warner Bros. Discovery is still fighting for its NBA life. Should they be? How does the WNBA fit into all of this? How much of an increase will the WNBA see in this new media deal? Are you buying or selling stock on the WNBA? Plus, private equity has entered the discussion. It is coming for college athletics. It wants a piece of the NFL. What is private equity? How dangerous is this for the NCAA schools? Then, we end today’s episode with some quick thoughts on TNT acquiring broadcast rights for some College Football Playoff games from ESPN. Learn more about your ad choices. Visit megaphone.fm/adchoices

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I forget if we need, we don't, we don't clap. We haven't done a countdown or a clap. Look, I do a lot of things at Metal Archimedia. We used to do a clap. I want to start with the fact that David S Samson demanded that the private piece of tape that only he can see on this table Which he's now holding in his fingers be replaced this Uh-huh. There are marks. Yes, we have to sit in a certain place. Yeah, wouldn't it be good to have it well delineated?

It was a rolled up piece of blackened white tape It was delineated. It was a rolled up piece of blackened white tape. You objected to the lint. And now it's clean, neat and perfect and people will know where to sit. I don't wanna waste another minute because we have so much to get to, but anything else you wanna talk about?

I just marvel always at what David is bothered by, John. Oh, mom, I'm happy for him that the crisp new piece of tape just makes him feel better. The same way a new suit, whenever I would show up, my father would say, is that a new suit of clothes or did you clean it all in? And the answer is-

What was your answer? Depending on what was true. If it was a new suit of clothes, I said it's a new suit of clothes. He'd say, all right, safe. It was an old suit that had been cleaned. I'd say it's an old suit that's been cleaned. I'd say it's an old suit that's been cleaned. I will say that I like when it looks professional.

Yes. We are a professional media company. Yes. Spoken by a man who when the question is asked, is that a new suit or an old suit, David says, this is merely the latest suit in my rotation of how many suits, how many suit jackets. And it's not whether it's new or old.

It's how you wear it. It's how you present yourself. it's how you present yourself, it's how you feel. Half of business negotiating I've learned over the years is really not whether you're smart, it's whether you present as such. And so this brings us to a story about, I believe, how a presentation of a story

has made a story more complicated because the NBA rights deal, which we've covered more than anybody else on the planet here has existed in leaks and reports and gossip, some of which we have participated in rigorously though with our own sourcing. And now we're at the place where I think the story has found a conclusion.

Does it feel that way to you guys? It does to me and I thought it ended as soon as Barkley started talking out against his own network. I figured that was the end of his days at the network. I was picturing John and having one of his talents on air sulling him during a show. I can imagine you would have loved that.

I'm sure that David loves when Barkley goes off on him saying he doesn't know what he's doing. Does he not understand how hard this is for all of us? Not knowing. Yes, the Nick guy, the guy in the Nick hat. That's right. Noted Nick's fan. Noted Nick's fan.

So I think that the world is now ready. The marketplace is now ready for the fact that NBA on NBC is coming back and Turner and inside the NBA are gonna need a new home. Well, I don't know if Turner needs a new home, but inside the NBA, inside the NBA, many fans would like it to have a home. But to answer your question. Yeah.

I think that what's being reported is almost certainly what is going to happen in reality, uh, which is that ESPN takes a expensive version of mostly its own package now, less regular season games, I think, but they kept the finals, which they will be very happy and should be about. I believe that NBC is a new entrant and will do a splendid job

of presenting the NBA on Sunday night. And I think that's very attractive to the NBA. To be back on broadcasts. Yes, and I think Amazon will get a package as well. I think that there is some deliberate sort of muddying of the waters around this issue of there is a matching right. I profess, as I profess multiple times on this show, I don't have any personal knowledge of what's in their deal other than I have

no recollection of it being in the ESPN deal. And I have never been aware in any circumstance with any rights contract of such a thing as a GFUK create a new package, we get to write to match that as well. I'm not accusing anybody of mendacity, but I think what's going on is more of an exercise in spinning the fact that they're not going to get it. And it allows them to say, gee, we love the NBA. I never meant it when I said we didn't have to have it, but we don't have to have it for

this price. I think that's what's going to come down. These deals will be announced very quickly after Turner does their last game of this season. They have one more and the new deals will be announced. I think that's probably what will happen. So David, the question I have for you is whether the other David, David Zaslav, has just executed a plan that he has had the entire time or whether he has made pivots here

depending on the pressure that has now been exerted publicly and privately. It certainly feels like he had a plan and he had board approval for the plan and he's going ahead and executing it. The only thing that interests me, well, there's many things. I'm surprised about this whole right to match

because if I'm David, if I'm Turner, I don't want it out there that I have a right to match. I want it to be very clear, hey, we don't have a right to match. The NBA's decided to deal with Amazon and NBC. Bless their soul. There's nothing we can do, but boy, we wanted it, but there's nothing we can do.

Now with the right to match, the fact that it may or may not exist, and I still think it doesn't exist, but if it does, now you're going to see Turner have to leak out there, well, we can't match that. We'd never be allowed to match that because it includes a broadcast component that TNT, Warner Brothers doesn't have. Well, that's why in some ways this discussion about whether there's a right to match or not is moot. If I believe if they have a right to match, it requires them to match all material terms and conditions.

And I think the NBA could cite that they are on a broadcast network. They could cite that their games on Amazon are all only streaming platform. And I do not. Which Turner knows. They know that the NBA is going to do that. So that's why I think that such pomp over nothing. I do not agree with the notion that this is a plan well executed by Discovery,

which really didn't want to renew. I think that, I do think ultimately there was some miscalculation that they would get it for less money than they could get it for. And that when Adam could go to the free market, NBC has now presented him with probably better than what he expected to get for the second package, particularly if it was going to be a renewal of Warner Brothers' Discovery package. And my guess is they could have renewed it if it stayed in the window for less than ultimately

Adam will sell it for to the window for less than ultimately Adam will sell it for to the NBA will sell it to to NBC. I can't believe you think for one second that Adam Silver did not have a conversation with NBC until the exclusive window was over with TNT. I don't know what have conversations they had. I would argue that they were that that NBC had the, has the onus there to try to make sure they figure out a way to communicate what they can do. Um, I believe Adam is smart enough to stay by the letter of the law that's in their contract.

And I know I'd, I never had any secret negotiations with anybody. I know you don't believe it. David's smirk, the eternal smirk of David Sampson. We do, we did often say about, all we would ever say is, if you come out of your negotiating window, I think we can guarantee you, you will get a very nice increase.

But I don't think we would ever make, I don't remember making an agreement. I know you don't believe it. It's that you're arguing semantics with me. Adam Silver does not let himself become that exposed. He doesn't let the window close unless he knows that he has another dancing partner. Oh yeah.

It would be irresponsible for him to do that. He had several potential other dancing partners and NBC was quite public about we won't end. So I don't think he thought he had any risk of coming out, nor do I think, I do think he had targeted where he wanted to get. Uh, and, uh, TNT was probably short of that. Um, there were many negotiations I was in where it was made very clear to me.

And you have to believe it at a certain point, you're not going to get it for less than that. In fact, I had many more negotiations where it was about, I know what I have to pay. I now have to figure out how I can get other content, other special things, more commercial inventory, more, more leeway on sponsors. That's what we were focused on. The big, look, Major League Baseball, and the last year I did Major League Baseball, they told me, here's what you're gonna have to pay.

Because I always went and said, if I just want to get it done, what do I have to pay? And they would tell me. I never believed in the thing, and I'd be interested in whether one of us was discovery, just try to do it, which is the go in with analytics and say, we've studied this and this is what it's worth.

That is a good way to piss off the people you're negotiating with. Networks do do that. And I've seen that. Fox did that negotiating TV deals in baseball and with teams, they show sub growth falling and they show the analytics of what they think the rights are worth.

And then it's up to the league or the team to say, we don't care, pay us what we want. And there's optionality. The thing is in regional sports networks, there's not amazing optionality. But in a national rights deal, the NBA does have all of the different players bidding. That's why I think there's proper communication

and Turner knew and you say, you don't think they executed their plan. I think David's been brilliant. I think that whether- Really brilliant. Brilliant, because he can come off looking as bad as he, he answers, he doesn't answer to you or to you or to me. He answers to his board.

That's it. He doesn't care that Charles Barkley is gonna mother bleep him from now till- He literally could not care less what Charles Barkley says about him because Charles Barkley doesn't either sign his paycheck doesn't negotiate his options his price increase any of the comp that he has all things being equal I suspect he would prefer not to be the object of Charles's comments and I don't know if he had to be. I don't, I mean, if you're a shareholder,

this is why you're saying he's brilliant, is because if you were a shareholder, you would be glad they walked away from this very expensive package. I just know very well that as a shareholder, my stock's been crap. And it's nice to have the NBA, it's nice to have a popular show,

but I want my stock to go ahead. So you're saying something different actually would be favored as a stockholder because what's been working with the NBA has not been actually working for Turner. That's my view of it. And if you look at a lot of these networks, they're in the rights game because it's sexy,

but they've got to make money. I mean, if ESPN were not making money, you would not be able to throw around money like you are, you know, making it rain after a Super Bowl win at a club. You have to have some sort of economic reason for doing what you're doing. I think unless- You do, but sports rights, particularly very long-term sports rights, have generally outperformed what anybody on a spreadsheet trying to fare with the value of them was.

They just have. And, and, and, uh, I always loved when the other parties I was bidding against were laser focused on proving to the league what it's worth. It's, it's the equivalent of, you know, going to try to buy a house and trying to tell the owner why his price is ridiculous. His price is what it is, and if one person will pay it, that's what it's worth. And if somebody outbids them, then that's what it's worth.

It's as simple as that. So I generally did not find that the leagues, the leagues have a sense of their market value. If there's one more bidder than there are packages, they're in very good shape. Well, this is why the John Skipper philosophy of whatever the highest bid is plus one. It's what it's worth. One the day for John when he's running ESPN. And I want to bring us inside, though, this hypothetical

boardroom, David, where you could bring in spreadsheets that all say, look at the ratings of these games, right? It's not triple, right? And so you're getting though, in Adam Silver, a wildly successful headline, we've tripled our broadcast revenue. It's a great question. So I would like to bring you inside a negotiation and the number of times where ratings comes up.

I'm just, maybe you can give from your point of view, but I can certainly say from my point of view when MLB is doing its national negotiations or its local team negotiations, ratings, it doesn't come up. It's very sexy and everyone talks about it on Monday morning. Well, it's not, I would argue it's not sexy.

It's just that people assume there's a correlation and there's not. Which is by the way, just to pause and just acknowledge this. I think we just said the same thing. No, no, no, but you both from either side of this literal table and previous ones being in agreement on this is kind of mind blowing because ratings are a proxy for business in the conversation around sports. It's the most bizarre thing not in, not in the conversation around sports. It's the most bizarre thing, not in the real world. Ratings are only a measurement

which allows you to set an advertising price. That's all it is. It means nothing relative- This is mind blowing, I think, to lots of people. I hope not, because I try to communicate this as often as possible during these conversations on Nothing Personal, when it's the biggest release that we all wait for. How many people watch the draft?

Caitlin Clark drew 2.95 million people. The WNBA is the biggest TV property known to mankind. Or MLB, the ratings are down or up. There's press releases that the leagues do based on ratings, and it always made me laugh. Well, ratings matter for two reasons. One is advertising prices and the other is, it is an indicator of the popularity of your sport. If your ratings are going down,

if your audience is getting older, it is a plebiscite of sorts on how are you doing. So while the WNBA will end up making a mistake if they believe they can say, oh, our ratings have gone up four or five times. So of course we deserve more money. That's not the calculation. But it does create, you'll agree, the hype, the heat around it.

It's great PR. And success does often lead to success. Those ratings do help. More investors will come in and buy teams, and people get excited, but they don't predict what rights will cost. It's why we lie about attendance, because when you're doing sponsorships in the building, you have to show that, hey, there's 15,000 people at the game or averaging 30,000 people, therefore-

Yes, my rally had crowds as far as the eye could see. Well, the commissioner, the commissioner Selig would traditionally talk about the total number of tickets sold every year and it did tend to go up. So he made it go up. Yeah. And well, well, again, even in your case, David, I would say I have no personal knowledge other than you're turning yourself in that you have lied. I don't. I promise you that what MLB did is they created a fund where each team got a bunch of what were called

commissioners discretionary tickets. And they got to use that to keep attendance going up in the bud seal years, because he would sit there every day calculating industry-wide attendance and needed ESPN to report on Sports Center, which is all he cared about, in the top quarter of the hour

that MLB attendance for the year went up X percent. But the psychology of all of this, you're saying, is the psychology of a press release. It is something that makes people feel good in the interim, but when it comes to brass tacks, these negotiations, John, it's not a thing that even people mention. I'm sure that people would contradict me and say, well, we did indeed mention it.

And we did have discussions. I would say most of the professional sports industry in this country is based upon valuations of teams. So PR is quite valuable. So ratings, attendance, you know, number of social followers, all are part of sort of this myth that there is some sort of underlying

mathematical calculation that can be done to get yourself a team value, when a lot of it is the desire for a scarce commodity and the sexiness of owning even a portion of a team. And you're talking about owning a team, but you're also talking about broadcasting a league. Right. So the network wants to broadcast the NBA.

It's the basketball league of our country, of the world. There is a price that networks are willing to pay to be associated with such league that cannot always be defended from an economic standpoint. And so this brings us naturally to the WNBA, which we have talked about on this show as a piece of this larger deal. We had talked about whether it be broken out onto its own thing, speaking of good press

and good press releases. And now it seems that the WNBA will live inside of what the NBA has negotiated with the aforementioned partners. And that tells you what? You're both staring at each other. I didn't know if you wanted John to start. No, you start. I'm happy to.

It tells you that the WNBA is not yet ready to stand on its own. Cause if they were, they'd negotiate separately. The NBA would allow for them to negotiate separately, but they don't because what they're gonna do, it will be a press release. I can't wait for it to come out. In the old deal, the WNBA was allocated $60 million per year

of what the NBA received from the networks. Now that number is gonna go up, but it's a made up number, literally made up. So the WNBA will get to announce, hey, our rights fees doubled. Our rights fees went up by more than double from 60 to 120 or 60. I don't think it'll go higher than 120, but let's just pretend it does.

I don't think it's a meaningless number because the league does have to answer to its owners. It has to have some sort of rationalization or justification for why they're going to announce what the new deal is. I don't think they picked it out of the air. Um, I think personally, I believe, and this gets us right back to PR and ratings and, and heat, right?

The league is very hot right now. The WBA. Yeah. The WBA is very hot. I think probably you and I were both at the Liberty game with, uh, the Indiana fury and fever, fever. And, uh, it was sold out to the last seat in the top and people were going crazy. That's, that's a good indicator that it's more valuable because the team,

va the team valuations will go up. They need to get enough capital there to make sure those valuations do go up because they can, they can raise player salaries and and do other things. I think it will be closer to $200 than $120. For PR? For real value? For real value. If you're doing a 10-year deal, I think it's a bargain to get the WNBA for those prices if you're one of the networks that gets them. I think you should put together some money and buy a WNBA team. No, I wasn't talking about buying a team.

I'm talking about- No, but that's, what do you mean? You're bullish on the league to the point that- I'm quite bullish on the league. Why wouldn't you buy a team then? Because the prices have already risen well beyond my economic means. Well, let's talk about-

Let's talk about- To get some private equity. Well, hold on. Before we segue to that, David. Sorry. I couldn't resist. The valuation of a WNBA team. I actually want to ask how the rights deal impacts this.

If we're talking about manufacturing a number for vibes and we're talking about then what you pay to get it, do those numbers intersect? When you do discovery, which means you're doing your diligence to buy a team, you look at all the different revenue and expenses of the team you're buying. It will show when you're, let's say the Indiana Fever Goat for sale, and you will show what their gate revenue is, you'll show what their broadcast revenue is. And their broadcast revenue is one twelfth of 60 million one-twelfth of now 120 or 200 million.

But then you examine what happens when there's expansion because the WNBA wants to expand. Then you're getting one-fifteenth of that $200 million. So that money coming to you decreases. So you do all that calculation when you are going to a bank to borrow money to buy a team. Because when you go to a bank to borrow money to buy a team. Because when you go to a bank to borrow money to buy a team, you have to show the bank that the company you're buying

will generate money to pay the bank back. And revenue from broadcasting is used as a huge source to pay banks back, which will help increase the valuation of teams. But if it's BS, and at the end of the next deal, the WNBA is put out on its own and all of a sudden they go from 200 to 50, then you have a real problem. That's my only concern.

Yeah, by the way, the, I think, and I haven't ever seen the exact financial calculations, but the new franchises must pay a fee to the teams that are already in the league. And that is generally intended to cover the differential between, oh, more teams are now participating in the rights fees, but the team-

It's supposed to be more. It's an expansion fee. Yeah, expansion fee. Yes, your expansion fee is always based on what your national revenue distributions are, plus a delta. Yeah, so I was just suggesting that covers the, going from 1.12 to 1.15.

They're not losing revenue for new teams coming in. And if they were, they would not approve new teams to come in generally. But the fight that happens is when the buyer and the seller of a team in this instance, fight over who's getting the expense, who gets the money. Who gets expansion fee money? Is it the new owner or the old owners

in a purchase, et cetera? So I just wanted to make the point that I love that WNBA is getting all this attention. I really do. I love that you went to a game and you went to a game but what does it really mean for the league to mean nothing has been financially proven that anything is better. Again I think that the economics of the league just like other, will ultimately be based on the valuations going up. And while I do not have the means,

if you'd like to help me out here a little bit, David. Yeah, I'm down, David. I'd be down philosophically if you're down financially. I can bring you the word plebiscite. You and I can go raise the money. If you believe in the WNBA as a business, we should be able between who we know to go raise money to buy Tim.

I will put it out of context here. Clara Wu Tsai, the owner of the New York Liberty and the Brooklyn Nets, said earlier this month at a business conference that her goal for the New York Liberty within 10 years is to make it worth a billion dollars. The first women's sports franchise to be a billion dollar asset.

And so David is suggesting that there's a show me dynamic here that the sport has fallen short on. We're just hearing the same thing with rugby and cricket and all sorts of other sports. And the WNBA is a sport that is not proven to be able to deliver asset valuation increases. Well, because they haven't been able to

by strategic design, it sounds like. Well, in fact, the valuations are going up and the team valuations are going up and the NWSL does have a team valued at $1 billion. So making the bet that one WNBA team will get a valuation of $1 billion, I'd definitely take that bet. I'm sure you would be happy to do so

and we'll have some kind of reasonable wager, not just you have to buy a team. If I win, you have to buy a team. If you win, I have to buy a team. The tape's gonna be so dirty on David's side of the table. Are you gonna be sitting here 10 years from now to collect. Love you sitting somewhere. I don't think you'll wait 10 years.

I mean, these things tend to happen slower than you ever think they will happen until they pivot and it happens faster than you ever thought. And the WNBA, which I believe was 25 years old last year, this is year 26 or 27, has struggled to get the valuations up. I think they're going to be on a trajectory because there's a lot of money looking for to invest in sports right now. I just think it's unrealistic what we've done to Caitlin

Clark. So it's a different story. But it just makes me crazy that she's being counted on to single-handedly salvage the WNBA. But it's the trend line beyond Caitlin Clark too. And we're now gonna get into a conversation around ratings being goosed across all of sports

and in-home, out-of-home viewing, but. I would think of her as a catalyst, not as the sole reason, right? I mean, you know how it is out in the wilderness when you're trying to finally get that fire started, and for some reason it starts. You probably know how to start a fire. I don't, I keep putting paper on it, more matches, maybe a little gasoline, you know, and it finally takes off.

It's, it's going to take off. I mean, and Caitlin, you know, provided that spark. It doesn't mean her spark was bigger. I think there was a team named, there's a spark, the LA sparks. So, so Candace Parker also provided one of the sparks to make this league happen. And it's finally happening. And, and see, so it is wrong. I agree with you, David, to put the, the burden on her that, oh, it's not right

that she is the scaleless, it doesn't matter. It's the proverbial, I guess, straw that breaks the camel's back. Um, the, and this is going to break the back of the non-valuation. They're gonna go up. Right, so 25 year anniversary, by the way, was 2021. So yeah, we're entering. 28. We're entering a period where David wants to see financials and I'm bullish on this product,

but I continue to digress, David, because I wanna get to the financials here. Backstreet's back, all right. Since the dawn of mankind, we've cooked our food over an open flame and debated the best way to grill. One thing not up for debate, grilling and beer always go together.

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This is the Don Lebatard Show with the Stugats! David, in attempt to host the show and rest it away from me, mentioned private equity before and now we can unite all of these interests, right? So the question of how do you get money when you don't have enough money to own a team or in this case, an athletics department or a college football program, the answer is private equity. And I just want people who don't speak fluent Samson, who aren't already pre-subscribed to Rich Guy Only fans, to understand what private equity even is. So like, how do you classify that?

Like, what is it for dummies? Okay, give me all the money in your pocket. Give me all the money in your pocket. We're gonna combine it with all the money in my pocket. Then we're gonna go out and we're gonna find something to buy and we're gonna own it together. We're gonna be partners. I'm gonna get a little extra fee

because I'm the one finding the investment. I'm the one managing the investment. And then in a certain number of years, I'll give you back what you gave me from your pocket. I'll give you back what you gave me from your pocket and I'll even give you a percentage more. But I promise you that what I've kept is gonna be even bigger than that.

That's private equity. You find a lot of people that give you their money, and you invest it in stuff, and then you give them back their money plus more, but you keep even more of it. So that is a pretty friendly pitch on behalf of private equity. I would say.

I actually thought it was pretty succinct and clear. Are you saying you don't get it or you don't agree with it? I'm saying that the reality, now this is where I interject with my own experience of private equity coming into media, coming into every red lobster, right? It's not exactly as clean as what David has just characterized.

And so I want to be also cynical about what actually is going on with the NCAA and private equity. So private equity, venture capital, those are two, I'm viewing those as separate things. Yes. Venture capital is when I say, all right, give me all your money, you give me all your money,

now we're gonna go buy a company and we're gonna run that company and we may break it up, we may sell it, we may do whatever we wanna do. people should think of the movie Pretty Woman which maybe is too old a movie but do people know that movie Richard Gere I think is that really true you're asking the 68 year old in the room whether he do you think our audience does not know Pretty Woman interesting I I I know Pretty Woman oh you're a good, you're young.

So that's, so you know what Richard Gere did for a living and what George Costanza did for him. He was, do you remember George Costanza is in the movie Pretty Woman? Oh no, maybe I don't know. Isn't George Costanza a character from Friends? Maybe actor, Seinfeld. Maybe, maybe, is George Costanza the name of the character?

Did they call him George Costanza in Pretty Woman? I'm trying to figure outanza the name of the kid? Did they call him George Costanza in Pretty Woman? I'm trying to figure out, do you mean the ad? It's Jason Alexander, obviously. It wasn't, it was a weird crossover thing. Got it. That's worse. I was trying to remember if the guy

with the weird hair was in it too. Block of cheese, the size of a carpet. The bottom line is private equity. It made big news in the last couple of weeks with what the NCA is doing. Enormous news. Because now it never occurred to anyone And his private equity, it made big news in the last couple of weeks with what the NCA is doing. Because now it never occurred to anyone that universities are for profit.

And some of you may think they are and certain departments are, but in general people don't view them that way. Well, that's because generally they are not making profits. They're generally losing a certain amount of money that the university through some mechanism matches, meets the deficit. Athletics departments lose money. Yeah, overwhelmingly.

Yes, and they get funded by the university, as John said. Now what we're hearing is there could be private equity funds. That means that we put all our money together and we go to Florida State and say, listen, we've got the best idea in the world. We're going to give you a hundred million dollars. In return, we want 10% of the profits of your football team. Yeah. I will, I will pick up a little on Pablo's skepticism or cynicism here and suggest they're not expecting nor do they care whether the

universities make money. They're not going to get paid back from profits. They're going to get paid back and they don't care how they'll get paid back because they're only interested in making their money available and getting a return on that money. They don't care how they get the return and they will structure the deal such that we get our money back with interest no matter what. Whether your, whether your ethics department is more profitable. Now the schools are going to present to their board of trustees, oh, we're going to take this money in and we're going to wisely spend it to hire better coaches, to fund our NILs,

get better players. That's going to result in more ticket sales. That's gonna result in the boosters being happy and giving us more money. And that's gonna result in fans being willing to pay more to sit in the seats. And they, but anyway. Yeah, I don't agree at all.

That's not what private equity firms do. I think that when you hear it from them, when this actually happens, they're gonna demand profitability from these departments because they invest in companies that make profit. And in fact, they could own a percentage of the athletic department or the university's operation where they get a set percentage

in return for the money they gave. So they could be a profit participation where if you make a dollar of profit, the venture capital firm or the private equity firm gets 10 cents for every dollar. And if they loan the money to University A and the university bungles it and messes around, you believe they just lose their capital? No, I believe that there's two things that happen when there's private equity fund, which is why private equity guys are so wealthy.

They get not only an annual return based on profitability, they get a guaranteed return that after X years, all the money will be repaid at Y interest rates. But didn't you just make my point for me, which is they don't care. They have a contract that says they get paid back. I do believe they care because you're the second piece, the annual profitable, the annual profit, that's real money. But I guess the question is,

how good is the plan to improve the finances of these schools such that everybody gets what they want? Right, that's it to me. It's brilliant because that's the hugest question, Pablo, because how do you do it? How do you make an athletic department profitable? What do you do? And look, you have the public records of schools

that have gone from having $60 million athletic budgets to having $180 million athletic budgets. And those have generally not ever meant that they went from making 60 and losing 20 to making 180 and making 40. It usually goes from having a budget of 60, losing 20, having a budget of 180 and losing 30. I mean, they have not been particularly well run.

Schools take the money, they pay coaches too much. Then they give them eight year guaranteed contracts. I can't remember what Texas A&M owes Jimbo Fisher, but it, I think is in the neighborhood of $75 million. So, wow. And, and look at, uh, look at Rutgers. They were losing money before they came into the big 10. They now have an athletic, they now get meteorites and payments from the big 10

that probably double, maybe even triple what they had before. They still don't win particularly, and they haven't built a new basketball arena and they're not making money. They're still losing money. So they're clearly not a candidate for private equity under that operational model. They would be only in that, only if the return promised, it would be like a credit card debt.

They could, you could get money from private equity firms if you're willing to give them a 30% return and you've got a cash value of your assets enough that they don't feel like they're left naked that they can collect on a foreclosure, if you will. I'm assuming that someone, perhaps the institution itself, will have to guarantee the return. And I can't wait to read the particulars,

because that could happen. So the particulars on why this is now a conversation becomes obvious when you realize, oh, right, this settlement that the NCAA just made with Jeffrey Kessler et al., which we've covered on Public Torrey Finds Out, this will result in an average of $22 million for the next 10 years for the Power Five schools, right?

And so you add in the funding of expanded rosters with more scholarships, that's $30 million annually, $300 million per school, thereabouts, over the next decade. And I wanna frame this question now, given that backdrop, right? Because you've talked about things that are growing in value very clearly when it comes to the MBA, despite all of the complexities.

If private equity is a bunch of rich guys who are like, with these strings attached, I will give you my money. Why is private equity preferable to other sources of money? It's never, it's never preferable. It's only used when you don't have access to any other sources of money? It's never, it's never preferable. It's only used when you don't have access to any other sources. So I'm sorry to all the private equity people out there, but you are my last choice always.

We got to a bank, frankly, I'd rather go to my Discover card and max it out because private equity people, their money is really expensive. And it's going on with the Oakland A's right now with John Fisher trying to go to Goldman Sachs when their money is always more expensive than JP Morgan's money.

Everyone in the industry knows that, but when you need money, when you're desperate for it, that's how loan sharks came into the world. People needed money. So there's, what about all the check cashing stores out there? So are you suggesting that private equity firms are just fancy loan sharks?

Yes. The Chico's bail bonds of... You're gonna put me on an island because you have relationships with them, but so do I. Do you disagree? No. You just won't say it, which makes me laugh about you. But yes, it's just unreal.

You make me out to be this smoker. But that is what private equity is. Is what I wanna know, right? So if they're going to private equity, that indicates to you at desperation. A hundred thousand percent. Why is no one else willing to give the money with fewer conditions to these college sports programs?

Because they all lose money. I don't understand the business thesis, right? I don't understand my question. How, I mean, this feels to me like, Oh, there's a bunch of people over here who think they can use more money to turn their athletic departments into for profit businesses. So maybe I'll give it to them, but I'll give it to them under the conditions that the university is going to have to reach into their endowment. They're going to shut down the chemistry department. They're going to stop having other non-revenue sports.

See you later diving. Yeah. So none of those things seem good to me. And I personally do, I'm very dubious that these schools that take this money will find it to be anything other than a temporary solve for what they regard as, oh, I don't have enough money to win, right? Florida State has enough money to win. They were undefeated last year. They're mad because they didn't, rightly so. They're quite right to be mad that they're the first

undefeated conference champion that did not get selected. But they think that if suddenly they have even more money, they're suddenly gonna make all the right decisions about the coaches, it's hard. That they're not gonna have injuries, that they're going to be able to raise the ticket prices, that they're going, I just don't think it's a business. I don't know how you take a department.

I mean, if you can figure that out, gee, I don't know why the P guys wouldn't go after the business school and say, gee, we'd like to own your business school and we'll run it for profit. It seems- They're not gonna run the departments. Part of this is the private equity firms,

the athletic departments will still be run by the ADs and by the universities. They're just gonna own a percentage of it. Now I wanna ask though about that concept, right? Which is how activist does private equity tend to be when it comes to now you have our money and now you have our advice. I'll bet you a dollar right now that Nelson Peltz

does not become an investor in an athletic department. Nelson Peltz, that's a call back to the activist investor with the company that escapes you right now that they did the whole vote. Oh my God. The company Disney? Disney, thank you. I'm telling you, I'm having issues. I'm having issues.

We started late today, you got today. You got Nelson Peltz But not Disney your brain is is a rotating wardrobe closet of facts Nelson Peltz is someone from an activist standpoint when he makes investments. He likes to have say power He likes the power it's sort of when boosters give money in the old way in college and say hey Not only do I I wanna meet the athletes, but I wanna say in who you're recruiting as your next quarterback. Private equity firms, when they give money,

there are often rules associated with it. There's mechanisms of control, but it's based on economics. It's based on how much money you're losing. You can't lose X amount or else we're gonna step in. But we're not gonna tell you that you should sign this quarterback or that quarterback. And I imagine that's what this'll be.

And I imagine the schools taking this money, are gonna use it for NIL. They're gonna use it for players, which is so stupid because the money just disappears into the ether and it's hard to turn your company around in that way. So the question, John, just the question I have is then the ways that you add to a bottom line, if you're a college sports program,

seem simple to me insofar as it's always about TV rights. Beyond that, how much room is there as you understand it? Cause they're talking about merchandise, they're talking about hospitality, they're talking about turning these stadiums, I believe, into, and this is the example from Red Redbird capital, Jerry Cardinal, I believe, who is saying, look, I've done this with the Cowboys and the Yankees, legends, hospitality, we're going to get money out of the stadium experience.

How much is there, or is it still just mostly about a super league? Is it like, what's, what's the end of the road here? I guess. league? Is it like, what's, what's the end of the road here? I guess. I'm not sure I understand it other than, um, there probably are a small handful of schools that are big enough and will be willing to pay a, or willing to guarantee that they will pay it back. I mean, the university of Texas actually is a rare example of a school that does make money on their athletics department. So I can see a school like that going, I believe we could supersize this. I don't think they'll turn it into a business.

I don't think they'll spin it off, but they already have a P&L. They're a public university. They're actually required to report. And they've always been quite proud of being about the only school that not only reports a profit, that profit goes to the academics or other needs of the school. That's an ideal situation. I'm not sure I know of another one. There may be several more. I don't know if Ohio State or Michigan or Alabama or Georgia make money. They would be the ones likely to be in that situation. And I can see- I think the future's different, John.

I think that athletics departments are gonna be spun off. I think they're gonna have to operate independently. I think that they're all gonna have employees. The players will be employees. The players will be unionized. The players will be paid. The athletics departments will be independent entities that will have separate owners

because the universities will not want to carry them anymore under any scenario because it's brutal for universities to do so. And I think private equity is the first step in what is the next 10 years of a complete change. And it started with NILs, and then it started with private equity, and the next step is going to be spinoff.

You watch. It's an interesting concept. I have to say, you probably are creative enough business-wise to figure out some way to organize that. I don't see how it works within the confines, particularly of a big academic public institution, that oh, we're gonna spinoff our athletic department and somebody's gonna manage our team for us.

I mean, when you were at baseball, could you imagine if they said, we're going to make base college baseball teams, minor league teams. So the University of Illinois will be the Chicago White Sox, triple 18. We don't need to. The NFL does it that way though. The NF college is minor leagues for the NFL. Well, we're talking about a potential further formalization Don is alluding to of like rumors that I have heard where it's

like UCLA, guess what you're now with the Rams. And there's going to be a financial dynamic there that will be profitable. That would make them a minor league team. Yes, each team in baseball has its own minor league teams, which it's with its own system. It just means that that has the players assigned to organizations at an earlier moment. So instead of players being drafted in the NFL after college, it would be after high school, where you're drafted into an organization and then go younger. Do Messi. Didn't Messi go to some camp in Argentina as a seven-year-old or something and became something like that? Something like that. I mean, we could start with kids if we want. And I and I see a world where that easily happens. Speaking of doing messy,

I do want to look a little cleanup here, right? So 2022 study found that in 2020, just 18 of 229 d1 schools, their athletic departments were profitable that year. Oregon was number one because Phil Ney made a massive, massive, massive donation. 211 of the 229 were losing money. So the question I suppose is how much, this is what's I guess fundamentally confusing to me. We're getting to a point where the NCAA is saying, okay, you guys all gotta pay more than you did before. And at the same time, private equity is coming in saying,

we see the potential for you to make even more money. And so that tells me there's an untapped something there despite all the money losing and none of us know exactly what that would be. I do. It is not spending money on things that lose money. It's cutting your expenses. But why do you think there's layoffs at big companies?

Yeah, it just, and I could be, I understand exactly what you're saying. I could just, and I could be, I understand exactly what you're saying, I could be wrong. I cannot imagine, I'm a North Carolina graduate. I cannot imagine the University of North Carolina going, no tennis team, no track team, no wrestling team, no baseball team, we now are gonna spin off our football team and it's gotta make money.

I just, as a graduate, it just feels gross to me. It's like, really? You're not committed to the idea that you're a university. And one of the things you provide is some opportunity for people to excel in athletics. And by the way, as students, you go to the baseball games, we went to lacrosse games. We went, you know, it's part of the university experience.

I just can't imagine it becoming so mercantile that it's like, no, it's now just a money making operation. Our football team, they'll be club sports. Everything you're describing, they'll be club sports. It's very nice to. And it's very beautiful what you're saying. The fact that you like doing that in North Carolina. And by the way, it also, though, I will tell you, it's not true.

The board of trustees at the University of North Carolina will say, no, you, you North Carolina cannot make your university. You're going to have to let NC State do it as well. And UNC Wilmington, there are state legislatures that will weigh in and say, no, you're not going to get to do this. So I don't know. I just don't see it moving in that direction. I will admit it's a mess and you're proposing a commercial solution to it, which is the mess is you're basically going to take the top 32 or 48 schools or something, create a super league where their teams are professional organizations. With values. But that's, but I just want to be clear about this, right?

If you are abiding by the logic of private equity, which is we want to maximize the profitability of the thing we're investing in, the most logical goal is in this super league pseudo de facto minor league system that we've arrived at. Why do you think universities renovate their campus stadiums just by a show of hands? Money to try to increase revenue inside those stadiums. And the reason why they're trying to increase revenue is they're trying to get more money in order to pay for all the things that don't make money.

Eventually what you learn, especially with private equity help, is you learn that when don't take your profit to try to support things that are sick, cut off the dead weight and then continue on with what makes your money. I'll add what I think will be a non-trivial issue. I would not want to be the private equity firm

that had to stare down the graduates and the students at the University of Texas for forcing the school to quit, to stop all their other sporting programs. I don't think that's trivial. I don't think the, I think the legislatures of the schools would have problems. That's a massive PR problem. They cannot be enough money in an athletic department

to make that massive PR heading work. We'll find out. Well, it certainly begs the question of like, who can prevent this from happening, right? Is it going to be a legislative issue? Is it going to be a university board of trustees issue? Does the NCAA have any teeth in this decision making? Because it's logical that it's going this way.

Go to Jersey right now with Rutgers. We talked about Rutgers. They spend a lot of money buttressing Rutgers. They easily could say, you know what, we're tired of it. We want to spend money on other things in this state. You're going to have to get rid of the following 50 things. Or you choose, but you have to get rid of $100 million of operating expenses.

Is that a very foreign possibility? You say a legislative response, both of you, and I say, yeah, the legislative response is, dude, you're losing too much money. At the very end here, I want to wonder aloud about what else you guys are thinking about. A story that we did not touch on that intersects directly with this, John, is the idea that ESPN, by the way, now spinning off some of this sweet, sweet college football playoff inventory to the aforementioned TNT, uniting the two stories that we've talked about.

We have like 90 seconds left. What is your response to this bit of diplomacy, to use the word of the day? Well, I don't know if it's diplomatic. I think ESPN, which is successfully renewing their NBA contract, is going to have to in the short run, also find some places where they can offset

some of those expenses. They own the college football playoff. They will still have the championship. They'll mostly have the, I think they'll have the semis. They'll give up a quarter final every year. So all they've done is pay for some of the NBA package they just got, a smart business and TNT understanding internally that their fiendish scheme to pretend to want to keep the NBA. Get the comfortable playoff hat on David Zaslav's hat.

And now they will, they're taking some of the money they're going to not spend on the NBA because I think they already know they're not and they're starting to do smart business which is is, gee, we better buttress our, our sports programming. The one thing we didn't mention, I'll, I'll say it very quickly is what is TNT without the NBA? That is, if you ask people, what is TNT and why do I have it on my cable system? They're going to say the NBA. And I would say touch by an angel. On that note, on that strange but appropriate note,

we're done here. We'll solve all these mysteries on the next episode of the Sporting Class. Thank you both. Thank you. For doing this, I think. Backstreet's back. All right.

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