It seems the Pac-12 has decided to target even more money from investors. News that the conference was looking to sell a 10 percent equity stake first came out in December, but a former hedge fund manager told CBS’ Dennis Dodd in February the Pac-12’s terms (10 percent for $500 million) were something that was “probably not going to happen,” adding “There’s a big disconnect between what they’re talking and what a fair valuation might be” and that the conference was probably “going to have to give up more than 10 percent [at a] $500 million valuation.”
Well, as per Michael Smith and John Ourand of Sports Business Journal, the conference is now looking for more money still:
The Pac-12 is seeking $750M from investors, considerably more than the $500M it originally discussed four months ago, according to multiple sources. The conference will distribute $700M of that investment to its 12 schools. The other $50M will go into a new entity to manage the conference’s media rights and networks. The breakdown is detailed in official bid books that the conference sent to potential investors in recent days.
…Among the details outlined in the bid book, according to sources:
- Investors are required to make a 25-year commitment.
- A minimum investment of $100M is required for individuals in an investment group.
- Investments are expected to be paid up front. The Pac-12’s book did not detail a specific rate of return. The investor would own a share of NewCo to be determined and participate in the profits as an equity investor. The expectation, sources said, is that NewCo eventually would be sold and the investor would benefit, but there are no guarantees.
- Terms of an investment could vary from one investor to another depending on the value the investor brings as a strategic partner.
It’s not specified in that piece, but an increased money ask would presumably be coming with an increased equity stake (at least if it’s going to have any chance of success, especially as the previous terms were widely criticized). If the conference kept the same overall valuation ($500 million for 10 percent, so a $5 billion valuation overall), a $750 million investment would come with a 15 percent stake. If they lowered their valuation after that external criticism, the stake involved would be even larger. The former hedge fund manager Dodd spoke to valued the conference assets on sale here as actually worth $3.6 billion; at that valuation, $750 million would require 20.8 percent equity. And that equity stake might need to be higher still given the 25-year commitment. (And that’s also interesting; there’s no clear path to profit here, and it doesn’t seem to be that obvious of a conclusion that a stake in the Pac-12’s media rights and conference networks will be worth a ton to someone else in 2044.)
Of course, it could be possible that some investment firm or firms bite on this, especially if the Pac-12 has decided to boost the equity they’re offering. And the “Terms of an investment could vary from one investor to another depending on the value the investor brings as a strategic partner” line is interesting; maybe someone who brings the ability to improve the Pac-12 Networks’ carriage situation (one of the key issues facing the conference) can get a bigger stake with less actual financial investment. Still, from the outside, it’s interesting that the Pac-12’s response to being criticized for trying to get $500 million for just 10 percent of the conference is…to ask for even more money. We’ll see how that works out for them.