re: A clearer picture regarding LSU and the rumors around private equity is emerging

quote:

---

So they are just going to take the $100 million and spend it? You have made multiple posts saying they will invest it.

---

Hence the reason I said details have to be missing. It doesn't make sense for either side unless the entity can somehow get a higher ROI than the investor can on their own, which I doubt.

If they're receiving the $100M up front and then paying out TV revenue to basically pay that back, then you aren't generating income which is the stated goal.

quote:

---

This fund is obviously going to grow over time as annual TV revenues and investment income is added. 

---

It can't if you're paying out the TV incomes as profit every year, which was the assumption of the Alabama poster.

Kiffin trying to get double the nil for the next 5 years. And buy some natties. Too bad he always chokes. And then lsu sold off 20% of their revenue while already having budgets deficits.

quote:

---

LSU doesn’t have the leverage in this deal, they need the money

---

They don't get any money they wouldn't have received otherwise in the scenario presented here.

Happy to clarify for you.

Williams gives $100mm.

Williams gets 7% of “profits”, which is a squishy term, as you can manually alter what items qualify as “revenue” and which items qualify as “expenses”, but the concept is he’ll get 7% of annual cash flow the entity produces, net of the operating costs to run it on a year-to-year basis.

Williams also gets 9% ownership of the entity. So the proportion he’s entitled to get each year in distributions is actually different than his % ownership, which is a little different for your average investor buying a dividend stock, where ownership = proportion of the dividend you get. Why these two figures differ is unclear, but there are many reasons (for example: minimum governance participation he required for voting, but LSU didn’t want to give away that much in net profits.)

LSU’s entire goal here is to use the $100mm to repay their contractual obligations (contract salaries, buyouts, future player compensation, program operating costs, etc.) it’s their hope they can invest the balance of the $100mm they haven’t yet spent (likely in tax-free bonds, maybe equities) to continue growing that amount over time to stay ahead of the net funding shortfall between the payment obligations they owe (enumerated above) and the net cash flow they’ll be bringing in (as an SEC affiliate, media rights, etc.)

These mortgage financings rarely work to get borrowers of the hole they find themselves in.

This is the exact kind of loan sharking people want to denigrate the private equity community for doing. When in fact, as we see here, any lender can demand these types of terms. Indeed, these terms are simply “market standard”, which means that if LSU is seeking financial support for their program, they have no way of avoiding this usurious bargain.

Yep. These PE companies / institutional investors are beholden to their own investors and board members. They are investing in this deal because they see a quick path to profitability on their $100 million investment.

And just like their other investments, they aren't going to particularly care about the well-being of the target so long as they get their profit.

quote:

---

It can't if you're paying out the TV incomes as profit every year, which was the assumption of the Alabama poster.

---

I don't know about the Alabama poster. Do you think it's going to remain stagnant? 7% of income will be paid out each year.