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

fricking told you.

Dishonest dealings.

Not a “private equity” firm.

Mortgaging the program.

A terrible deal. A loss for LSU and all of CFB

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

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

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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.

LSU should wish it had done a deal with “private equity” a la Utah’s deal with Otro Capital. That actually had a quality executive team assembled as a critical cornerstone of the deal and a key focus in strategy and developing a sustainable, completely new, entity to perform the functions of monetizing the value of Utah’s brand. Nowhere is it shown that Utah had to give away any critical assets to establish their partnership with Otro, nor was it the case that Otro fronted cash that would create a suffocating obligation on behalf of the university. THAT “private equity” deal by an actual PE firm sounds productive, healthy, and equitable as far as mutually beneficial goals goes. This LSU loan does not

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How does that make sense?

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They need $25-35 million to break even this year and essentially make payroll.

Boosters are tapped out and just can’t/won’t donate another $30ish million dollars.

Some savvy booster says “hey, I’ve got an idea…”

People and institutions can do strange things when they are desperate for money.

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

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Let me lay out some scenarios.

Your scenario. Investor invests $100 million. He gets just 7% on the return on the investment. He will make $350-400k per year. It would take him over 250 years for him to recoup his investment at this rate.

My initial idea. He takes 7% of the investment return ($350-400k) + 7% of TV revenues ($5.0 based on last years revenue). It would take 18.5 years to recoup his investment at this rate.

Door three, after thinking more about this is my current guess. Investor invests $100 million. LSU spends $25-35 million this year to make up this year’s shortfall. Invests the remaining money. Next season the investor recoups 7% on that interest money ($250,000) + 7% of TV revenues ($5 million). It would take him 19 years to recoup his investment. But in 2028 TV revenue increases to $108 million. His share jumps $2.5 million - to $8 million. In 2031 TV revenue increases to $143 million. His share jumps another $2.5 million - he makes over $10 million and over 10% on his initial investment. He recoups his investment in approximately 12 years, faster if TV contracts keep growing.

Which do you think is most likely?

7% of TV revenues is the only way this would be attractive to an investor.

It’s more or less door #3.

The “investing the $100mm” is a red herring as far as a *profit source* goes. That money will be invested, as it’d be utterly irresponsible for a business to just hold that amount in cash. The point of investing that money is to have it grow in such a way that it can continue to fund a significant portion of the shortfall LSU will face in coming years as player salaries and contract obligations grow, and god forbid anymore buyouts.

I am retiring from arguing on the rant about the subject. All I am going to say is that everyone is cycling towards the cliff, and I applaud LSU for being proactive.

I also like an outside party (Greg Williams at Michigan State) is working with LSU. Landry has the attorney general working with the group too to navigate making the concept legal. We are at least providing the illusion we are being ethical.

I personally wish we could go back to pre Covid college athletics but here we are.

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