Banking & Finance, Education, and Sports Business

Funding your business: What can be learned from the Pac-12 Conference?

July 31, 2019
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The primary concern for any business is determining how it will accumulate the cash necessary to fund its operations. A variety of options exist, including the most common, traditional methods engaged in by most owners of small and medium-sized businesses: obtaining bank financing and seeking equity contributions or loans from family, friends and business associates.

Sports businesses, and especially sports media rights, have become a big business and there often are lessons to be learned by business owners from how sports franchises and organizations manage their businesses.

Famously, the Los Angeles Dodgers entered into an agreement with Time Warner through which they granted Time Warner the marketing rights for their television channel, SportsNet LA, for a period of 25 years in exchange for $8.35 billion. This significant sum of cash has allowed the Dodgers to increase payroll and other baseball operations-related expenses. (Ironically, this deal also has angered many Dodgers fans who have not been able to watch the team on TV for many years because Time Warner has been unable to enter into a carriage agreement with satellite and local cable TV providers.)

Another television rights matter currently is garnering significant attention on the West Coast and throughout the country: The Pac-12 recently announced it is seeking up to $750 million of private equity investments into an entity formed to hold the broadcast rights to sports programming featuring Pac-12 schools. While I cheer for Big Ten teams, the sum is significant enough and the investment opportunity is unique enough that it bears further attention.

The Pac-12 Network currently is owned by the 12 member universities of the Pac-12 Conference. The network actually is a series of seven networks — one national network featuring all Pac-12 events and six regional networks, which feature sports programming from universities that fall within the applicable region. The Pac-12 Network’s ownership model is different than the Big Ten Network’s model, and is a joint venture between the conference and FOX, allowing the Big Ten Network to leverage FOX’s relationship with content distributors such as cable companies and satellite providers. While the Big Ten Network has experienced some periodic struggles with carriage from time-to-time, the overall success of the Big Ten Network dwarfs the challenges the Pac-12 Network has faced.

Reportedly, the costs and challenges associated with producing considerable amounts of live sports programming, including for non-revenue sports, have resulted in much more limited revenue than member schools had anticipated. Moreover, many reports suggest that the network has been losing viewership and subscribers.

Thus, like any business that is finding cash flows is not meeting its projections, Sports Business Journal reports the Pac-12 Network is seeking to raise funds. In this instance, the conference is seeking equity investments into an entity that would own the broadcast rights to the Pac-12 schools’ sporting events. While seeking private equity is a normal step in the growth process of many businesses, seeking this type of financing is unique within the college sports model.

The potential equity investment would provide the network and member schools with much needed cash, which has apparently been lacking since the initial formation of the network.

Of course, any equity investor is going to want to know how its investment is going to be used for purposes of growing the entity within which it is investing. Thus far, details regarding the Pac-12 plans have been sparse.

Nevertheless, there is a lesson in the Pac-12’s attempt to improve its cash flow by means of seeking financing not traditionally used in college sports. There are numerous means for raising the funds necessary to operate a business, and looking to financing sources that may be non-traditional within a certain industry could help a business boost its cash flow and enter into a new, high growth period. Time will tell if the Pac-12 is successful in attracting private equity investment and if the investment allows the Pac-12 Network to thrive in the manner that other regional sports networks, such as the Big Ten Network, have done.