Contrary to what you may have read, the demise of Red Lobster was not about all-you-can-eat shrimp. Instead, it’s a story of an iconic American business that found itself in financial distress and sold out to another iconic American industry that loves nothing more than financial distress: Private equity.
From there, private equity did what private equity does. It sold off the company’s land to a real estate conglomerate to make back the cash it used to buy Red Lobster in the first place, then saddled the restaurants sitting on that land with expensive rent deals they didn’t have before. That left stores with little financial room for error, and when economic headwinds finally hit, it sent Red Lobster into a tailspin leading to bankruptcy.
Now here comes another set of private equity bros looking for their next distressed asset to gut for every last penny, and they’re finding it in a different industry full of endless shrimp: College sports.
Formally announced on Wednesday, College Athletic Solutions says it seeks to be a “purpose-driven, dedicated capital and business-building platform for public and private university athletic departments across the United States.” It bills itself as a “trusted advisor” to the people leading college sports through these turbulent times, “equipping the strategies and resources to operate efficiently while allowing their athletic program to compete at the highest level.”
Translated from private equity bro into regular English, here’s what it means: You need cash because college athletes are now going to be on the payroll thanks to years of litigation that showed amateurism violated antitrust laws. We, the private equity bros, are here to give you that sweet, sweet cash. And all we ask in return is for you to let us “right-size” your operating structure to maximize future profits and new revenues, of which we will of course take a healthy percentage down the road.
You can call this theoretical arrangement whatever you want. Some will call it “private equity investment.” Some will call it “private credit,” or, in layman’s terms, a loan. Drew Weatherford, the former Florida State quarterback-turned-private equity bro who cooked up this idea and has been pitching it to college administrators for months, even told Yahoo! Sports: “They are not mandated to pay us back the money we give them.”
Here’s what I call it: A garden-variety private equity scam that will benefit private equity and only private equity, because that’s all private equity truly cares about in the end.
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If you’re an athletics director, conference commissioner or school president thinking about going down this road – and there are quite a few of them out there worried about the coming financial crunch of revenue sharing with athletes – you should ask yourself the following questions:
- Why do you think RedBird Capital, a firm with a reported $10 billion in assets under management and partnering with Weatherford Capital on this endeavor, wants to be involved in college sports? (Hint: Because you’ve mismanaged it so badly that they can smell your desperation like a man coming off a three-day Vegas bender.)
- What makes you believe that private equity, contrary to everything private equity has done ever, will just give you money without strings attached? What do you think “right-sizing” your operation actually means? How much control are you willing to give up?
- If you need private equity to tell you how to unlock new revenue in an industry that already has a massive audience and widespread appeal, are you actually good at your job or just collecting a paycheck? And what evidence is there that these guys can actually help you do it?
- And finally, what happens if it goes wrong? What legacy is that going to leave in 10 or 15 years when your athletic department is just another Red Lobster saddled with debt that these guys can trade around like Pokemon cards to make more deals?
Actually, that last part explains why there’s a good chance college sports falls into the trap. Athletics directors, especially at the big schools, get paid very well these days. They also know they’re one bad football coaching hire away from being thrown into the street. They may only get one shot at making a million dollars a year or more.
What do most of them really care if someone else has to come clean up behind them when they’re sitting on the balcony at their penthouse in Destin? Why make a hard decision or go the austerity route – including maybe having to cut their own salaries – when they’ve got a slick former college quarterback like Drew Weatherford with a classic side-part haircut and a billion-dollar smile promising to shower them with easy, instant money? (Weatherford, by the way, did not respond to an e-mail asking for comment.)
This is, of course, how college sports arrived at its current state of disorder in the first place. Nobody wanted to make tough choices. Nobody wanted to acknowledge the reality that college athletes were going to one day be paid and figure out how to best deal with that. Nobody prepared for the inevitable chaos that would follow name, image and likeness rights being given to athletes without any structure around the market. Nobody wanted to actually acknowledge that the NCAA’s business model was illegal and be proactive about solutions before they were imposed by federal courts and attorneys like Jeffrey Kessler.
That, after all, is very hard work. It takes foresight, and it makes people uncomfortable and it is even perhaps an impediment to the lifestyle that these college administrators have been enjoying for decades.
Why actually do the work to steer the NCAA toward a fair, lawful model when you can be like Jim Delany and cry for years about the dangers of professionalizing college sports as the Big Ten commissioner, then retire with a multi-million dollar golden parachute and lucrative “consulting” deal?
College sports and the administrators who ran it into the ground have never been forced to reckon with their gluttony. Now here comes private equity, ready to shovel more money into their pockets, and some of them are undoubtedly going to take it, pushing off the IOUs beyond their own professional expiration dates.
That’s how college sports becomes the next Red Lobster – cheddar biscuits not included.
