The Pac-12 is planning a gigantic loan program that would provide an escape hatch for cash-strapped sports departments in the event the football season is canceled due to coronavirus, internal documents and sources show of the conference.
Football accounts for the majority of each department’s revenue, generating over $ 50 million in ticket sales and media rights alone.
The loan program would be large enough to cover this loss for each school, if necessary:
According to a series of emails obtained by the Hotline through Public Records Requests, the loan would provide a maximum of $ 83 million to each university at a rate of 3.75 percent over 10 years.
Each sports department could decide whether they wanted to participate in the program.
If the 12 opted for the maximum amount, the total would be $ 996 million.
“The conference tries to be nimble and give schools options,” a source said.
However, several sources indicated that not all schools would use the loan and some would seek much less than the maximum allowed. If the Pac-12 play a full season of football, the plan could be ruled out altogether.
The idea is popular with university presidents because the loan would allow schools to weather the coronavirus crisis without having to implement massive budget cuts that could include widespread layoffs and possibly the elimination of Olympic sports teams, which do not generate profit.
The plan also eases the pressure on universities to save their own departments. Many campuses face huge revenue shortfalls from shrinking enrollment and housing.
“All the loan capacity is used for things other than athletics,” said a source. “They’re trying to get the core (university) programs through for the next three years without firing people.
“If other people have a debt capacity, they should use it.”
The impact of a closed football season would be monumental.
The state of Oregon relies on sport to 80% of its annual turnover (approximately $ 80 million).
Colorado took in $ 20 million from ticket sales alone last season – on top of the roughly $ 30 million the Buffaloes receive in media rights.
In Utah, football has generated $ 66 million in fiscal year 2019 – two-thirds of all income.
Meanwhile, several schools were running massive deficits before the pandemic has struck.
Washington State’s accumulated debt was nearly $ 100 million.
UCLA was looking at a two-year deficit of about $ 40 million.
Cal has often been in the red by over $ 15 million.
With campuses fully exploited, presidents turn Pac-12 into a de facto debt facility.
Thanks to media rights deals with Fox and ESPN worth $ 1.2 billion over the next four years, the conference has the collateral it needs to secure a massive loan.
Even with a season canceled, the delinquencies owed by the networks to the conference for fiscal years 2022-24 – $ 917 million, according to the terms sheet – would be enough to cover the loan, assuming each school did not take the loan. maximum.
Several conference sources said private schools, Stanford and USC, would be unlikely to participate in the program, and several of the public universities would opt for much less than the maximum of $ 83 million.
Responsibility for the loan from 2024, when current media rights agreements expire, could be transferred to universities, which by then would be in a better financial position to take on the debt.
Another option would be for schools to reimburse what they owe using the proceeds of new media rights contracts, which are expected to result in a significant increase in annual revenues.
The idea to use the conference as a loan facilitator apparently came from Cal’s Chancellor Carol Christ.
In an email dated April 27, Oregon President Michael Schill wrote to Washington President Ana Mari Cauce and Colorado Chancellor Phil DiStefano:
“(Christ) asked about Pac 12 borrowing to help us solve the unprecedented potential problem this coming year. No one objected to it.
Christ declined to comment for this article as the loan program “is a complex issue that is still under discussion,” according to a spokesperson.
A second email on the loan program concerns a quartet of Pac-12 graduates who have informally advised the conference on media strategy:
– Casey Wasserman (UCLA), president of the Wasserman Media Group
– Jeff Smulyan (USC), CEO of Emmis Communications
– Jim Packer (Colorado), president of global television at Lionsgate
– Larry Sonsini (Cal), founder of a global law firm and specialist in intellectual property
(All four declined to comment for this article.)
In an email dated May 11 that was included in the package of documents obtained by the Hotline, Smulyan wrote to the other advisers:
“I learned from USC’s CFO that Larry Scott and the Raine Group have a major loan program. Apparently, this will provide between $ 25 million and $ 83 million per school with a proposed 10-year term at a rate of 3.75%. “
(USC’s CFO is James Staten. The university did not respond to a request for comment from Staten.)
The Raine Group is an investment bank specializing in sports and media affairs and was hired by Pac-12 commissioner Larry Scott for a related project in the winter of 2019.
Smulyan’s email to the advisers was passed by Packer, the Colorado alumnus, to UC Chancellor DiStefano.
DiStefano, who was then chairman of the Pac-12 CEO group, then forwarded the memo on May 12 to Cauce and Schill, who are members of the CEO’s executive committee.
DiStefano wrote: “I had no idea the Raine group was still involved.”
Cauce replied, “I didn’t know.”
Schill, who succeeded DiStefano as chairman of the conference CEO Group on July 1, replied:
“Me neither. I knew Larry was going to investigate the setting up of a loan. I guess he went with Raine. I hope the conditions reflect the work and not the fees of a researcher which are outside the norm. “
(Via a spokesperson, Schill declined to comment and Scott was unavailable.)
Sources have warned that the terms of the loan – 3.75% over 10 years, based on Smulyan’s email to other advisers – have not been finalized.
The search for an escape hatch for sports services during the coronavirus crisis is, in many ways, the continuation of a process that began 18 months ago, when the Pac-12 first hired both the Raine group.
At the time, sports departments were concerned about a growing, multi-year revenue gap that the Big Ten and the SEC, in particular, were going to distribute. tens of millions more on their campuses than the Pac-12.
To close the gap, the Pac-12 explored long-term partnerships with investment and media companies that would serve two purposes:
Provide an initial cash infusion to strengthen athletic departments and align the conference with a strategic partner to promote its media rights.
Scott hired the Raine Group to help find a mate. According to sources, the process lasted, in earnest, for about six months.
One of the hurdles: Potential partners wanted reassurance that the conference would be held together – meaning each school would be required to pledge their media rights to the collective for decades to come.
Without the revenue from these media rights, the value of the conference would decrease.
“They played with a third party … but came out against any deal,” a source said. “They asked everyone to grant rights for 25 or 30 years, and USC and UCLA weren’t going to do that.
“Who would invest in the Pac-12 during this time if USC and UCLA weren’t going to do it?”
This was not the only obstacle: not all schools were in desperate need of money back then.
Could the conference revisit this strategy now?
“The CEOs don’t believe the equity plan can be revived now – that they weren’t close enough to a deal,” a source said.
“The question is, how do you move sports programs to a new TV contract and support them to be competitive at that time.”
Presidents continued to discuss ways to support athletics until the next media rights deal comes into effect (the 2024-25 school year) – a strategy apparently mentioned by Schill in his email from the April 27 in DiStefano and Cauce:
“I would like to ask Larry to start looking at the credit facility we talked about earlier.”
The collapse in income caused by the pandemic – and the nightmarish outlook for a year without football – has changed the dynamics.
“12 months ago, few presidents were interested in a loan,” a source said.
“Now I imagine a lot are.”
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