Wilner – Why the Big 12 should consider private equity: Winning football can counteract the enrollment apocalypse

The Big 12 provided a double dose of news last week with revelations the conference could sell its naming rights to a corporate sponsor and an ownership stake to a private equity firm.

The twin developments come as no surprise. With his schools facing a massive revenue disparity relative to their peers in the SEC and Big Ten, commissioner Brett Yormark has been candid about pursuing every last dollar.

Even if his quest leads down unconventional paths.

Although no conference has sold its naming rights — and the prospect of what published reported have termed “The Allstate 12 Conference” is undeniably jarring — title sponsors are hardly foreign within an industry that spawned the Chick-Fil-A Peach Bowl and the Maui Jim Maui Invitational.

But the private equity route is unprecedented. And potentially fraught.

As SEC commissioner Greg Sankey said recently: “In my experience, those involved in private equity want to be paid back.”

Selling ownership in the Big 12 is risky, especially for the percentage under consideration. According to CBS Sports,  Yormark and the university presidents are mulling the sale of as much as 20 percent of the conference for $1 billion.

But you know what’s also risky? Not selling ownership.

The Big 12 cannot afford to get lapped by the SEC and Big Ten.

It cannot risk a not-so-slow fade into irrelevance fueled by tight budgets, limited resources and second-rate talent.

Football success is far too important — not because the presidents crave athletic glory but because they crave what athletic glory can provide: Unsurpassed marketing for the university writ large.

The enrollment apocalypse is coming, folks, and on-field success might be the most effective antidote.

“This is macro higher-education stuff driving some of these decisions by (presidents),” an industry source told the Hotline. “It’s pretty understandable through that lens.”

The macro picture for higher education is daunting, with the pool of college applicants expected to shrink starting in 2025 due to a decline in birth rates nationally.

The source of that decline: The Great Recession.

According to the CDC’s National Center for Health Statistics, fertility rates fell “more rapidly from 2007 through 2009 than for any 2-year period in more than 30 years.”

Add 18 years to the front edge of that decline, and you get the freshman class of 2025-26.

As a result, “the consensus view is that America will hit a peak of around 3.5 million high-school graduates sometime near 2025,” The Chronicle of Higher Education reported earlier this year.

“After that, the college-going population is expected to shrink across the next five to 10 years by as many as 15 percentage points.”

Connecting the dots from the Great Recession to the Big 12’s private equity play isn’t difficult. It’s simple supply and demand.

Colleges will compete for a shrinking pool of applicants, especially out-of-state students who pay full-cost tuition.

Every metric used in the admissions game will become more important: Membership in the Association of American Universities, placement in the U.S. News and World Report rankings and, of course, the acceptance rates that drive reputation and prestige.

Visibility will be essential in the quest for applicants and the lowering of acceptances.

No branch of the university is more visible than football. Nothing else attracts 50,000 people to campus. Nothing else draws millions of television viewers.

And no branch of the university offers a better return-on-investment.

“If a university gives $20 million to (subsidize) athletics, people are aghast,” another source said. “But what if you don’t give that $20 million to athletics and instead you put it directly to university marketing?

“To generate the same experience, the same affinity, the same excitement to get a 17-year-old to apply, that $20 million doesn’t go very far in marketing.”

The Hotline’s view:

— Big 12 presidents are fretting over an enrollment cliff approaching at light speed.

— Big 12 presidents view football as the most cost-efficient way to attract out-of-state students.

— Big 12 presidents, informed by Yormark and their athletic directors, see the competitive landscape tilting decisively to the Big Ten and SEC.

Once the next edition of the College Football Playoff begins (in the fall of 2026), each athletic department in the Big Ten and SEC will receive at least $30 million more in conference distributions annually than those in the Big 12 and ACC.

Meanwhile, expenses are set to soar. The implementation of a revenue-sharing model will cost the Power Four athletic department approximately $20 million annually. Increases in scholarships could add $10 million to the budget.

With the resource gap morphing into a gulf, Big 12 and ACC football programs are in jeopardy of becoming marginalized — of becoming to the Big Ten and SEC what the Group of Five schools are to them.

The infusion of cash from private equity would offer a chance to remain competitive on the field and, as a result, in the admissions game.

Should the presidents sell a stake in the conference?

That probably depends on the terms.

Should they give the matter serious consideration?

Because of a daunting macro environment two decades in the making, they don’t have a choice.

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