I'd like $3.0 million for a 3% stake in my Brand
One of FSU's Potential Private Equity Partnerships Explained
Cimarron Makes His Pitch to the Shark Tank (Photo. Eric McCandless / Getty)
It’s not the Saudis. It is not like LIV golf.
I’ve been on a few podcasts recently to discuss Project Osceola, Florida State University’s secret plan to identify a private equity partner to boost revenue. After each discussion, my thoughts on how to explain the structure of a potential private equity partnership have sharpened. So too has my understanding of the redacted spreadsheets that were released by FSU. In previous posts, I go into detail on the entirety of the released documents. I see three potential areas for equity partners; medical research, hospitality, and marketing. This post is specific to FSU’s private equity play in the marketing area and includes some new interpretations of recently disclosed documents.
Private equity is often associated with the acquisition (and often bankruptcy) of major companies/brands. Read a nice review of some of these private equity acquisitions at Retail Dive. Most recently, in the sports world, private equity has been connected with the Saudi Public Investment Fund (PIF). The PIF created the LIV Golf Tour, a formidable competitor to the PGA Tour, and has acquired various soccer and rugby teams across the globe. The reality, however, is that businesses typically seek private equity for management expertise and small injections of cash. Watch clips of the television show “Shark Tank” to get an entertaining perspective of how this works.
FSU’s interest in private equity in the marketing area is pretty clear in the disclosed documents (see page 20 of the attached document at the bottom of this page). I’ve clipped a portion of the relevant spreadsheet below so I can walk through the numbers. But first, a few notes on the scope of the investment. Based on the items listed in the clip’s Gross Revenue section, and heavily redacted spreadsheets elsewhere in the documents, the marketing and merchandise revenue likely includes:
Concessions at all athletic facilitates
Concert rental and sponsorships at the stadium and arena
Premium experiences at football and basketball games
Sales and distribution of merchandise
The Private Equity Partnership Explained
The private equity partnership starts with the sale by FSU of a portion of its marketing and merchandise business. The prospective sales price is found in the second line of the spreadsheet below (Blue Arrow). The price is identified as $3.0 million (“Capital”) and is spread over two years ($2.0 million in 2024 and $1.0 million in 2025). Note the third line indicates a “Management Fee” of $500,000 per year (Green Arrow). This is likely a payment to the private equity partner (buyer) to compensate them for being active in the day-to-day management of this business.
How much does $3.0 million purchase? Skip down to the Revenue Sharing section to see under the first set of distributions (Tier 1: Current Baseline) that FSU has a 97% stake and the MMR Partner has a 3% stake in this first tier (Grey Arrow). Since the $3.0 million equates to a 3% stake, the current/baseline value of FSU’s marketing and merchandise business is presumed to be set at $100 million.
What are the projected returns for FSU & the private equity firm? The documents disclosed by FSU do not calculate the returns for us, so I have done that in an Excel spreadsheet below the document clip. I’ve used the same color arrows to help you track the numbers between these two clips.
FSU and the private equity partner initially split the profits based on ownership (97%/3%). After the returns exceed a baseline of $7,775,000 (7.78%), the profits are split 90%/10% to recognize the value added by the private equity partner. So, in year five (2028) the $18 million (18%) in total returns to the partnership (Yellow Arrow) are split $16.8 million to FSU and $1.3 million to the private equity partner (Red Arrows). This results in a 17.3% return on FSU’s interest in the partnership, and a 42% return on investment (Purple Arrow) for the private equity partner’s cash buy-in of $3.0 million.
If you open FSU’s Model (below) and open to page 20, you will see one additional line that I have not interpreted, nor included in the above returns. This revenue line item is “Florida State Reimbursed Tickets & Hospitality.” Without additional context, I can’t be sure of how important this is to either party’s bottom line.
Let me know if you have any questions about this article by using the comments section.