The Big 12 Went Kicking The Tires on Private Equity Investment!

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I’m going back to school on the 22nd to work on a certificate in marketing, but after the last few weeks, I’m thinking I should consider studying up on finance.

I’ll admit that corporate finance and the ways that folks use debt facilities and such are not my number one area of expertise.

What I have learned over the last few years is that the private equity model isn’t one that typically lends itself to long term stability for the businessesthat the private equity firms invest in.

A few months back, I mentioned Serie A and how they were investigating selling part of the league to private equity, and as this Bloomberg article says, “private equity took over everything.”So, at the time, I was a little skeptical of the idea, but the further we get into the pandemic…I think I’m more skeptical of the idea of taking the private equity money, but also more cognizant of the position so many organizations find themselves in.

These stories the last few months are pretty alarming because they point to a large amount of instability in the world of sports and tickets because of debt on these organization’s books. Further, the business models that these businesses were operating before the pandemic weren’t exactly holding up that well to begin with either.

We were seeing more and more empty seats at baseball games, concerts, college football, and more. And, TV ratings had been sliding, then rebounding, only to move downward again.

I bring this up because as we keep working our way through the pandemic, we’ve seen a lot of leagues, teams, and organizations be put on the ropes or worse by the virus and the economic fallout.

The deconsolidation article above talked about growth in ticket prices of above 30%. Spoiler alert, loading up more debt onto companies and hoping to pass it off to consumers isn’t going to be sustainable at those prices because the data had already shown that the average American hadn’t received a raise in close to 40 years and as the pandemic has shown, many Americans were living paycheck to paycheck and wouldn’t be able to weather a $400 emergency.

Those are long-term trends that were impacting us and with millions of tickets and viewers to try and get to give you their attention, expecting to double down on that strategy doesn’t seem like a wise decision.

What can this story point out to us?

Two quick ideas:

First, we probably need to question our relationship to financing our programs and our businesses.

It is surprising how much debt colleges, leagues, and organizations were carrying to begin with.

There is totally room for using debt and loans to help drive business growth, but at a point where your debt is 50% or more of your operating income, that seems dangerous to me.

Again, check out the book I highlighted above. It is pretty eye-opening about the relationship between the financialization of our economy and the inability of businesses to successfully innovate and grow with any stability.

Second, we likely need to take a hard look at the monetization model of our businesses.

I’ve pointed to the band, Pearl Jam, many times before because they have a dedicated fan club, they run a great touring business, and they have numerous streams of income.

You can also check out the Grateful Dead, the Man City football club, or the Australian Football League for multiple streams of income examples if you’d like.

The biggest factor driving all of that is the fact that they drove folks into the top of their sales funnel early on and they have been relentless in their focus on renewals and keeping the customers they have over the long-term.

I don’t have numbers on their fan club, but I do know that they have now reached a point where they have a third generation of fans buying their music, tickets, and merchandise.

Not nearly enough teams, colleges, and performers have anything even close to the set-up Pearl Jam has, even when they should be in a stronger position.

So we have to work to bring folks more to the Pearl Jam model of business.

How do we take action on this?

First, you have to look at the business model you’ve developed.

Where does the money come from?

How often are folks buying?

What is your active customer base?

What does your sales funnel look like?

We can go on here all day.

Second, think about what you need your business to look like to be successful.

Where does the revenue need to come from?

What areas are you not getting the maximum revenue from?

How can you increase the maximum revenue spent?

How do you get people to spend money with you even if they can’t come to your events?

Again, we can go on and on here. But get started on the idea of focusing on monetization and creating opportunities to trade value with your audience.

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