From The Desk Of Trent Michels

We ended up at Firebirds in Fort Mill by accident. We were on our way home when Mia, who is four, found out a friend from her pre-K class was going to dinner with her whole extended family to celebrate, and she decided, the way four-year-olds decide things, that she should go too. I said no. You don’t insert your family into another family’s celebration. She melted down. We compromised on a dinner of our own, which is how a Tuesday with no plans turned into a steakhouse with both kids, Mia and her older brother Teddy, who is seven, and solving a long-standing family identity problem.

We keep the kids paleo, so Mia worked through her fruit and then staged a second meltdown to secure a cheeseburger, which arrived bun-less, just cheese and beef, and then declined to eat a single bite of. Teddy threw a fit about wanting an adult portion of salmon and then ate every bite of it. Somewhere in the middle of all that, I set out to solve a problem.

I want to give my kids college football.

The Michels are already spoken for on Sundays. Die-hard Seahawks, the one team the whole family agrees on without negotiation. But I love college sports more than the pros, and in seven years of fatherhood I had never once gotten my family to care about it with me. That was the problem. Not that we had no team, but that the thing I loved most had never taken root in the people I loved most.

I couldn’t pass down my alma mater. I went to West Point, where I powerlifted, jumped out of perfectly good aircraft, and graduated as a rabble rouser. At West Point the only game that has ever mattered is Army-Navy. As long as we sing second, we can lose everything else and the season still works. My better half went to Manhattan College. The Black Knights and the Jaspers are fine institutions, yet neither is a football inheritance you can give a kid in the Carolinas.

I do have a team. A stupid, inherited, lifelong love for Oregon State, because my dad took me to games growing up. I was in the stands for the Jacquizz Rodgers years, including the afternoon the Beavers knocked off the No. 1 ranked USC. Last fall I dragged my wife to Boone to watch Oregon State play Appalachian State, the first time the Beavers had played in North Carolina in eighty years. They came in with an 0-5 record, went down 0-17 in the first quarter, clawed all the way back, and lost 23-27. It was the two of us in the stands, two hours from our house, watching a team from my childhood find a fresh way to break my heart in my adopted state. I know exactly what it is to love a team that gives you nothing back. As much as I wanted to pass this team to my kids, they live 2,500 miles away and mean as much in Charlotte as a weather report from Corvallis.

Faced with no good incumbent options, we did what reasonable parents do and turned it into a list. Every college in North and South Carolina, listed out loud at the table. The obvious ones, the in-state ones, the ones with the good colors.

And then, with no prompting and complete indifference to the family’s actual academic history, the two kids locked eyes and started chanting it in the middle of the steakhouse at full volume.

“Duke. Duke. Duke.”

I have no idea where they got it. We are not a Duke family. We were not, as of that Tuesday, any kind of college sports family, which was the entire problem I had been failing to solve. But there is no appeal to a four-year-old and a seven-year-old who have reached a unanimous verdict, and Teddy spent the rest of the night saying the word like it owed him money. So we are Blue Devils now. Seven years of trying to instill my love of college football, and it took on its own, in a steakhouse, over a cheeseburger nobody ate.

I couldn’t help telling these new-found fans that the only time the Rose Bowl was ever played outside California, my team beat their team for it. January 1942, the West Coast bracing for attack in WW2, the game moved across the country to Durham, and Oregon State beat Duke 20-16 on a field that now carries the name of Duke’s own coach. My team beat their team for the most famous trophy either one ever chased, two hours up the road from where they were sitting. They did not care even a little.

That moment is the part of college sports that does not show up in any model I have ever built. The instinct that moves two kids to adopt a team they have no reason to love is the most valuable asset in the entire enterprise, and it sits on no balance sheet anywhere. Everything that follows is about grown-ups trying to put a price on the thing my daughter did for free.

The Utah Story, Properly Read

There is a kind of column that almost writes itself right now: A public university lays off staff, the words “private equity” appear in the headline, some firm in New York takes a stake in something that used to feel wholesome, and out comes the eulogy for the soul of college sports, sold off by the pound. Utah’s deal with Otro Capital has been getting that treatment for months.

I want to argue the other side, with one important caveat as we go.

Start with what happened, because the coverage tends to blur it: Utah is not selling its football team. The university’s trustees approved the partnership in December, and as of the layoffs this spring it was still being finalized rather than closed. What the deal does is take the commercial side of the athletic department — the ticketing and sponsorship and licensing and hospitality, the parts that have nothing to do with whether a linebacker keeps his scholarship — and move it into a separate company called Crimson Brand Partners. Otro is buying a minority stake in that company. The university keeps majority ownership, majority board control, and every decision that touches the actual sport. Coaches, conference, roster, compliance — all of it stays inside the school, because the rules require it to.

They are selling a piece of the business that sells the merchandise and the suites, not a piece of the team.

This is the same separation professional sports made decades ago, when owners learned to treat the franchise and the business around it as two different things with two different risk profiles. The franchise is volatile, emotional, and nearly impossible to value. The business around it is steadier and can be financed. College athletics is half a century behind on that idea and is now catching up all at once, clumsily and in public.

Doing it badly is not the same as doing it wrong.

It is worth being honest about why Utah is doing this, because the school did not go looking for Wall Street out of greed. The House settlement reset the economics under every athletic department in the country at once. Schools that opted in — which is to say every power-conference program — can now share roughly $20.5 million a year directly with their athletes, a number set to climb toward the low thirties per school within a decade. That is a good outcome. The athletes generate the value and should be paid. But “pay the players” and “where does the money come from” are two different concerns, and Utah’s own auditor has the department’s reserves falling from north of $60 million to under $6 million and running dry inside two years. Starting with this context, you have four options:

Four Options
01	Do nothing and run deficits until they reach the academic side of the house.
02	Raise student fees and tax nineteen-year-olds to fund the football team.
03	Cut sports, which in practice means cutting the Olympic programs the same critics will defend in their next column.
04	Raise outside capital. Reasonable people can hate the fourth option, but they owe you an answer on which of the other three they prefer, and they rarely give one.

So I am sympathetic to Utah. They, along with most other athletic departments, are in a bind.

The Quieter Trade: Land

There is a quieter version of this same trade, and it is the one we spend our time on.

The most valuable underused asset most major athletic departments hold is not their media rights. It’s their land.

The surface parking that sits empty 360 days a year. The stadium that hosts seven Saturdays in the fall and then goes dark. The acreage around the venue that the university has owned for a century and never produced anything. Professional teams figured this out long ago and built districts on that dead ground, with housing and hotels and restaurants and year-round foot traffic, and made the real estate carry a return whether or not the team covered the spread. The campus version of this concept is in its infancy, with several case studies popping up. Iowa State is building CyTown between its football stadium and its basketball arena. Tennessee has roughly $280 million of private development rising beside Neyland. Wake Forest is putting up a 100-acre district next to its stadium. These are bets on land next to a permanent, sold-out audience that shows up like clockwork, and they throw off cash through ground leases, profit participation, and mixed-use income that institutions seek. What real estate development does is convert episodic demand into continuous cash flow.

This is the difference between buying the cheer and buying the ground the crowd stands on. One is a wager on sentiment. The other is real estate with a sports anchor in front of it, which we can value and underwrite.

There is an additional structural reason this matters. The revenue-sharing cap squeezing every athletic department is calculated off athletic revenue — meaning media, tickets, and sponsorship. Income generated by a real estate entity built around the venue may, depending on how it is structured, sit outside that calculation. If it does, developing the land is not only a new stream but a stream that does not raise what the school owes its athletes. A university that builds a district around its stadium would diversify its revenue and shield part of it from the very obligation that sent it looking for capital in the first place. This is not settled doctrine, and anyone underwriting it should treat the question as a live one for counsel rather than a given. But the logic is the one professional owners reached a generation ago, and it is a school reading its own balance sheet, often for the first time, under real pressure.

None of this is free of risk, and I’d be doing you a disservice to pretend otherwise. The best criticism of the Utah deal is financial rather than spiritual. Dan Wetzel put it plainly: college athletics does not have a revenue problem, it has a spending problem. Capital does not fix a spending problem, it finances one, and a financed spending problem is a spending problem that now also carries a cost of capital. Utah’s auditor said there is no observable plan to reduce spending, and absent one the money gets consumed and you have sold a piece of the future to rent two more years of the present. There are questions surrounding control and governance as well. Routing the enterprise through a foundation built specifically so the university does not legally control it is the kind of structure that keeps lawyers employed and auditors awake.

These are the reasons we are cautious about the enterprise-equity model and far more bullish on the real estate.

Private capital in college sports is neither salvation nor scandal. It is a tool, and like any tool it is only as good as the asset you point it at and the discipline you bring to it.

That is our college thesis, and it is why I find the panic misplaced. Pointed at the brand, in a hurry, with no plan to control spending, it is a way to feel solvent for a little while longer. Pointed at the land, the venue, and the district around it, with patient capital and an operator who understands both the real estate and the emotional machine next door, it builds something that outlasts any one coach or coordinator or media cycle.

The first is a bet on attention. The second is a bet on placemaking.

We are in the business of placemaking.

Back to the Steakhouse

I coach my son’s flag football team. I named them the Beavers, because a man should be allowed one act of quiet propaganda, and they went undefeated this year, which was my small and doomed attempt to hand down the team my father handed me. It didn’t take. Seven years I spent trying to give my kids the thing I love most, and in the end they reached past Corvallis and West Point and the Seahawks and every careful thing I tried to engineer, and grabbed a blue blood on Tobacco Road for no reason at all, because that is how this works. You don’t choose the team. The team chooses you, over dinner, against your father’s wishes.

That is what all this capital is ultimately chasing. Every term sheet in this business is a bet that the chant is permanent. Our job, the sober one with the spreadsheets, is to remember that the chant came first and came free, to build around it rather than against it, and to make sure that on the far side of all this operational and financial engineering there is still a game worth taking a four-year-old to.

— Trent

Trent Michels · Managing Director of Investments · Momentous Sports

momentous-sports.com

Disclosures

Not investment advice. From the Desk Of is a personal column produced by Momentous Sports for educational purposes only. It reflects the author’s personal views and is not an offer to sell or solicitation to buy securities; any offering by Momentous Sports will be made solely to verified accredited investors under Rule 506(c) of Regulation D and only through formal offering documents. Consult your own advisors. Past performance is not indicative of future results. References to the University of Utah / Otro Capital transaction, Crimson Brand Partners, and the campus developments at Iowa State (CyTown), Tennessee, and Wake Forest are drawn from public reporting and are presented as-is with no warranty of accuracy or completeness. Disclosure: Momentous Sports Group actively invests in sports-anchored real estate.

From The Desk Of Trent Michels

The Team Chooses You

The Utah Story, Properly Read

The Quieter Trade: Land

Back to the Steakhouse

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