Meet the Big 12's Private Equity Advisors

What they pitch on their websites, what it means, and how would they advise the Big 12?

Clockwise: Dustin Womble, Masked Rider Capital, George Pyne, Bruin Capital, Paul Foster, Franklin Mountain Investments, and Mark Dowley, Redbird Capital.

The Big 12’s Business Advisory Board has 37 members. I’ve reviewed the business interests of all 37 and selected four board members involved in private equity who might be leaned on for advice by Commissioner Brett Yormark. They are Dustin Womble of Masked Rider Capital, George Pyne of Bruin Capital, Paul Foster of Franklin Mountain Investments, and Mark Dowley of Redbird Capital. Missing the cut were board members Garth Brooks (Singer/Bar Owner), Elizabeth Brady (Allstate Marketing Executive/Target Sponsor), and Jason Kidd (Head Coach/Dallas Mavericks).

What they Pitch

“Masked Rider Capital is intentional in its investment strategies. Dedicated to a mission of partnering with companies, entrepreneurs, developers, and innovators positioned and ready to achieve rapid growth, MRC provides capital opportunities through both private equity investments and specialty debt structures.”

“Bruin is unconventional. We approach things differently than the investor/operator who relies on financial engineering for short term time horizons to manufacture growth.

Instead, our mission is to be a value-adding partner that brings a unique combination of resources, skills, and expertise. Our value-proposition of long-term capital, industry expertise, operational experience, global resources, and a genuinely collaborative approach was designed to be the rocket fuel for growth in this era of transformation and innovation.”

“Franklin Mountain Capital (FMC) a Scottsdale, AZ based firm providing long-term capital and operating expertise for small and middle market businesses, primarily in the Southwest.

FMC seeks to partner with well-established companies with a strong management team and significant growth potential. Working closely with management, FMC seeks to pursue continual improvement and drive organic growth as well as growth through acquisitions.”

“RedBird today manages $10 billion of capital principally across its core industry verticals in Sports, TMT, Consumer and Financial Services.  RedBird invests with an entrepreneurial, company-building mentality, with an emphasis on capital appreciation and compounding equity returns over longer holding periods.  RedBird’s network of business founders and entrepreneurs is central to its investment sourcing strategy, and its highly curated group of limited partners are active co-investors who provide scalable capital support.

What it Means

Positioned and ready to achieve rapid growth = Masked Rider Capital wants new businesses (still run by founding entrepreneurs) that can be scaled up/grown with Masked Rider’s management support and/or funding. If the business requires management support and funding, Masked Rider likely provides funding (private equity) in exchange for an ownership stake in the company. The size/percentage stake is negotiable and is typically based on the current value of the company seeking funding (watch Shark Tank clips for examples).

If the company seeking funding does not need substantial management support, funding from Masked Rider Capital may come in the form of specialty debt structures. Taking a simple home mortgage as a typical debt structure (fixed payment over a set number of years and secured by real estate), a specialty debt structure could be akin to a second mortgage - taking a subordinate position to the first mortgage in exchange for a higher interest rate. It could also be a hybrid investment/loan that is part loan and part ownership stake in the company. There is no limit to the variety of specialty debt structures.

Bruin Capital is throwing shade at short-term investors with the “financial engineering” reference. Several hacks can quickly boost the value of a company. You can add debt to a company and pull out equity (like you might raise cash with a home equity loan on your primary residence), or sell off underutilized assets quickly instead of using them to maximize the long-term value of the company.

“Value-proposition” or “value-add” is corporate speak typically used when someone is trying to keep their work group from being laid off. Here, the private equity groups pitch their expertise and access to financing as ways they can increase the value of a client’s or partner’s business. Bruin Capital emphasizes long-term capital in their pitch, which suggests they are not going to sell their stake in the company (exit) as quickly as other private equity firms might. Exiting an investment quickly (3-5 years), before annual returns level off, is a typical strategy to generate higher return rates for a portfolio.

Franklin Mountain Capital (FMC) wants to partner with well-established companies and pursue growth organically and through acquisitions. This pitch is unique among the others in that they are not looking for start-ups or companies still operated by an entrepreneur. This pitch would be attractive to a family-owned company in transition to a new generation of leadership with ambitions for growth. FMC could provide management expertise to boost market share (organic growth), identify and fund acquisitions of other companies, and assist with the process of merging and consolidating operations with those acquired entities.

While all of these companies use other people’s money (limited partners and investors) to fund their investments or loans, RedBird Capital is the most explicit about this relationship. They claim to manage $10 billion in assets, which is another way to say they have outside investors that have pledged collectively $10 billion for RedBird to invest in, acquire, or loan to companies in targeted industries. Typically a fund manager like RedBird takes a small percentage (1%-2%) off the top every year to manage the fund and is given a percentage interest in each deal if returns meet or exceed expectations.

RedBird touts its sourcing of potential investments with its reference to a “network of business founders and entrepreneurs,” and its ability to raise capital through a “highly curated group of limited partners” who “are active co-investors who provide scalable capital support.” Basically, they are telling us they have a lot of inventors and entrepreneurs who are comfortable with their funding model and a lot of multi-millionaires ready to invest in those folks.

Finally, RedBird’s reference to Core Industry Verticals refers to ownership in components or building blocks of an industry sector (production and distribution). For example, in the sports entertainment industry, targets for a vertically oriented investor may include lighting and sound systems for stadiums, sports teams, ticketing agencies, and fan merchandise companies. By contrast, an investor-focused horizontally would target a set of similar businesses (see Franklin Mountain Capital and energy production companies).

What Advice Might They Give Commissioner Yormark?

The four private equity firms highlighted above illustrate the range of expertise and interests among PE firms. Masked Rider and RedBird want to work with start-ups and entrepreneurs, while Franklin Mountain Capital and Bruin Capital seem to focus on boosting the fortunes of established companies.

None of the four companies, with the possible exception of Franklin Mountain Capital, place their own money into investments. Rather, they manage other people’s money (Masked Rider and RedBird) or partner with other private equity firms to raise capital (Bruin Capital). All likely take in a significant number of funding proposals and pick just a handful each year in which to invest. RedBird Capital identifies 36 current investments on its website, Franklin identifies 33, Masked Rider identifies 22, and Bruin Capital identifies 7 (but all may have more). RedBird, Franklin, and Bruin Capital invest in sports and entertainment, with RedBird and Franklin involved in team ownership.

So, what type of advice could we expect from these advisory board members?

Answer: Hard pass. The Big 12 and the business of college athletics are too unsettled at this time to take in a significant limited partner. However, private equity firms could offer the Big 12 a specialty debt structure based on current contract revenues from media partners. This is essentially the lopsided deal that has been leaked out - where the Big 12 gives up 20% of future media and college football playoff revenue in exchange for an upfront payment. I explain how that deal works in this previous article:

How does the Big 12 make itself attractive to potential Private Equity partners?

Setting aside things it cannot control (House Settlement talks), the attractiveness of the Big 12 Conference is tied to the national appeal of its football and men’s basketball programs. I offer these suggestions purely from an outside investor’s perspective, and not one as a fan of all college sports. The Big 12 Conference can boost the value of future media rights by:

1. Ensuring every member institution invests in college football and men’s basketball. Just as Major League Baseball recently imposed standards for the quality of minor league ballparks, the Big 12 should set standards for member institution facilities and player payroll to ensure each school fields an appealing product for both football and men’s basketball teams.

To help member institutions financially meet conference standards for football and men’s basketball investment, the Big 12 Conference should:

1. Obtain waivers from the NCAA for regulations that impose unnecessary costs on athletic departments - specifically, the NCAA requirement to field 16 athletic teams. This current regulation requires member universities to fund 14 Olympic sports programs that lose money. This funding is better utilized for player payroll and brand development.

2. Help member universities secure financial commitments from State and Local Governments to provide financial support for athletic facilities (football stadiums and basketball arenas) that generate significant local economic activity. Professional leagues have traditionally secured financial support for these facilities. With the professionalization of college athletics, State and local governments must consider similar investments in college athletics.

Once the financial impact of the House Settlement is certain, and the Big 12 member institutions have maximized the revenue directed towards football and men’s basketball, the Big 12 can proceed to attract a private equity partner that could help market and build the brand value of the conference.

What does a fair private equity partnership look like for the Big 12 Conference?

I refer back to an article I wrote on Florida State’s effort to bring in a private equity partner for marketing and brand development. I have some other ideas I’ll share in another article, but this type of investment is a good place to start.