More words than you want to hear about Utah's finances, the macro athletic landscape, and the premise of The Big Short

You all saw the article and heard the subsequent conversation yesterday. An auditor from the state of Utah (Tina Cannon - a proud Utah State Aggie, for those interested in that kind of thing) expressed concerned with the University of Utah's proposed private equity deal with Otro Capital. BYU fans took some victory laps. Utah fans circled the wagons. The reaction was very predictable.

It doesn't have to be that way, though. We don't have to be predictable! Let's dig a little deeper into this. In order to do so, we're obviously going to have to talk a lot about Utah athletics, but this is more of a conversation about the state of college athletics. Utah decided to try and pioneer PE in college sports, so they're the subject, but Utah is just the first. They represent a lot of schools that are looking at the financial structure of college sports and grasping at straws to figure it out. Let's talk about it.

Setting The Stage

In December, Utah voted to move forward with their intention to enter a private equity deal with Otro Capital. The deal was reported to include an estimated $500M cash infusion to the program, in part financed by Otro and in part by additional donations from Utah donors buying into the for-profit entity. The University would spin off a new for-profit company, Utah Brand Partners LLC, and maintain majority ownership. Otro would provide an influx of cash in exchange for equity in the for-profit activities that are moved to Utah Brand Partners LLC. Some of those activities include ticketing, sponsorships, and, yes, TV revenue. The deal includes a 5-7 year exit strategy for Otro, allowing Utah the right to buy back their equity at that time.

The deal was voted on by Utah officials in December. Details became more public in January. Now it is the end of May and the deal, as of this writing, has yet to be finalized.

The Utah State legislature immediately had opinions on the deal, now Cannon has wrapped up the audit, and here we are today.

Part 1 - Utah's Situation

Cannon laid out some of the realities of Utah's situation. I'll use her words (as reported by the Salt Lake Tribune) so we don't misinterpret anything as a BYU fan injecting a royal blue tint into things.

“There is currently no observable plan to decrease spending. In fact, expenditures are increasing and public commitments of additional expenditures ... all but ensure record expenditure levels by the athletic department in the current and in future years.”

In recent years, Utah has announced several major facilities upgrades and initiatives. Utah completely overhauled the south endzone of Rice-Eccles Stadium, they unveiled a new indoor practice facility, they built a new baseball stadium on campus, added a new addition to their gymnastics facility, and announced several additional smaller projects like locker rooms and soccer facilities. This does not include their announced exploration of updates to their basketball facilities as no definitive plan has been set, but the school did announce their intentions to explore new options.

That's a lot of new things! And it is a lot of money committed to those projects. Donations have been raised, to be sure, and some of those donations have been enormous. But, according to Cannon's audit, Utah is still paying up to $119 million (with interest) on bonds, scheduled through 2041.

Dave Ramsey would look at this situation, shake his head, and hang up the phone.

But how did Utah get here? Say what you will about the U, but there are too many smart people for Utah to just blindly spend without any consideration of what they would do in the future. So, what happened?

To start to understand, we have to get into our Hot Tub Time Machine and go back to 2011.

The PAC-10 was once the cream of the TV rights revenue crop. The Conference announced a 12-year TV deal with Fox that would net the between $225-250 million per year for the PAC-10/12. That was more than the Big Ten, SEC, ACC, and Big 12. The PAC-10/12 was the apple of everyone's eye at that point. In 2012/2013, the PAC-12 reported $334 million in total revenue, nearly $20 million more than the Big Ten and SEC.

But the roses started to fade after that. The League didn't return as much to its members as they expected to, citing costs to run the league-owned PAC-12 Network and the league offices in San Francisco. The ACC and Big 12 each landed a new deal.

The College Football Playoff started around this time and the PAC-12 had little success in getting there, tarnishing the reputation of the conference. Washington made the CFP in 2016, the final appearance a PAC-12 school would make before the conference fell apart (Washington made the CFP again in 2023, but the Huskies had already announced they would be leaving the PAC-12 and joined the Big Ten for the 2024 season, after giving one-year notice).

The biggest shot to the gut of the PAC-12? In 2017, the Big Ten struck a media rights deal worth $2.64 billion. All the praise the PAC-12 had received before? Gone... and the PAC-12 couldn't do a thing about it for another six years.

COVID hit. That hurt the PAC-12 as much or more than anyone due to local policies in many PAC-12 states. Larry Scott was replaced as commissioner by George Kliavkoff. He inherited a mess.

Shortly after arriving on the job, Texas and Oklahoma announced they would leave the Big 12 and join the SEC. The Big 12 quickly scooped up the best non-P5 schools available (go us!) and cobbled together a conference. When UCLA and USC announced they would be leaving the PAC-12 for the Big Ten in 2022, there was hardly anything left for the PAC-12 to cobble.

The Big Ten then signed another new TV deal. The Big 12 jumped ahead of the PAC-12 in the media rights line and signed a deal of their own.

Kliavkoff was scrambling and said things like, "I will tell you what we've seen is that the longer we wait for our media deal, the better our options get"

That didn't happen. The PAC-12 couldn't get a TV deal worth enough money to keep schools from jumping ship. Everyone left. The conference nearly died. And now it's the Mountain West 2.0.

That history matters for Utah's situation today. They were locked into a 12-year deal with the PAC-12 while their competition in the Big Ten, SEC, Big 12, and ACC were all signing new deals and earning more money. PAC-12 leadership insisted they would make more money in the future and could point to their own historic deal from 2011 as evidence of their value.

But then Texas and Oklahoma left. And then USC and UCLA left. And the college football world changed dramatically.

(Oh, and a minor detail after all of this other stuff? Schools pay players now. Yeah, nearly $21 million every year. And it comes directly from their TV revenue. Just a small thing.)

Utah tried to keep pace and invested in their own future while banking on future revenue from the PAC-12. In hindsight, those investments have led them to a very challenging position today. But in the moment, BYU fans were jealous of those investments and Utah fans were seeing their football program have unprecedented success. Utah made big bets, but those big bets felt reasonably calculated and safe.

Now Utah is making another bet. They know the realities of their outstanding debts and the payments they have to make. They know the realities of their shrinking revenue model and how that doesn't align with their strategic plan. They can see the reality of schools in the Big Ten and SEC separating themselves. So, they're betting on Otro's cash infusion being enough money that they can stabilize themselves until they can jump on the train. Some would say (mostly some wearing crimson red shirts) that Utah is biding their time until the Big Ten calls. Others would say that Utah is keeping things afloat as long as they can until a new normal is defined.

But Utah is trying to make a big bet because, frankly, they don't have any other options.

Part 2 - The Macro of Utah's Situation

As much fun as it is for BYU fans to look at this situation and this state auditor's report and want to dunk on Utah, there is a much more grim reality across the college athletics country. Utah is far from the only school in this situation. Utah might be the only school with an announced PE deal to try and make ends meet, but they're not the only ones looking across board room tables trying to come up with any sort of plan to pay the bills.

Rutgers came up more than $40 million short on revenue this year. Florida State has more than $400 million in athletic debt (largely due to major stadium renovation). Colorado had a $27 million deficit this past year. Cal is $24 million short. We could go on and on.

Programs (primary Olympic sports) are being cut throughout the country. Schools are scrambling to figure out how to pay the revenue share so they can field competitive teams, while pay their debts for their facilities and athletic operations. The problems that Utah is facing are not remotely close to being Utah problems. They are problems Utah has to contend with, but there are dozens of schools in similar positions.

It's precisely because of this macro-level uncertainty that so much discussion about a breakaway is taking place. There have always been haves and have nots in college athletics. Now, the number of haves are dwindling, and the increasing number of have nots are struggling to makes heads or tails of everything.

That includes Salt Lake City. It is not exclusive to Salt Lake City.

Part 3 - BYU and the 2008 Housing Collapse

Now we get to our Cougars - our beloved Cougars. BYU, as we detailed previously, operates without debt. It's part of the DNA of The Church of Jesus Christ of Latter-day Saints, and therefore is part of BYU athletics. At times, that policy is incredibly frustrating. At THIS time, it's a source of pride for Cougar fans.

BYU slogged through the last decade as a college football independent. Their financial outlook was meager relative to the P5. But, BYU did what they could with what they had.

My uncle (he's a Cache Valley Aggie fan, so he'll never read this) has a reasonable amount of money. But for the longest time, he drove an old Ford F-150. He had the means to buy a new truck, but his truck ran fine enough and he just kept making do. He'd make repairs and keep driving his truck. Others around him would upgrade, but he'd keep the old dog running as best as he could.

It wasn't comfortable to go hunting with him in his truck. His truck didn't turn any heads as it drove down the road. Though he had the ability to buy a nicer truck, he tucked away that money and rolled with the truck he had.

When that truck finally broke in a way that couldn't be repaired, my uncle bought a new truck. In cash. And the new truck is a head-turner.

The truck payments he'd been saving for the life of the old white truck turned into investments. When the old white truck died, those would-be car payments and investment returns turned into cash. That cash turned into a brand spanking new truck that he owns free and clear.

Such was life for BYU. They didn't have as much, so they made do with what they had. The Cougars added new weight rooms and gave a facelift to the Marriott Center, but for the most part, they didn't participate in major facilities upgrades during the 2010s and early 2020s. BYU just used what they had and made it work.

Some major donations came in, like the one for the BYU Basketball Annex, and bigger renovations happened, but it was all pre-funded because that's what BYU required.

Now, schools throughout the country are scrambling to find funds, but BYU is feeling flush with cash.

Big 12 revenue, even after giving nearly half of it back to the athletes themselves, is more than BYU ever earned as an independent. A school that pre-funds everything is now depositing tens of millions of dollars into their bank account each year? That's a lot of new projects.

BYU is taking advantage of their cash windfall. Coaches are getting paid more. Resources are being added to recruiting staffs. New facilities are rolling out. These aren't mega-expenses, but they're some of the many expenses that BYU wouldn't make for more than a decade.

Those investments are paying off with wins. Those wins are paying off with fan excitement. That fan excitement is paying off with NIL donations. Things are looking pretty darn good in Provo right now!

But the 2008 housing crisis offers us BYU fans a cautionary tale. Not because BYU is going to package tranches of garbage and pretend that it isn't garbage, but because of the reaction to the housing crisis in 2008.

There were banks who were operating safely and soundly in 2006-2008. Smaller community banks watched big banks win all the deals for a long time while sticking to their principles and not getting into trouble.

When the economy collapsed, the big banks looked stupid. For those small community banks, it appeared that there was an opportunity to earn a whole lot of market share.

But then the government bailed out the big banks. Today, the big banks are still big. The small banks are still (mostly) small. What felt like an opportunity turned out to be something that was stripped from the small banks.

It seems like BYU is in a strong position right now, and they are. It seems like they can capitalize on what's going on around the country, and they can! There is a lot of really positive momentum right now and BYU's discipline in years of famine have them in a position to thrive right now. The BYU athletic department could be on the brink of something spectacular.

But...

As we speak, there is a bill before Congress that, if passed, could be the bailout a lot of programs need. Ted Cruz and Maria Cantwell proposed a bipartisan bill that, in their words, will help save college sports. Some highlights of what the bill is trying to accomplish:

• Transfer Restrictions - 1 free, penalties afterwards (Good)
• Five-year eligibility cap (Good, so long as missionaries get an exception like most expect)
• Ban on professional players coming to college (Good, but adjustments for the basketball team)
• Restrictions on coaches leaving midseason (KALANI WOULD NEVER)
• Hard cap on school-to-athlete payments (Giant TBD)
• 5% max agent fee (Bless the one who put this there)
• Prohibits a Big Ten/SEC merger (Seems good. Feels good. Might be the reason the bill doesn't get passed. Might also be very bad?)
• Creates the option for conferences to pool media rights (I'm not smart enough to have an opinion on this one yet. I could be talked into good or bad.)

Will that change BYU's outlook? Probably not. Will it help the teams that are struggling right now? It's not a guarantee, but it at least provides some certainty for them as they figure things out. Will there be additional things added to bill pertaining to PE or how a program is run? Who knows!

We heard how some were too big to fail back in the day. The Government stepped in and things changed. The fact that Congress is taking a keen interest in college athletics leads me to believe that they believe their public universities are also too big to fail. Could they help these schools? I wouldn't rule it out!

All I'm saying is this - BYU is in a really strong position and they have mega potential to capitalize on it. But the college athletics system has historically found a way to prevent BYU from capitalizing too much and there are avenues that it could do the same thing again.

I'm not predicting anything yet, but I am hedging my happiness a little bit.