Forbes - College football SPAC-ulation

Kevin Dowd

Staff Writer

December 12, 2021

Big Things

1. SPAC kingpins who love pigskin

In the late 1990s, an undersized guard named Mat Ishbia walked on to the Michigan State University men’s basketball team. The Spartans won the national championship in 2000, but Ishbia’s role was a small one: Over the course of a three-year career, he played a grand total of 115 minutes and scored just 28 points.

But Ishbia’s biggest contributions to Michigan State athletics were still to come.

Mel Tucker's new $95 million contract at Michigan State is being partially funded by a SPAC billionaire. Getty Images

After graduating, Ishbia joined the startup that his father had founded, becoming the 12th employee at United Wholesale Mortgage. He quickly rose up the ranks, ascending to CEO in 2013, and he helped transform UWM into the largest wholesale mortgage lender in the country. This January, the company went public in what was then the largest SPAC merger of all time, landing a $16.1 billion valuation. The deal turned Ishbia into one of America’s wealthiest people, with a personal net worth of $7.9 billion.

It didn’t take long for some of that money to start making its way back to his alma mater. About two weeks after the merger closed, Isbhia made a $32 million donation to Michigan State athletics to build a new football facility and rename the school’s basketball court after his former coach, Tom Izzo.

That was merely a warmup. In late November, Michigan State football coach Mel Tucker inked a new 10-year, $95 million contract extension, the biggest deal ever for a coach not named Nick Saban. The Detroit Free Press reported that the cash for the extension didn’t come from university coffers: Instead, it was provided directly by Ishbia and fellow university booster Steve St. Andre, the CEO of marketing company Shift Digital.

College football is a sport defined by keeping up with the Joneses. And Tucker’s deal set the market for what has proved to be an unprecedented spending spree in the college coaching market. A few days later, the University of Oklahoma’s Lincoln Riley jumped to the University of Southern California, with reports indicating that the private university will pay around $100 million for his services over the next decade, topping Tucker’s total. Shortly thereafter, Louisiana State University poached Notre Dame coach Brian Kelly with a contract worth $9.5 million per year. Three of the four largest deals in the history of the sport had been handed out in the span of two weeks.

The action continued this past week, when Mario Cristobal left his post at the University of Oregon to become the next head coach at the University of Miami, reportedly swayed by a 10-year contract worth $80 million. According to the South Florida Sun Sentinel, one of the “thick wallets” who helped finance the contract was a Miami booster named John Ruiz—a lawyer who has come into a recent SPAC fortune of his own.

United Wholesale Mortgage didn’t hold the title of largest SPAC merger ever for long. In July, a little-known company called MSP Recovery shocked Wall Street when it announced plans to conduct a blank-check merger at a $32.6 billion valuation—a stunning sum for a company that expected to generate zero revenue this year. Led by Ruiz, MSP is in the business of buying up medical claims that were paid for by the government and then filing lawsuits to seek more money in cases where it believes another insurer should have paid instead. Forbes took a closer look earlier this year at MSP’s litigation-fueled model, and at how Ruiz seems to have created a $20 billion fortune out of thin air.

The contract for Cristobal—to whom Ruiz is related by marriage, per the Miami Herald—is part of a larger spending package that the lawyer hopes to implement at his alma mater. Also this week, Ruiz announced his ambitions to finance and build a new 50,000-seat stadium for the Hurricanes on the site of the current Coral Gables High School, a couple of miles from the university campus. He said it’s part of a plan to donate “north of $50 million” to the school “in the near future."

Other boosters who funnel millions of dollars to other college football programs have made their fortunes in many different ways. Cristobal’s former employers at Oregon have long had a lucrative relationship with Nike founder Phil Knight. Oil and gas tycoons dominate the landscape in Texas. The most well-known donor to my own alma mater is a horse-racing magnate. There’s no shortage of money in this sport, particularly when you don’t have to pay the players.

But in the wake of the recent SPAC frenzy, business leaders who leveraged blank-check deals into massively valuable stock holdings have emerged as a major new source of capital, using their newfound fortunes to create generational wealth for coaches like Tucker and Cristobal. What a strange, silly sport.

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2. The SEC's SPAC skepticism

Gary Gensler and the SEC are setting their sights on SPACs. And this week, two companies in particular were drawing their attention.

On Monday, Lucid Motors revealed that it received a subpoena from the SEC seeking "certain documents" related to the company's recent SPAC merger and the financial projections that accompanied that merger, news that contributed to a roughly 20% decline in its stock price over the course of the week. Until now, Lucid has been one of the success stories of the SPAC era, with its stock surging on optimism that it can replicate some degree of Tesla's success in the electric vehicle market. It was briefly more valuable than General Motors—but that's no longer the case, with the SEC's probe serving as a worrying reminder of how the optimism surrounding SPAC mergers from Nikola and Lordstown Motors quickly came and went.

News also emerged this week that the SEC has launched an investigation of Digital World Acquisition Corp., the SPAC whose stock price has climbed nearly 500% since announcing plans to merge with Donald Trump's speculative digital media venture. At the heart of the probe seems to be reports that the CEO of the SPAC, an investor named Patrick Orlando, had met with Trump well before the SPAC launched and failed to disclose those talks with the public, which would violate SEC rules. Three weeks ago, senator Elizabeth Warren issued a public call imploring the SEC to examine the deal.

3. Better.com's SPAC fiasco

Elsewhere in the star-crossed SPAC market, we have the saga of Better.com. The mortgage technology startup struck a deal in May to conduct a blank-check merger at a $7.7 billion valuation. But this week, it pushed pause on those plans to go public, due to a debacle of its own creation.

Last week, Better.com chief executive Vishal Garg fired 900 employees over a Zoom call, then took to a company messaging platform to criticize those departed workers as "lazy." He issued a public apology a few days later, but that wasn't enough to stop the departure of Better.com's entire PR apparatus: Its head of public relations, head of marketing and vice president of communications all resigned. Then, Vice published a report on Garg comparing one of the company's investors to sewage. By Friday, the Better.com board was sending a company-wide email to announce that Garg is "taking time off effective immediately," with CFO Kevin Ryan to assume his responsibilities. It's a spectacular meltdown, and one that didn't exactly come out of nowhere.

It was a very bad week for Better.com's ambitions in the mortgage market. Getty Images

4. The SPAC deals keep coming

Yes, it was a week full of drama at the high end of the SPAC market. But we also had a smattering of new SPAC deals announced. The market for new blank-check listings has cooled down, and the controversial deals keep piling up, but it still seems clear that SPAC mergers aren't going away anytime soon.

BenevolentAI, which uses AI to discover new medicines, agreed to go public in Amsterdam at a valuation of €1.5 billion (about $1.7 billion), marking Europe's largest SPAC deal yet. Alvotech, another European drug developer, landed a $2.25 billion valuation in a SPAC deal of its own. The Tomorrow Companies, a creator of weather-prediction software, landed a $1.2 billion valuation. And sustainable consumer products maker Grove Collaborative was valued at $1.5 billion in an agreement with Virgin Group Acquisition Corp., marking the latest foray by Virgin Group and Richard Branson into the SPAC market.

5. Brazilian billions

Brazil's Nubank conducted an IPO in New York this week, raising a whopping $2.6 billion in proceeds in the year's latest major fintech debut. A modest first-day pop took the digital banking company's market cap to around $45 billion—and made billionaires out of its two cofounders. Nubank's shares climbed another 10% during the first few hours of trading on Friday, raising its market cap north of $50 billion and firmly locking in the company's place alongside Coinbase and Robinhood in the realm of this year's fintech IPO elite.

The IPO market seems to have finally begun to cool off, and bankers are expecting a quiet few weeks to end 2021. But this week's other big debut also got off to a successful start. Hashicorp, which makes cloud infrastructure software used by other enterprises, priced its offering well above its expected range and brought in $1.2 billion in proceeds. Its stock rose another 6% during its first day of trading, giving Hashicorp a $15 billion market cap, up from $5 billion with its final round of private funding. We didn't see the enormous first-day pops that defined a booming IPO market earlier this year, but both Nubank and Hashicorp got off and running without a hitch.

6. Power play

One of the most interesting firms in private equity is snaking its tendrils further into the world of professional sports.

Arctos Sports Partners is nearing agreements to buy minority stakes in the NHL's Minnesota Wild and the reigning Stanley Cup champion Tampa Bay Lightning, per a Financial Times report, adding to the firm's growing portfolio of pro-sports stakes. In October, Arctos closed its first fund on $3 billion, a pool of capital that has already been used to invest in the Golden State Warriors, the Sacramento Kings and a dozen other sports franchises. Soaring team valuations are causing professional sports leagues to open their doors to private equity, and no one is barging its way in more aggressively than Arctos.

Nikita Kucherov of the Tampa Bay Lightning holds the Stanley Cup aloft. Getty Images

There were also signs of this tectonic shift on the baseball diamond. A newly formed company that's controlled by Endeavor agreed this week to acquire nine Minor League Baseball teams, bringing the concept of buying in bulk to this new era of private equity investing in pro sports. Endeavor is a talent agency and entertainment group that went public this year, but Silver Lake still owns a substantial stake. In one fell swoop, the company scooped up 7.5% of all minor-league franchises, including the Iowa Cubs, Memphis Redbirds and San Jose Giants.

7. PE's cyber surge

The big-money buyouts in the cybersecurity sector keep on coming. This week, we saw Permira strike a $5.8 billion deal to purchase Mimecast, which specializes in email security services, a move that will cause Mimecast to delist from the stock market after five years of trading. The price of $80 per share marks a modest premium to Mimecast's recent trading, but a 16% premium compared to Oct. 27, the last day before The Wall Street Journal reported the company was considering a sale.

It's the second straight month Permira has been involved in a cybersecurity mega-deal. In early November, the London-based firm clubbed up with Advent International, Crosspoint Capital Partners, GIC and other co-investors to buy industry pioneer McAfee at an enterprises value of $14 billion. That's the largest private-equity backed acquisition of a cybersecurity company this year, and also the largest of all-time, taking both titles from Thoma Bravo's $12.3 billion takeover of Proofpoint.

8. Front-page news

The owner of The Buffalo News, the Omaha World-Herald, the St. Louis Post-Dispatch, the Arizona Daily Star and dozens of other daily newspapers is fending off a takeover attempt from one of the most feared names in journalism. The board of directors at Lee Enterprises rejected an offer from hedge fund Alden Global Capital, saying the $141 million proposal "fails to recognize the strength" of the company's business. Alden has earned a terrible reputation over the past several years for placing profits over product at its vast portfolio of newspapers, including The Denver Post, whose own staffers once famously described Alden managing director Heath Freeman and his colleagues as "vulture capitalists."

Local news isn't often thought of these days as a growth industry. But Lee might have real reason to believe that it can do better than Alden's offer of $24 per share. Lee stock was trading for less than $10 late in 2020, but it surged during the first half of 2021, at one point topping $30. It's trading for $29 today, already well above Alden's bid. Lee reported earnings for its fiscal fourth quarter this week, including a notable 65% year-over-year increase in digital-only subscribers.

9. A taco takeover

Jack in the Box agreed to buy Del Taco this week for about $455 million, with the company's debt load taking the enterprise value of the deal to $575 million. For Jack in the Box, this marks a re-entry into the world of Mexican food, coming four years after it sold the Qdoba restaurant chain for $305 million. As someone who has scarfed down an embarrassingly large number of Jack in the Box's tacos over the past 15 years, this all sounds fine to me as long as the menus stay separate.

Merger and acquisition activity involving restaurants has been subdued this year—one of the few industries where that's the case. That certainly makes some degree of sense, as most restaurants and bars have been more concerned with simply staying afloat. Still, some deals are getting done. This is the third-largest piece of M&A involving a well-known North American fast food brand this year, following a $1.7 billion SPAC merger from Tim Hortons China and the $1 billion acquisition of Firehouse Subs by Restaurant Brands International, the parent company of Burger King and Popeyes.

Things To Read

One August morning in 2013, a man named James Howells overslept. And thus a $500 million fortune was lost in the dump. [The New Yorker]

Among CryptoPunks and other high-priced NFTs, a trend is emerging that won’t do anything to quell criticisms about the industry’s lack of diversity: The most expensive digital avatars are mostly light-skinned and male. [Bloomberg]

In Cleveland, football superstar Myles Garrett and a few of his teammates are proof that jocks can love Dungeons and Dragons, too. [Sports Illustrated]

It should surprise absolutely no one to learn that the CIA is currently engaged in “a number of different projects focused on cryptocurrency.” [Vice]

Successful bets on the subprime mortgage crisis turned Philip Falcone into a hedge-fund billionaire. Now, he's facing a debt crisis of a very different kind. [The Wall Street Journal]

A dive down the rabbit hole of Operation Underground Railroad, the group leading the charge to promote the myth of a child-sex-trafficking epidemic. [The Atlantic]

It's been a boom year for the private equity industry. But when it comes to retail buyouts, the winds are blowing in a different direction. [Axios]

Quote Of The Week

"It's a way to combat troubles in the world that you don't really have other ways of combating. My favorite way to describe the organization is fighting lunacy with lunacy."

-Claire Chronis, a 22-year-old organizer for the Birds Aren't Real movement, clarifying to The New York Times that she and her colleagues don't actually believe all birds are government surveillance drones

Kevin Dowd

Staff Writer

I am a staff writer at Forbes. I previously wrote for PitchBook, where I created The Weekend Pitch, a weekly newsletter about the private markets. Before that, I covered high school sports in the Pacific Northwest, and I graduated from the University of Washington with a degree in journalism and creative writing. I live in Seattle, where I read a lot of books and play a lot of golf.

Follow me on Twitter.

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Forbes - College football SPAC-ulation

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