Baseball

Buying Bevo: If Texas was a stock, market signals indicate it's time to get in now

Story highlights
  • Tom Herman's 2018 recruiting class is ranked in the top five nationally, and he's overseeing a $10 million facilities upgrade at UT.
  • The men's basketball team signed a top-five class while the Texas women are national contenders.
  • In his first season, David Pierce guided Texas baseball to within one win of the super regionals.

Posted June 9th, 2017

Wall Street loves a good story. Corporate executives spend time with shareholders, research analysts and the public talking up their companies in hopes of goosing the stock price — the ultimate arbiter of success or failure.

But sometimes, blue chip stocks get so oversold, so beaten down that the market flashes obvious buy signals. That moment has arrived for Texas athletics.

RELATED: Kirk Bohls: Texas athletics is (a) dead (b) struggling or (c) about to thrive

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If the Texas athletic department was a stock, Longhorns fans have before them a true multi-generational buying opportunity.

We’re not talking about tickets, mind you, although the bean counters would love fans to stampede the box office. This is about a fan’s emotional investment, the ethos of any brand-name school’s appeal.

The Longhorns football team give fans a glimpse of what to expect in the upcoming season during the 2016 University of Texas Orange-White Game April 16. 04/16/16 Tom McCarthy Jr. for AMERICAN-STATESMAN

College sports is cyclical, and the difference between UT and the mid-cap and smaller names is that schools like Texas don’t suffer downturns as deep or prolonged.

The stock market itself is a forward-looking mechanism. Fundamentally, it projects how a company will perform 12 months out. Retail stocks have been slammed lately because people are buying from Amazon and not going to the mall. Tesla is loved because investors think battery-powered cars are the future while Ford allegedly represents the past. And so on.

The 2016-17 athletic year proved there is little fundamentally wrong inside UT. Eight different coaches captured Big 12 coach of the year honors. Men’s swimming and diving, volleyball, golf and tennis are all nationally competitive programs. But all athletic departments are judged on the big four — football, men’s and women’s basketball and baseball.

RELATED: Texas athletics generated $6.5-million surplus for the 2015-16 academic year

The business of Texas, Inc., is healthy, to be sure. The Longhorns will likely generate about $190 million in revenue from this athletic year, inching closer to a record-busting $200 million. But football, the main driver of all that cash, was clearly faltering, prompting a change on the company’s board of directors, so to speak.

University of Texas Head Football Coach Tom Herman talks with the team during spring practice on Tuesday, March 7, 2017.
RICARDO B. BRAZZIELL/AMERICAN-STATESMAN

Sudden change paying off

The bear market on Texas athletics started the moment Colt McCoy suffered a shoulder injury on the fifth play against Alabama in the 2009 national championship game. If we’re picking bottoms, it had to be the dreary loss at Kansas last November that sealed Charlie Strong’s fate as head coach.

Three losing football seasons represented a true market crash, not just a mere correction. But making changes costs money.

The school is required to pay Strong at least $9.4 million in guaranteed money. New coach Tom Herman received a five-year deal worth $25 million in guaranteed money. His defensive coordinator Todd Orlando received a three-year deal worth $1.09 million annually, the most UT has ever given to an assistant coach.

Men’s athletic director Mike Perrin, UT’s central banker, shows no signs of pulling back the monetary punch bowl, either. The stimulus now being pumped into football, thereby growing the balance sheet, has been incredible. This fiscal dove is a total opposite from his predecessor, economic hawk Steve Patterson. More staff members, social media directors and slew of back-office workers are now on the UT payroll.

Having essentially been handed a blank check, Herman has shown more positive returns six months into his tenure than Strong did in 2014. The Longhorns’ 2018 recruiting class is already ranked among the top five in the nation. The program is undergoing a sorely-needed, $10-million facility facelift. Strong alienated Texas high school coaches initially and wasn’t that concerned about upgrades.

RELATED: As the Texas CEO, Tom Herman wants to upgrade facilities, expand football staff

Herman wasted political capital on the hiring of a low-level Baylor assistant and by bringing in a tight end recruit who, according to an arrest affidavit, admitted to selling drugs on his high school campus. Reese Leitao’s felony drug charge was dropped to a misdemeanor by Oklahoma prosecutors.

Both personnel moves will be long forgotten if there’s an avalanche of wins this fall, though. As one UT athletic department insider said, Herman is “un-bleeping-defeated.”

Bouncing back in hoops

Over in Cooley Pavilion, the men’s basketball team pushed its Bollinger band to the breaking point, dropping well below two standard deviations. Shaka Smart’s Longhorns literally have nowhere to go but up after finishing dead last in the Big 12. Smart even lost his best player, freshman center Jarrett Allen, to the NBA draft.

Texas head coach Shaka Smart, center, reacts to a call against his team during the first half of an NCAA college basketball game against Iowa State, Saturday, Jan. 7, 2017, in Ames, Iowa. (AP Photo/Charlie Neibergall)

His group is signaling a reversion-to-the-mean trade and possibly more. Andrew Jones tested the NBA waters but will return. Core players Kerwin Roach Jr. and Eric Davis Jr. are coming back. Smart shocked the college basketball world by landing five-star center Mohamed Bamba and standout point guard Matt Coleman. The incoming recruiting class ranks fifth nationally, according to 247Sports.

RELATED: 5-star recruit Mohamed Bamba commits to Texas

It’s possible that the Texas men start the season ranked in the top 25. If the Horns finish last again — something that seems unthinkable — shareholders will demand change there, too.

“We try to identify guys that, No.1, really wanted to be at Texas,” Smart said. “I know that sounds kind of backward because in recruiting, you are pursuing them. But there’s something to be said for people that feel a certain kind of way about the University of Texas.”

Across the hall, women’s coach Karen Aston will have 10 McDonald’s All-Americans on her star-studded roster next season. That includes incoming freshmen Rellah Boothe and Chasity Patterson. Go ahead and buy long-dated call options on Joyner Holmes; if she’s not a top-three pick in the WNBA draft, something will have gone horribly wrong.

Overall: UT is a buy

Perrin was criticized last summer for trying out a basket of baseball coaches. He refused to overpay for or couldn’t land the low-beta names and went with Tulane’s David Pierce, a small-cap stock with an uncapped ceiling.

Talk about some serious alpha. In his first season, Pierce’s Longhorns fell one victory shy of the NCAA super regionals. The baseball program is clearly starting a new uptrend at UFCU Disch-Falk Field.

Add it all up and, as Barron’s would say, it makes a compelling case. But football sets the tone for the entire athletic year. If Herman can get off to a good start in September, all those who were turned off by Strong’s 16-21 tenure will flood back in, squeezing the shorts and pushing the stock higher.

Yes, now appears to be the right time for a UT fan’s emotional investment. It’s time to buy.

Contact Brian Davis at 512-445-3957. Email bdavis@statesman.com.

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