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Private equity companies have been hoovering up stakes in everything from US major league franchises to European soccer competitions, but it is college sports that has been attracting the attention of institutional investors over the past 12 months.
However, not everyone is convinced.
“I don’t know if it’s a place for institutional capital, to be honest with you,” Dave Checketts, who recently launched a US$1.2 billion private equity fund alongside The Cynosure Group, told SportsPro New York. “I think there’s a major culture clash between those two things.”
Indeed, private equity and college athletics might not seem like the most obvious match on paper, but recent policy changes have brought the two closer together.
The landscape of college sports was fundamentally altered by new rules introduced in 2021, which created the opportunity for student-athletes to monetise their name, image and likeness (NIL) for the first time. The latest major development came last summer when a federal judge approved the House vs National Collegiate Athletic Association (NCAA) settlement, a historic ruling which paved the way for all Division I schools to begin paying student-athletes directly.
With the NCAA’s contentious history of amateurism now a thing of the past, colleges can share up to US$20.5 million a year in revenue with their players. While a handful of schools have opted out, all colleges in the power conferences – the ACC, Big Ten, Big 12, Pac-12 and SEC – have unsurprisingly taken up the opportunity to ensure they remain competitive and continue to attract top talent to their athletic programmes.
Weighing the opportunity
The question is where that money comes from at a time when the industry is grappling with seismic change. While private equity isn’t a silver bullet for all of college sports’ challenges, it is at least an option that conferences and schools appear to be considering more seriously now than they might have done previously.
For schools facing rising costs, private equity investment not only promises a potential cash injection, but also additional expertise for athletic directors who up until now perhaps haven’t had to think about monetisation in the same way as professional sports teams.
One college that has already taken the plunge is the University of Utah, which agreed a landmark deal with Otro Capital in December, becoming the first school to partner with a private equity company. Explaining the decision, president Taylor Randall and director of athletics Mark Harlan cited the impact of ‘significant costs’ introduced by the House Settlement and emergence of the transfer portal, which essentially allows top players to put themselves in the shop window and switch schools.
The agreement also hinted at how arrangements between schools and institutional investors could be structured, with Otro taking a significant minority stake in a newly created commercial entity which will oversee revenue streams such as stadium operations, ticketing, hospitality, sponsorship and licensing.
There has been movement at the conference level, too. The Big 12 is reportedly nearing a US$500 million deal with Collegiate Athletic Solutions (CAS), a fund backed by RedBird Capital Partners and Weatherford Capital. Meanwhile, the Big Ten’s proposed US$2.4 billion deal with UC Investments has been held up by opposition from league members Michigan and USC.
At the same time, there appear to be varying degrees of readiness for private equity investment as conferences and schools weigh the implications of potentially guaranteeing a share of future revenues and ceding some level of control to external investors.
For example, Val Ackerman, who is the commissioner of the Big East, a basketball-focused rather than American football-centric conference, does not believe college sports is ready for a traditional private equity arrangement “right now”.
“We’ve been approached by multiple firms about their interest in us,” she adds, speaking to SportsPro after her on-stage session in New York. “We’ve used lawyers and other advisors to give us some sense of what those sorts of arrangements might be, might they be suitable for us. Our advisors have been very discouraging to date.”
‘How do you make it worthy of 25% returns?’
Even so, institutional investors are still tooling up for more activity in the college space. As well as the likes of Otro, RedBird and Weatherford, last year saw sports marketing agency Elevate partner with private equity company Velocity Capital Management and the Texas Permanent School Fund Corporation for a US$500 million college sports fund.
Meanwhile, former Milwaukee Bucks co-owner Marc Lasry told CNBC in September that private equity investment in college sports will “get done”, noting his Avenue Capital Group has “been on the one-yard line about five times”.
While some investors clearly see college sports as an industry with untapped commercial potential, others are still to be convinced of the upside. Most schools currently rely on media rights distributions for a significant portion of their revenue, which for the most part is negotiated at the conference level.
Checketts, who was previously president of the New York Knicks and Utah Jazz National Basketball Association (NBA) teams, said that he would “love to invest” in college sports, but cast doubts over whether it would be possible to generate the same rate of return as professional leagues.
“It’s hard in college sports,” he said, “because how do you take a college sports programme that has never generated much cash and make it worthy of generating 25 per cent returns for private equity?
“The answer is, you’re going to have to take everything and redo it. You’re going to have to build these beautiful suites in these college football stadiums. You’re going to have to raise price – you better raise quality, too.
“But the fans of those college teams, that’s not what they want. They love their school, they love their team, but they’re not looking to pay $1,000 for better hospitality. It’s just not what they’re looking for.”
That sentiment is shared by Arctos Partners, the sports-focused investment firm recently acquired by private equity giant KKR. The company has amassed a vast portfolio of minority stakes in franchises across all five men’s major leagues and also has shares in the Aston Martin Formula One team and European soccer champions Paris Saint-Germain.
However, it doesn’t appear that either a college athletic department or conference will be joining that stable anytime soon – at least not in its current state. Instead, Arctos partner Chad Hutchinson said the company is looking at assets around the space, including an investment in the Learfield agency and providing financing for the University of Tennessee’s entertainment districts.
“I’m having a real challenge investing in college athletic departments, because the reality is, you can’t ever sell Stanford University athletic department,” Hutchinson added, also appearing on-stage in New York. “And do I really want to saddle the athletic department with a tax that’s at my cost of capital? I don’t. Because I think it’s going to be really challenged if I’m taking out that much value.
“There’s no margin left paying these players what they’re paying. There’s no margin left unless you change the entire landscape of college athletics.”
Speaking at SportsPro New York, Dave Checketts questioned whether college sports is “a place for institutional capital”
“It’s an area that needs to be monitored”
What that landscape looks like remains unclear, which could be another reason why investors are still biding their time. US president Donald Trump event took it upon himself to intervene in March, summoning various sports leaders to a roundtable at the White House to discuss the spiralling costs associated with the onset of NIL payments.
Checketts suggested an attractive investment opportunity would a “Super League” comprising the top 30 schools in the US, also featuring relegation and a collective bargaining agreement (CBA) with the players to control NIL payments.
Ackerman doesn’t see promotion and relegation arriving in college sports “anytime soon”, noting it would be “too radical”. However, she does believe there are lessons to be learned from professional sports in areas like commercial sales and fan engagement, which will help athletic departments generate the revenue required to keep attracting talent.
That shift in focus means that private equity will likely remain part of the picture – even if the floodgates haven’t yet opened in the way some might have anticipated.
“I think it’s an area that really needs to be monitored,” Ackerman says. “Because there may well be a day when these vehicles are safe enough for college programmes, they’re prudent enough. And they’re important, at least for now, because athletic departments need to raise money – and the traditional revenue sources around television, sponsorship, ticket sales, merchandising may not be enough going for forward to meet their needs.
“So if that’s the case, then other vehicles have to emerge. And so what are they? I don’t have the answer today, but I do think this is an area that everybody’s got to pay attention to.”
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