The NCAA and collegiate athletic programs across the nation find themselves steeling for a sea change as the 2024-25 academic year approaches. Within a year, colleges and universities are set to begin sharing broadcast revenue with athletes — a change that was a long time coming — which is expected to cost each school an average of $22 million per year going forward. Meanwhile, the NCAA is expected to owe $2.6 billion in backpay to former student athletes after settling an antitrust lawsuit in May, and will be cutting their usual fund distribution to participating schools in order to pay off their fees for the next decade. In short — everyone involved needs money. Badly.
Enter private equity.
Why would schools consider a private equity partner?
Aside from the approximated average of $22 million per year that will be going toward revenue sharing with student-athletes, the NCAA is also cutting their annual financial distribution to schools as they attempt to make up billions in settlement backpay. With the shift from scholarship caps to roster caps, top schools will also be expected to fund more scholarships in all sports to remain competitive while still complying with Title IX. In all, CBS Sports’ Dennis Dodd approximates that the cost could add up to $300 million per school over the next decade.
This sticky financial situation makes these schools ripe for the picking for outside investors, giving athletic programs some short-term capital that will kick off a much longer investment plan. The early public charge for private equity’s involvement in college sports is being led by Drew Weatherford and Gerry Cardinale of RedBird Capital and Weatherford Capital, who are combining forces to create a fund they’re naming College Athletic Solutions.
What would private equity involvement actually look like?
Weatherford, a former FSU quarterback, presents a fairly unthreatening model of the involvement of private equity — or more accurately, private capital — in college sports. Per Weatherford’s discussion with Yahoo Sports, CAS would invest anywhere between $50 million and $200 million into top collegiate athletic programs as an initial investment. This is no insignificant amount — the University of Michigan athletic department brought in just over $229 million in revenue in the 2022-23 fiscal year after winning the Big Ten and going to the College Football Playoff. This amount of money would be a shot of adrenaline straight to the veins of any program in the country.
The involvement would likely look more like private credit — which functions more as a loan and guarantees the investing firm an annual return on any revenue growth — than private equity, which would give the investors more hands-on involvement as a part-owner. Per Yahoo Sports’ Ross Dellenger, Weatherford claims that CAS will not take a cut of the money if there is no growth, will not demand a management role within the athletic program (though they will be around as advisors), and will not have a say in the specifics of where their capital goes. That doesn’t sound so bad, right?
Don’t get sucked in just yet. This represents the plan and outlook of just one investment group, and once the door is open, there is no telling who will come rushing into the market and what demands they will bring alongside their investments. One would hope that other potential investors remain outside of day-to-day operations to the extent that Weatherford describes, but investors are looking for a profit. If a profit fails to appear, the moneymen may want to get more hands-on — and at that point, there is a laundry list of potential negative outcomes for collegiate athletic programs.
This is a fairly low-risk investment for private equity groups — college sports have made millions for years, and top programs are effectively guaranteed to continue to grow within the new Power Four conference structure. There is no question as to whether this venture will succeed, as it’s been succeeding for decades. But it’s extremely high-risk for the athletic programs themselves, which have been notoriously weak at long-term financial management.
What could go wrong?
The industry of private equity has developed a reputation of buying up companies and gutting them from the inside out, forcing people out of their jobs and lowering the quality of output. If this comes to college sports, what would that look like? When private equity became involved in for-profit higher education institutions, those schools took a steep downward turn.
It’s important to ask the big questions when examining this pitch — as private equity investors will be looking for a return on their capital, will they as shareholders have a say in whether a coach stays on or is fired? Will they have a say in which players get playing time, which recruits receive offers, or which athletes are cut from the team? What is the dollar amount necessary for the investors to select the coach, to decide the starting quarterback — and past football, to cut a non-revenue program like swimming or golf?
While this may not be the way Weatherford pictures the future partnership happening, the door would be open for outsiders to take on a management role within athletic departments. It’s also important to note that this is an entirely separate entity from NIL. These investors aren’t looking to deal with collectives, but with the schools themselves in the form of a loan.
To be fair, these are all questions that would pop up if these investors went for a private equity approach, which would involve partial ownership, rather than a private credit approach, which is what Weatherford is suggesting to Dellenger. However even with the private credit approach, what happens if the schools are unable to pay back the loans in the agreed-upon time?
What could really, really go wrong?
In the worst-case scenario, schools are unable to pay back the initial loan, and at some point down the line, private equity firms would have legal recourse to sue the universities for a breach of contract, and the schools would need to have some way to come up with the money. This could turn a few ways — the schools could choose to cut sports that don’t turn a profit, taking costs away from the athletic programs to feed back to the shareholders. With that outcome, the Olympic sport pipeline for multiple sports would disappear, as would scholarship opportunities for tens of thousands of students who play non-revenue sports. Alternately, the investors could take over licensing associated with the athletic program — say, ownership of the stadium or of the branding — as a form of collateral.
While there are Title IX roadblocks in place to prevent having an unequal amount of roster spots for men and women, as well as are protections regarding the funding and benefits provided to sports for men and women, you can bet that the best lawyers and management consultants available will find ways to drive trucks through any loophole they find.
We are more than aware of how bad collegiate athletics administrators are not only managing these nine-figure businesses, but also at planning for the future. There was an opportunity to get out of all of this via settlement years ago, but the NCAA’s short-sightedness and blind, quickly disproven confidence that the courts would take their side quickly destroyed any chance of them coming out on top.
Back in 2014, the NCAA had their chance to right their wrongs and get ahead of the storm that was coming. Former UCLA basketball player Ed O’Bannon sued the NCAA for monetizing his likeness in a video game, and the NCAA decided to go to trial rather than settling and avoiding future cases like this. Their loss in the O’Bannon case laid the groundwork for lawsuit after antitrust lawsuit throughout the late 2010s and early 2020s, culminating in the House v. NCAA settlement, which will cost them billions and allow players to be paid. They lost not only quite a bit of money along the way, but also plenty of public goodwill and respect.
Because most universities and their affiliated athletic programs are not-for-profit, schools pour money into head coaching contracts and massive training facilities without a second thought, then fire that same head coach two years later and are on the hook for tens of millions of dollars in contract payouts. These programs will likely be willing to take whatever money that comes their way the fastest as revenue sharing comes down the pipeline, no matter how it turns out — especially when we’re talking about the dollar amounts that CAS is offering.
But that non-profit status is why our lead college sports editor thinks a lot of this won’t happen after talking to plenty of D1 college administrators last week in Las Vegas. The buzz about PE money was that it wasn’t worth the hassle, especially for the biggest schools that can issue bonded debt at cheaper rates, or just get financing through their university’s foundation.
What could go right?
At schools that turn a profit from their football team, the money their football program makes helps to fund other sports. If Weatherford’s model holds, and the money is distributed as the school sees fit without input from investors, the influx of capital could help save non-revenue sports from being cut. As athletic programs look to tighten their belts with a $30 million annual loss looming, that penny-pinching could affect Olympic sports. We already saw Stanford try (and fail) to slash several programs back in 2020, including fencing, men’s rowing, and men’s volleyball, before a revolt by athletes and alumni forced the hand of the now-ousted university president. But other schools could follow suit in an attempt to cut costs, and more money could mean survival for these sports.
But if shareholders take priority over student athletes — a very real and possible and even likely outcome — we could see even more cuts to Olympic programs depending on the investors’ demands. Shareholders won’t care about the university pride brought by a swim team if that’s money which could be going back into their coffers. As much as Weatherford claims a no-strings-attached approach, the influx of capital could eventually kill non-revenue-creating sports and permanently alter the collegiate sports landscape.
Private equity has become involved in plenty of professional sports, including soccer, Formula One, and even baseball over the last several years. College sports have always had boosters — a rare and bizarre phenomenon in the world of sports funding, but one markedly less complicated, as they don’t ask for monetary returns from their donations, only tax deductions. However, professional sports have been in the business of turning a profit for decades, while collegiate sports are about to leap into unknown waters in desperate need of capital, which could lead to some less-than-informed decisions when it comes to accepting investment cash.
But once the door is opened to private equity, Weatherford is right — no school will be able to remain competitive relying solely on donors. However if the door remains shut, the playing field will remain as it always has been — far from equal, but not reliant on outside investors. However, if schools open the door to shareholders, donors and boosters may pack their bags and head out, knowing that their donations are now going toward a for-profit venture outside the school rather than contributing directly to the success of their beloved teams.
Why it probably won’t go right
Weatherford envisions private equity being able to level the playing field and increase the amount of programs that are legitimately competitive year in and year out. If everyone has capital coming in, the necessity for boosters somewhat lessens. But realistically, the investments will flow more heavily to top programs than they will to mid-level ones, and the gap will remain. Top programs have a better chance of turning a hefty profit and low-risk investments. They’ll also likely get better terms on the debt they’re to incur.
Opening the door here also creates a slippery slope for smaller or mid-tier programs — think schools that aren’t the Michigans, Texases, and Georgias of the world — to sign onto less favorable investment opportunities. Because mid-tier or smaller Power Four programs don’t have the guaranteed returns that these nationally recognized and annually successful programs have, they may end up agreeing to higher interest rates or even turning over management positions to their investors. They will need the capital to compete with the top-tier programs, giving the private capital and private equity groups all of the power when it comes to negotiations.
For colleges and universities, the premise of accepting outside money with the expectation of financial returns presents a major risk, especially as college football enters into a new and unstable realm with revenue sharing on the horizon. However, it feels unlikely that the threat of destruction will actually do much to stop these efforts.