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Sweat Equity: Private Equity Investment as a Solution for College Athletics Programs in Need of Capital

Published onJan 20, 2025
Sweat Equity: Private Equity Investment as a Solution for College Athletics Programs in Need of Capital
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Approval of the amended House v. NCAA settlement filed on September 26th would mean that for the first time, college athletes may soon receive payment directly from their schools. The initial settlement that was filed in May was sent “back to the drawing board” over its provisions limiting the current practices of booster-led third-party NIL collectives. However, Judge Claudia Wilken granted preliminary approval of a revised settlement on October 7th. While a final approval hearing is not currently scheduled until early April, Judge Wilken signed a motion that states the amended settlement will likely be approved as “fair, reasonable, and adequate.” This potential landmark shift follows a period of drastic change in college athletics. Between the popularization of the transfer portal, the advent of athlete compensation for use of name, image, and likeness (“NIL”), and extensive conference realignment, money is as present as ever in college sports. Further, it appears that the colleges that spend the most are reaping the rewards in the form of success on the field. In the highest revenue college sport, football, three of the four teams in the 2024 college football playoff were in the top four for athletics department spending, and the only team outside of the top four in spending to make the playoff, the University of Washington, was still the eighteenth highest in expenses for 2023. There is no slowing of college sports spending either; Ohio State, the school with the most athletics department spending in 2023, through the combined power of the transfer portal and NIL collectives, made an estimated $20 million effort to assemble a football team that can win a national championship. Should the House v. NCAA settlement be approved and the proposed NIL pay-to-play restriction function as designed, schools that want to compete will have to dedicate a significant portion of their revenue directly to compensating players rather than doing so through NIL collectives.

In this new landscape, private equity looks to be a solution for colleges in need of capital to support their athletic programs. Redbird Capital and Weatherford Capital, which combined have over nine billion dollars in regulatory assets under management and whose portfolios include AC Milan, the United Football League, Fenway Sports Group, and IMG Academy, have partnered to launch an investment fund called Collegiate Athletic Solutions, (“CAS”). CAS is looking to invest between $50 million and $200 million in five to ten college athletic departments. CAS’ investment in college athletic departments reportedly will not give the firm an equity position. Instead, a special purpose vehicle will be formed, and CAS will not have any control over the board. All athletic department income would be directed to the special purpose vehicle, and CAS would take a share in the revenue. A hypothetical case study from a CAS pitch deck shows CAS recouping over 100% of their initial investment after five years with 201% total return at the end of a fifteen-year revenue share. The pitch deck also features a scenario where CAS’ right to future revenue is sold to another party before the end of the 15-year term. This is particularly interesting given that CAS reportedly emphasizes their knowledge in sports and entertainment as an important selling point given Redbird and Weatherford’s portfolio companies and the experience of their founding partners. To this end, CAS described its desire to be “trusted advisors to university presidents, CFOs, and athletic directors.” While private equity involvement in advising presidents of some of the largest higher education institutions in the United States may strike fear into some, given the negative sentiment that has been associated with private equity, others are optimistic about private equity firms being part of a potential solution to the issues plaguing college athletics. In an article on conference realignment, founding partner of Weatherford Capital, Drew Weatherford, predicts that schools who have less to spend because they miss out on the money brought by being part of the Big Ten or SEC conferences will “fall behind,” and as a result, athletic directors will have to allocate more funding to the revenue-generating sports, leaving the majority collegiate sports underfunded. Additionally, Weatherford points to the correlation between increases in the number of applications following a college football national championship appearance to show how falling behind in athletics can impact a university as a whole.

Ultimately, while it remains to be seen whether a college athletic program takes investment from a private equity firm, in a world where schools that are unable to spend may fall behind, private equity investment could be a solution for universities in need of capital.

Hank White is a second-year student at Wake Forest University School of Law. He holds a B.A. in Political Science from Columbia University, where he was also a member of the Varsity Football team. Upon graduation, he intends to practice transactional law.

Reach Hank here:

Email: [email protected]

LinkedIn: www.linkedin.com/in/hank-white-243956159

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