Private equity executives discuss the possibility of PE in college sports, the hurdles on both sides, and how close we are to that reality.
In the Wild Wild West world of modern-day college football, since NIL was approved in 2021, change is constant. A House of Representatives settlement will finally bring revenue sharing to collegiate athletes while schools hire pro-style general managers to keep up with a transfer portal that’s evolved into free agency on steroids in the expanded playoff era while players, teams, and coaches jostle with themselves and each other to stay ahead. In this highly unregulated environment, the gulf between the haves and have-nots is growing as schools scramble to generate as much revenue as possible to keep up with the sport’s blue bloods.
It’s in this environment that private equity companies and venture capital funds, established players, and freshly formed organizations alike, are well positioned to invest directly into collegiate athletic departments. Florida State openly explored this possibility last year, hiring JPMorgan Chase to talk to funds and conduct discussions with Sixth Street. The Big 12 in 2024 flirted with an $800 million to $1 billion investment from Luxembourg-based CVC Capital Partners for a 15-20% stake in the conference.
Like the four major North American professional sports leagues, college sports contain strong IP and large fan bases that, in many cases, are even more loyal to their teams than the pros. With the exception of Grand Canyon University, these colleges are all nonprofits that, according to 1896 Partners Founder Andrew Brown, are generally not optimized from a commercial standpoint in the eyes of private equity.
“They see a pretty untapped opportunity at both the school and conference levels, but particularly the schools,” Brown told Boardroom. “They’re generally just not professionally managed operations, and every college literally needs to find more dollars.”
Subscribe for the biggest stories in the business of sports and entertainment, daily.
And in this very public quest to find more money so their football and basketball teams can try to keep pace with the elite programs, it’s almost inevitable that PE would emerge as a viable and legitimate option.
“The pace at which institutional capital fills these voids is incredibly rapid,” Jeff Collins, Cloverlay‘s Managing Partner, told Boardroom. “Sports and private equity is the flavor of the month, after AI. Everyone is coming.”
Yet no school or conference has pulled the trigger on private equity quite yet, perhaps due to the myriad complications and obstacles the PE-college partnership would encounter. Although, that’s certainly not stopping the two sides from talking.
“To the extent there’s interest on the private equity side for an influx of capital into college programs,” ESPN college basketball analyst Jay Bilas told Boardroom, “I don’t see the colleges saying no to it, frankly.”
Boardroom spoke with five leading private equity executives, including Brown and Collins, along with Bilas on where we stand in the PE process, how schools would operate alongside these companies, less complicated alternatives, and how they expect the landscape to change over the next 12-18 months.
The consensus? We’re still very early as these hyper-profit-driven enterprises and historic academic institutions enter an increasingly professional, high-stakes world.
“I don’t even think we’re in the first quarter. Maybe we’re in the opening drive,” Brown said. “They’re feeling each other out, and both sides really do have a lot of reasons to explore the partnership.”
How Would It Work?
None of the private equity executives I spoke with believe that a school like Florida State would directly sell a stake in their teams to firms or funds, at least not any time soon. But what schools could do is accept money up front or over a period of time for a percentage of current or future commercial revenue, which is reportedly what the Seminoles tried, or other types of arrangements that we’ll get into here a little later on. But a major reason why an FSU deal hasn’t come to fruition yet is that the dynamic between academia and private equity is riddled with conflicts and contradictions.
In trying to get both public and private universities to take PE money, you’re dealing with academics and retired presidents rather than seasoned business experts. A university’s academic mission doesn’t often mesh well with potential commercial interests, according to Michael LaSalle, a partner at Shamrock Capital Advisors.
“They don’t know how to sell media rights, and there are no rules around the pace of decisions in academia,” Collins said. “So how long does it take to convince the Board of Regents to sign a $750 million deal with a private equity fund they’ve never heard of? It’s also a bit of a cultural conflict. One side of the table has never thought about that quantum of money. They’ve never signed a deal that they couldn’t then back out of because they’ve held the reins in every relationship they have inside the university.”
It’s also extremely difficult for athletic departments to be profitable as currently constructed, making it hard for venture capital funds to deliver returns to their investors. According to one study, only 28 of 2,023 athletic programs were profitable in the 2021-22 academic year. While modern college sports better incentivize profitability, private equity would have to coexist with athletic departments that, Bilas said, are used to spending every dollar they receive while bloated with large staffs and inefficiencies that PE companies would likely want to immediately rectify.
“You can’t expect to come run the private equity playbook on a university cost structure,” Collins said.
An investor would not only have to improve the longstanding academic revenue model that rarely delivers profit, but would need to generate an increasing amount of profit each year to make a deal worthwhile in the first place.
“Revenue streams probably can’t grow annually to outpace the needed return on the private equity side,” Jonathan Marks, Elevate‘s Chief Business Officer, told Boardroom.
Marks also believes that of the options colleges have to infuse capital in their athletic departments, private equity would be the most expensive. Most schools, he said, would probably prefer bonds or university loans.
“This might be a case where you pull a string, and the whole thing unravels very quickly,” LaSalle said.
Private equity funds may have an easier time investing in collegiate conferences, though Collins doesn’t believe PE can invest in both colleges and conferences at the same time. While conferences are also nonprofits, they’re used to making commercial deals like media or licensing rights. And there’s precedent for leagues selling commercial rights according to David Abrams, the Managing & Founding Partner at Velocity Capital Management.
In 2022, La Liga sold 10% of its television revenue for 25 years to Sixth Street for €207.5 million. A 2021 deal with CVC that sold an 8.2% stake in a company that would manage La Liga broadcasting and sponsorship rights for 50 years for $2.14 billion was finally consummated in 2023 with four clubs, including Real Madrid and Barcelona, opting out.
The pathways are clearer and less complicated for a PE deal with a conference, LaSalle said. “Once a conference is on board,” he continued, “so too are its schools.”
But one major issue in investing in either a school or a conference is the periodic tectonic shifts of conference realignment. If you’re a school outside the SEC or Big 10, Brown believes it’s going to be tough for an investor to conduct due diligence and underwrite a deal with a school from a conference whose next media rights deal may be depreciating in value. Investors don’t like instability, which happens to be everywhere outside the two biggest conferences.
But there are still plenty of ways for private equity companies to invest in schools. Some are already happening at a smaller scale that our panel of executives believes is more feasible in the short term.
A More Likely Path Forward
Investor groups are already taking different approaches toward driving revenue from existing team and conference IP that are safer bets than the equity investments that justifiably grab all the headlines.
RedBird IMI‘s annual Players Era Festival in basketball helps distribute millions in NIL money to men’s and women’s schools and players. It’s been praised as an innovative way for PE firms to get involved in college sports. On Location expanding its hospitality services into college tailgating, let’s say, would be a natural extension for what it’s already doing with tentpole college football events. Just like bowl games now have corporate naming rights sponsors and soccer leagues around the world, and NASCAR has title sponsors, maybe one day you’ll be watching, for example, the Goldman Sachs Big 12.
Companies are already innovating at a high rate in college sports. Elevate partnered with the University of Illinois to design a new dynamic ticketing model to maximize revenue. But what if, Marks said, a school took Abrams’ La Liga model and applied it to ticket sales or multimedia rights? If a company could guarantee an athletic program $10 million a year for 10 years for a certain percentage of ticketing revenue, perhaps even getting a portion of that $100 million up front, that could be an alluring possibility to some schools.
Abrams and others also see facility improvements or naming rights from private equity companies increasing over time. Just like banks have long pursued naming rights deals for pro and collegiate arenas in the past, you’re going to see more names of PE firms on venues in order to gain some name recognition. Another untapped way to gain recognition is through jersey patch sales, which has yet to be approved in college sports but seems inevitable as schools and conferences look to extract more and more revenue to adapt to the changing times.
There are also investments companies can make in the infrastructure surrounding college sports. LaSalle and Shamrock have a stake in Excel Sports Management, which increasingly signs top collegiate athletes for NIL representation. Revenue sharing is only going to make that part of the business even stronger, and the transfer portal makes experienced traditional agencies even more appealing to athletes. LaSalle also believes that a company is going to improve on the Opendorse-type NIL marketplace model and further disrupt that space.
Disruption is the name of the game in PE, and our panelists had some ideas on how they’d invest in college sports right now if they had to. Collins would focus on finding the right sport or demographic and writing smaller checks to improve facilities or attendance.
“There are some legitimately goliath baseball programs, but there aren’t 50 of them,” he said. “What can you do with the top eight? You could probably do a lot, build a Jerry World on a smaller scale.”
Brown would first want to have years of relationships and deep trust and connectivity before going into business with a conference or university. Marks was skeptical about this traditional transactional private equity that Florida State is trying to get involved with.
“I just think there are probably better uses of capital or investment opportunities,” he said.
What Happens Next?
Over the next year or two, will we see a collegiate program fully dive into private equity? Or are schools still afraid of being the first ones to dip their proverbial toes in the water?
“You have to find somebody willing to be a trailblazer,” LaSalle said, “especially on the conflict between commercial and academics. University presidents are going to have to be okay with the athletic department effectively being a licensor of the university name, effectively, versus an actual integrated part of the university.”
That’s a big step that, as of yet, nobody has been willing to take. Collins believes a smaller step, like a joint venture that’s more passive on the equity side, is more likely to happen in the near future until there’s a clearer ROI on the buyer side. You’ll see more PE firms be sponsors in different facets of athletic departments, Brown said, as they take baby steps in the short term rather than giant leaps.
“No one wants to be a first mover in this space on the sell side,” Collins added. “There’s going to be a very long discovery process on both sides. But the potential is enormous.”
Marks and Bilas agree that the near-term focus will be for schools and conferences trying to leverage as many sources of revenue as possible with more dollars than ever before going to athletes.
“With athletes sharing in the revenue,” Bilas said, “you’re going to see new income streams being searched out.”
Abrams expects conference realignment to further shift over the next 12-18 months, with the formation of a super conference definitely a possibility. And you know schools outside the SEC and Big 10 are going to do whatever it takes to position themselves to join the most powerful athletic universities in the country. Maybe that would be the push a school needs to fully embrace private equity, a subject that won’t be going away in college sports for a long time- even if the world isn’t ready for it quite yet.
“Media rights and revenue sharing will further separate the haves and have-nots,” LaSalle said. “One have not will then say ‘we need to just do this.'”
Read More:
