Kyle Israel understands the stereotype of private equity: Some rich people buy a business, fire employees, chainsaw costs and sell what\u2019s left for a profit.<\/p>\n
\u201cThat exists, 100 percent,\u201d said Israel, a former UCF quarterback who\u2019s the co-founder of the sports\/real estate investment group Momentous Sports. \u201cBut that\u2019s not a fair illustration.\u201d<\/p>\n
With private equity venturing into college sports through separate deals with Utah<\/a> and the Big 12<\/a>, not to mention pitches to restructure all of college football<\/a>, it\u2019s worth exploring a more complete image than fancy suits slashing and burning athletic departments. Rosier pictures start with desperately needed funding and end with parity and professionalization that stabilize an industry in turmoil.<\/p>\n To be clear, those potential upsides don\u2019t negate the need for answers to legitimate, serious questions<\/a>. How much long-term revenue are schools losing in exchange for up-front cash? How will students, taxpayers and fans be protected if budget projections fall short? Who makes the final calls when administrators and investors clash?<\/p>\n But those case-by-case questions are hard to answer in the abstract. For now, through conversations with a dozen people involved in one or both spaces, let\u2019s set those valid concerns aside to better understand why PE and college athletics are converging.<\/p>\n How will private equity work in college sports?<\/p>\n In one model, schools\/conferences create a new company to share with outside investors. Utah\u2019s pending nine-figure arrangement with Otro Capital<\/a> will give the private equity group a stake in a new, for-profit arm that will handle Utes business items like ticketing and NIL sales. The Big Ten deal that fell through in November<\/a> after vocal opposition from Michigan<\/a> would have given UC Investments a 10 percent slice of a spin-off group, Big Ten Enterprises, in exchange for $2.4 billion.<\/p>\n Some versions are more like loans and don\u2019t involve ownership at all, like the proposed partnership between the Big 12 and RedBird\/Weatherford Capital<\/a>. That\u2019s technically not private equity, but we\u2019re lumping them together for two reasons: Both versions are colloquially called private equity by laypeople, and the differences don\u2019t matter much for today\u2019s focus.<\/p>\n The point is that private equity groups see college sports like their other investments \u2014 undervalued assets that can become more profitable with their help. If PE grows the pie enough, the extra money will more than cover what schools\/conferences give up in equity or interest payments.<\/p>\n \u201cThat\u2019s the bet that athletic departments are making,\u201d said Mark Wilhelm<\/a>, who has worked on both sides of PE deals as a partner at the law firm Troutman Pepper Locke.<\/p>\n Why athletic departments are turning to private equity<\/p>\n Schools added a new expense July 1 when they started paying players directly through revenue-sharing. That new expense (up to $20.5 million per school this fiscal year) has to come from somewhere. But where?<\/p>\n Many programs don\u2019t have enough deep-pocketed boosters to fund it, and the ones that do are battling donor fatigue<\/a>. Ticket price hikes can alienate fans<\/a>. Support from the academic side is trickier as schools fear state\/federal funding cuts and an enrollment cliff<\/a>. Cost-saving options like eliminating sports<\/a> or becoming less competitive aren\u2019t palatable.<\/p>\n \u201cThat\u2019s where private equity comes in \u2014 not because it\u2019s the best solution, but because it\u2019s a necessary part of the solution,\u201d said Lindsay Conner, a sports\/entertainment consultant who has advised schools on private equity, NIL and conference realignment. \u201cIt\u2019s not a cure-all, but it can help colleges build a bridge over very troubled waters to a near-term future that is both competitive and fiscally sound.\u201d<\/p>\n The bridge will probably look different based on who\u2019s building it. Some schools will focus on player payrolls. Others will upgrade facilities, invest in new revenue streams (like premium seating) or bite the buyout bullet<\/a> to can an embattled coach.<\/p>\n Regardless of the blueprint, the idea is the same. Schools will use the money to remain competitive or, hopefully, improve their standings during the industry\u2019s chaotic transformation. That\u2019s even more critical as we approach another potential wave of conference realignment (super league, anyone?<\/a>) when major media rights contracts expire from 2030-36.<\/p>\n \u201cLet\u2019s get that cash infusion today,\u201d Wilhelm said, \u201cand then we can use that to be competitive, move up and hopefully grow the (revenue) pie in the future.\u201d<\/p>\n Two more ways private equity can grow the pie<\/p>\n The next argument is best explained through an analogy from Legacy25, a college-focused investment initiative backed by the private equity firm Chiron Sports Group. If college athletics is a raw gold mine, PE groups don\u2019t solely want to invest in miners (schools\/conferences). They also want to provide picks and shovels to help the miners do their job better.<\/p>\n Those picks and shovels are management expertise and connections.<\/p>\n Because athletic departments have traditionally focused more on success and player welfare than profit\/loss, many of them lack the staffers, experience and know-how needed to maximize every penny in the NIL\/revenue-sharing era. Private equity, however, is accomplished in that area, including in sports. Sixth Street (which explored a deal with Florida State<\/a>) owns parts of the San Antonio Spurs and San Francisco Giants<\/a>, while the portfolio of expected Big 12 partner RedBird extends to NASCAR, MLB, NHL and European soccer.<\/p>\n \u201cThey know the business of sports better than the colleges because they\u2019ve been doing it,\u201d said Will Hall, who has worked with schools, collectives and companies on NIL as a partner at the law firm Jones Walker.<\/p>\n Because private equity firms pride themselves on professionalizing their partners, we could see schools eliminate inefficiencies or explore new revenue streams. Could PE cut costs by centralizing a standard service like travel? What about developing new mixed-use spaces around stadiums so fans stay longer and spend more?<\/p>\n Programs can address some of these issues by themselves, but outside, business-focused eyes can see things current employees might not.<\/p>\n \u201cPeople that are inside athletic departments and institutions typically operate with a very narrow lens,\u201d said Israel, whose partners at Momentous Sports include John Elway and Tim Tebow. \u201cI think private equity can come in and have a much broader blank-canvas approach to say, \u2018Hey, it\u2019s been done this way. Why don\u2019t we think about doing it this way, and here\u2019s the benefit of doing that?\u2019\u201d<\/p>\n If that tool isn\u2019t enough, private equity can also shovel connections to schools. That\u2019s something that helped the sports marketing business Two Circles after it got an investment from Otro \u2014 the private equity group working with Utah. Two Circles CEO Gareth Balch said Otro hasn\u2019t merely opened doors to help his UK-based company grow in North America; because Otro\u2019s team has executive experience with NFL, MLB, NBA and NHL teams, the partnership has opened the right doors.<\/p>\n \u201cThey\u2019ll take us to the best person in that organization that\u2019s often someone they\u2019ve known for decades that we\u2019d like to get to know today,\u201d Balch said.<\/p>\n Another example: The partners at Legacy25 (including Rob Gronkowski and Kevin Youkilis) have ties to companies in production, sports psychology and ticketing. It\u2019s easy to envision a school using those connections to greenlight a docuseries inspired by \u201cWelcome to Wrexham\u201d<\/a> or offer its players a mental skills app.<\/p>\n Because different schools and conferences will use those picks and shovels in different ways, some will work better than others. The competing strategies could play out in interesting, if not entertaining, ways.<\/p>\n \u201cIt\u2019s kind of like when you watch \u2018Shark Tank,\u2019\u201d Hall said. \u201cSome of the people want the money, and some people just want to pick Mark Cuban\u2019s brain.\u201d<\/p>\n Can private equity improve the game itself?<\/p>\n Indiana\u2019s national title run was a refreshing reminder of what happens when an upstart upsets the usual suspects.<\/p>\n \u201cYou watch sports for the surprises and the underdog stories,\u201d said Justin Nunez, a senior investment advisor to Legacy25 and former Columbia football player. \u201cYou don\u2019t watch to go see Ohio State win the national championship every single year.\u201d<\/p>\n Private equity has the ability to create more Indianas \u2014 or at least more Texas Techs. The Red Raiders made the College Football Playoff and won their first outright conference title in 70 years<\/a> with the backing of big-time booster Cody Campbell. PE provides an opportunity for programs without a Cody Campbell to up their investments and, hopefully, on-field prospects.<\/p>\n The upshot is an ecosystem where more programs compete with the top spenders. If Texas Tech can use donor money to boost its roster and level up on the field, why can\u2019t another mid-tier football program or mid-major basketball team do the same with PE money?<\/p>\n \u201cYou\u2019ve got to establish some parity like the NFL does \u2026\u201d said Legacy25 partner Brian Hoyer, who spent 15 seasons as an NFL quarterback. \u201cI think, to me, if it can level the playing field, that has got to be the ultimate goal.\u201d<\/p>\n Private equity can\u2019t put Ohio in the same tier as Ohio State. But the big brands will have company if the pool of contenders deepens because teams 11-30 can invest like the top 10. That scenario will increase regular-season parity and, perhaps, produce a more competitive CFP bracket with fewer blowouts<\/a>.<\/p>\n Other potential side effects<\/p>\n When Wilhelm thinks through other ramifications, he uses a word fans and administrators would welcome.<\/p>\n Stability.<\/p>\n Here\u2019s one hypothetical: In the business world, PE contracts protect investors through something called covenants \u2014 formal guardrails on what their new partner can and can\u2019t do. Could college sports install similar guardrails that restrict conference realignment or provide an NIL framework to retain top players?<\/p>\n Hall suggested another. Tampering and roster transience have thrived in the current, disjointed system. That could change if PE helps restructure and professionalize the industry to protect key parts of groups\u2019 investments (like star quarterbacks<\/a>).<\/p>\n \u201cHaving more a business-like operation on the back end could maybe stop some of the craziness we\u2019re seeing around the transfers, tampering, all of that,\u201d Hall said.<\/p>\n Final thoughts<\/p>\n If the idea of private equity in college sports sounds scary, remember that PE is already a major player in college sports. Learfield works with hundreds of schools in multimedia rights, sponsorships and NIL; it\u2019s backed by private equity firms Fortress and Charlesbank.<\/p>\n \u201cYou\u2019re sort of one step removed already,\u201d Learfield CEO Cole Gahagan said.<\/p>\n But it\u2019s a big step, even if you reject the slash-and-burn stereotype. Public schools\u2019 extra layers of oversight and the NCAA\u2019s disjointed ecosystem are hard for outsiders to navigate; if those complications limit how much the revenue pie grows, schools\u2019 bets might not pay off.<\/p>\n Tension between how much control private equity groups demand and how much control schools\/conferences are willing to cede will play out with high stakes. Some picks and shovels will strike gold, but the ones that don\u2019t must still find a way to pay investors back.<\/p>\n While it\u2019s true that plenty of schools and conferences have considered deals, few have gotten close to the finish line. That\u2019s because many institutions can secure capital elsewhere at lower costs without the complexities these PE partnerships require.<\/p>\n \u201cI think \u2014 I know \u2014 it\u2019s extraordinarily challenging,\u201d Gahagan said, \u201cwhich is why you haven\u2019t seen much success on the equity side.\u201d<\/p>\n