For more than a year, institutional funds have been pitching conferences and individual schools about investing in the new era of college sports.
Many have focused initially on private credit, deals more akin to lending, where their money would be repaid via a pre-set cut of future athletics revenue. The approach initially made sense—it’s an arrangement similar to how schools already sell their multimedia rights, and it’s easier to structure within the rigid framework of higher education, particularly at public schools. It’s like debt, many pitches go, but it doesn’t sit on the university or athletic department’s balance sheet.
I’m beginning to wonder whether more traditional private equity might be a more successful approach. Deals are taking longer to consummate than many initially thought, and I’ve heard recently from a number of athletic directors who have touted their ability to borrow money elsewhere at better terms—“the cost of capital for us is fairly low,” UNC’s Bubba Cunningham told me last month. Some have indicated that they’re more open to deals where returns are earned primarily through asset appreciation as opposed to contractually obligated revenue.
Establishing a way to sell equity, particularly in different classes of shares, would also enable other opportunities for schools. I believe they’ll soon explore the possibility of giving equity to boosters, a way to shift their donor relationships from philanthropic to entrepreneurial. It doesn’t seem crazy that at some point coaches—or eventually, athletes—could earn vesting equity as part of their pay packages.
“Most universities have a subset of very wealthy alumni who have supported their programs for many years, who have the best interest of the university and athletic department in mind,” college sports consultant Jason Belzer, founder of Student Athlete NIL, said in an interview. “So it makes sense that if you are going to pursue some sort of investment model, through credit or equity, that you have those individuals involved.”
To see how this might play out, look no further than Clemson University. Last month the ACC school announced a new entity, called Clemson Ventures, to house all of its athletics revenue generation. The university is essentially cleaving the department, separating employees whose primary function is making money (sponsorships, licensing, ecommerce, etc.) from those whose primary roles are administrative or athlete/team facing.
Clemson Ventures is an “affiliate organization,” like the school’s athletics fundraising arm, which means it has its own governance and its own board, but obviously works intimately with the university.
The entity could eventually be the vehicle through which equity is sold to an outside party, athletic director Graham Neff said in an interview. He added that the department would consider outside capital only if it is revenue-generating in nature—via new opportunities or facilities.
“That’s not the means to the end—that’s not the tail wagging the dog,” Neff said. “But admittedly yes, those are very interrelated discussions.”
Neff said he’s spoken with a number of institutional firms in the last year, but that it was too early to say if Clemson would actually seek outside capital, or if it had a preferred deal structure.
Many of the firms looking to invest in college sports have started with models more akin to private credit. Collegiate Athletic Solutions (CAS), a joint venture between Gerry Cardinale’s RedBird Capital and Weatherford Capital, is looking at revenue sharing models.
Florida State has been in talks for more than a year with Sixth Street on a capital infusion built on a related structure, including a “super license agreement” between the firm and the school. In those cases, the funds would recoup their investment via money earned through the athletic department. A CAS investor deck that was viewed by Sportico included a “case study” where the group lent $150 million and made back $300 million in the following 15 years.
More traditional private equity deals, on the other hand, involve the acquisition of an ownership position. In that model, a group giving $150 million to an athletic department-related entity would recoup much of its money on the appreciation of the entity. The upfront money for the school is largely the same, but it’s a different structure for returns on the backend.
I asked Cunningham, who has run UNC’s athletic department since 2011, if he thought equity arrangements would be more appealing to schools than credit.
“I think so,” he said. He then referenced the Big Ten Network, in which the conference and Fox are both equity partners. “I do think that building something together, where you share in the upside going out, is something that’s likely to happen in the future.”
What’s more enticing for schools, of course, might not be more enticing for funds. But equity financing is often more expensive than debt financing, and college sports, not unlike their pro cousins, already present a pricing challenge for institutional investors. They can’t buy controlling stakes, the hallmark structure of private equity in other industries, and hold periods in sports are longer than in other strategies. Sports income streams are also relatively stable given long-term media deals and season-ticket renewals. All of that could eventually lead to pricing in college sports that’s closer to debt than to equity.
That’s all separate from the other things an athletic department could do with a commercial entity that had different classes of shares. The 110 public FBS schools reported $2.3 billion in donations in fiscal 2023, and that money came with $0 in direct financial return for boosters. The opportunity to actually share in a department’s athletic success might unlock a whole new level of “donor” participation.
Then there are players and coaches.
“If athletes end up becoming employees, and you want to entice them to remain a part of the athletic department and not transfer elsewhere, then give them a vesting share and say, ‘If you stay all four years, you’re going to have equity in an athletic department that you helped build,’” Belzer said. “That is a really interesting and compelling opportunity.”
(This story has been corrected in the sixth paragraph to remove ticket sales from the purview of Clemson Ventures.)