With college sports in upheaval, institutional investors are seeking opportunities to capitalize on a future that looks increasingly like big-money pro leagues.
One of those groups, Collegiate Athletic Solutions (CAS), announced last month that it was hoping to become a “trusted advisor to university presidents, CFOs and athletic directors.” The firm was created by RedBird Capital and Weatherford Capital, and plans to invest $50 million to $200 million each into five to 10 public or private athletic departments across top-tier college sports. It would recoup its money via a share of future athletics revenue.
But what is the fund’s planned fee structure? How quickly does it envision getting its money back? And how might its revenue share change over time?
Sportico recently viewed a CAS deck, circulated to a prospective investor late last year, that answers these questions and more. It is by no means a rigid account of how CAS would structure all of its deals, but it is an illustrative look at how the group, led by RedBird managing partner Gerry Cardinale and Weatherford Capital’s Drew Weatherford, framed its plan in early conversations with potential investors. Here are seven items that jumped out from the deck:
Management Fees
The standard management fee arrangement in private capital is “two and twenty,” where firms collect a 2% annual fee on collected capital, plus a 20% performance fee on returns over a designated benchmark. CAS intends to collect a slightly smaller cut on both numbers, according to the deck.
That’s not too dissimilar than those in an Ares Management debt fund that lends to pro sports teams. The Ares fund has a management fee of 2% for investors that contribute up to $5 million, 1.75% for investors in the $5-$10 million range and 1.5% for those putting in more than $10 million. The Ares fund’s performance fee is 20% of returns above a 7% hurdle.
It’s unclear how much money CAS has already raised. Representatives for CAS declined to comment on that process, or any of the specifics in the deck.
Deal Structure
CAS’ pitch, as laid out in the deck, is fairly straightforward—college sports is going through dramatic change, it’s getting increasingly expensive to stay competitive, and schools will likely need additional capital. There are plenty of ways an athletic department can do that, be it municipal bonds, increased donations, traditional debt, student fees or transfers from the institution. CAS positions itself as a less complex version, citing fewer restrictions on the use of its capital and additional expertise in many aspects of sports operations. It also emphasizes that its lending structure doesn’t reside on a university balance sheet, as the company is instead participating in future revenue.
The imagined structure is to create a university-controlled special purpose vehicle, a “NewCo,” to be the landing place for all athletic department income. That includes money from CAS, support from the academic side of the institution, plus revenue generated from department donations, ticket sales, media rights, etc. Revenue would then be shared by CAS and the school. The deck explicitly says that CAS would not have any board control of the NewCo.
Case Study
The deck provides an example “case study”—an unnamed large, public university with an athletic department that generates about $150 million in annual revenue and offers approximately 20 sports. According to Sportico’s college database, the schools that generated the closest to $150 million in athletic revenue in fiscal 2023 were Minnesota ($148.7 million), Oregon ($150.6 million) and Washington ($151.6 million). These are all popular Power Five programs but not the top-tier richest, an indication about the types of schools that might be most willing to engage with CAS.
The case study offers a hypothetical of CAS lending the athletic department $150 million, with the ability to share in revenue for the next 15 years. In that scenario, according to the deck’s projections, CAS estimates it would see $26 million returned in the first year, eventually recouping its total original investment by the end of Year 5. By Year 15, its final year sharing in revenue, the projections have CAS more than doubling its money, recouping 201%. (Interestingly, it also includes a “sale case,” where its right to future revenue is possibly sold to a third party before the 15-year term is over.)
In reality, investment specifics are likely to vary by school—every athletic department is in a slightly different position, so the amount they need or their structural preferences will likely vary. There’s nothing in the deck that implies CAS will be rigid in how it approaches schools.
A 'Senior-Like Solution'
The investor deck says its proposed investments will be a “senior-like solution” for schools, a reference to senior notes, which typically take precedence over other debt within a cap table. In that regard, CAS’ right to revenue would be of high priority in the years after its initial investment. That’s laid out in the case study, which includes what the deck calls a sample term sheet. Again, this is a $150 million investment.
Under the sample terms, the deal would have multiple waterfalls, steps during which CAS’s revenue share begins to tail off as it sees more of its money returned. Once CAS sees its full $150 million returned, for example, its split of net cash flows drops from 55% to 30%. Once it reaches a 13% internal rate of return on the initial $150 million, the share drops to 5%. In simpler terms, CAS would see its biggest payments in the first few years after it provides capital.
The sample term sheet includes language that a school can seek an additional $75 million within the first two years after closing. It also grants the school the right to terminate the arrangement in Years 5, 6 or 7. In that scenario, the school would redeem the initial investment at a set price.
The sample term sheet also includes language about reworking terms should colleges at some point need to facilitate payment to athletes.
Operational Expertise
The deck places heavy emphasis on the experience of the CAS investment team, which is led by Cardinale and Weatherford, the co-CIOs. Weatherford is founding partner of Weatherford Capital and a former Florida State quarterback, who currently sits on the boards of FSU and IMG Academy.
Cardinale and his RedBird Capital Partners have deep experience in sports ownership and adjacent businesses. RedBird is an investor in Fenway Sports, AC Milan, the Alpine F1 team and the UFL. Cardinale helped build Legends, the YES Network, On Location Experiences, One Team and Everpass, a resume that spans traditional media, digital distribution, ticketing, hospitality, gaming, live events and content creation.
This could be an important part of the selling point for private capital in college sports. Schools and conferences will have multiple options for accessing money—firms will need to make a case for why their money is more valuable. Financial terms will obviously be critical, but so too will operational expertise.
Timing
CAS has been speaking with some schools for almost a year. The deck includes a slide that lists 10 schools, identified only by their conferences, with which CAS has discussed a possible financial arrangement. Sportico understands the current number is significantly higher. The earliest, an unidentified SEC school, held talks in June 2023. The list includes an ACC school that discussed “circumventing state policy debt limits,” and a Big 12 school that discussed “university-level debt financing restrictions.”
Loan-to-Value Ratio
Another metric CAS uses in its deck to highlight the opportunity is the LTV, or loan-to-value ratio. Pro sports teams are typically valued as a function of their revenue—it’s 11x in the NBA, as opposed to 8.8x in the NFL, 6.7x in MLB, and 6.2x in the NHL, according to Sportico’s calculations. The CAS deck hypothesizes a 4x revenue multiple to big-time college athletic departments.
Using that multiple, a $150 million investment into an athletic program making $150 million per year gives the investment a 25% LTV. A $150 million investment into any of those bigger leagues listed above would have a much smaller LTV.
A 4x multiple means Ohio State athletics, which reported $279.95 million in generated revenue in fiscal 2023, would be “valued” at about $1.1 billion. That tracks with an interview that Cardinale gave the The New York Times for a January story in which he said the Michigan football team could be worth more than a billion. Troy athletics, whose $8.7 million was the lowest generated revenue among public FBS schools, would be worth $34.6 million.
With assistance from Brendan Coffey.
