Does Private Equity Make Sense for College Athletics?

Last Updated on May 23, 2024

As college athletics barrels toward a future where athletes are compensated through revenue sharing, direct NIL payments and perhaps even shifts towards an employment model, everyone is asking: where will the money come from? One potential answer is private equity.

RedBird Capital Partners and Weatherford Capital are establishing an investment fund tailored specifically for college sports programs. The fund, named Collegiate Athletic Solutions, is spearheaded by RedBird founder Gerry Cardinale alongside Drew Weatherford, a private capital investor and former Florida State quarterback.  

CAS aims to capitalize on the emerging model of revenue sharing in college sports by lending both financial resources and operational expertise to athletic departments nationwide in return for a share of the money generated through these partnerships.

According to the Wall Street Journal, RedBird Capital recently acquired $4.7 billion and now has approximately $10 billion in equity. CAS is now seeking to invest in five to ten athletic departments with investments ranging from $50 million to $200 million each. 

“The CAS flexible capital solution can be deployed at the athletic department’s discretion and in conjunction with universities’ existing capital resources,” a press release from RedBird Capital Partners and Weatherford Capital read. “CAS is purpose built to assist individual universities today while planning for future structural collegiate outcomes. Anticipating a revenue-sharing model, the CAS platform and capital can help offset incremental, athletic-related expenses and, when needed, right-size operating structures.” 

The news comes as a settlement in the House v. NCAA case inches closer to being finalized – an arrangement wherein college athletes, for the first time, stand to benefit from a share in the billions of dollars of revenue generated by the NCAA and its Division I conferences.

Nevertheless, the model of revenue sharing that emerges from the settlement in the House case will not address some of the other major issues facing college athletics, including the looming employment question that continues to play out in the court system. There also remains a deep divide as to whether the financial terms of the proposed settlement will be feasible for all parties involved. 

Competing Interests

Private equity could help alleviate some of the financial concerns that athletic departments will face in the wake of the House settlement. However, introducing private capital into college sports will inevitably come with competing interests.

“Private equity needs to learn the unique ‘language’ of college athletics to bridge the cultural divide, ensuring that financial strategies align with the educational values and traditions of athletic programs,” says Katie Davis, a partner at James Moore & Co who leads the firm’s Higher Education and Collegiate Athletics industry teams.

“The clash between private equity’s fast-paced, profit-driven approach and the traditionally slower, mission-focused climate of college athletics is inevitable.”

Additional Pressures

Investors’ expectation of a high return on investment could exert additional pressure on athletic department leaders to make consequential decisions regarding the survival of  non-revenue generating sports. These conflicts will become increasingly complex from a legal standpoint, forcing athletic departments to confront Title IX issues while reconciling competing interests from various stakeholders.

“Navigating the pecking order of college athletics stakeholders is already tricky,” shared Davis. “You’ve got university governance at the top, followed by boosters with their own expectations, coaches pushing for resources, and athletes who just want to play, succeed, and get their cut.” 

“Now you add in PE investors who want their returns, and balancing all these interests becomes a real juggling act. The pressure to deliver high returns could lead private equity to deprioritize non-revenue sports, pushing athletic departments to justify every dollar spent and possibly sacrificing programs that don’t directly contribute to the bottom line.”

Private Equity vs. Private Credit

There is also an important difference between private equity and private credit, a distinction clearly defined in a recent Sportico article. According to the article, private credit deals are structured more like a loan, where the fund would receive a guaranteed annual return as opposed to equity in the athletic department. 

ROI Expectations

Regardless of whether athletic departments receive capital infusion in the form of private equity or private credit deals, Katie Davis still believes that investors will put significant pressure on athletic departments to yield high ROI:

“Even private credit investors, while not seeking ownership, still demand high returns on their capital, driving athletic departments to adopt stringent financial discipline and innovative revenue-generation strategies. The pressure for high ROI remains, as investors expect significant returns through interest and fees.” 

The importance of the athletic departments’ Chief Financial Officers will also be magnified, Davis believes. CFOs will be thrust into an even more demanding role of curbing unnecessary spending while ensuring that essential expenditures are maintained, with higher stakes than ever before.

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