Florida State University Seeks Massive Cash Infusion from Private Equity Market

Private equity funds have shown an increasing willingness to enter into financial arrangements to fund college athletic departments in exchange for future revenue sharing opportunities in the wake of the House v. NCAA settlement. Private equity offers a life raft to cash-strapped athletic departments seeking to accumulate the financial resources necessary to pay off amounts that will be owed under House settlement and to compete for student athletes in exchange for access to future revenue streams and for relationships with portfolio companies.

An example of this is the apparent discussion between Florida State University (FSU) and private equity firm Sixth Street. According to reports, FSU has been in talks with Sixth Street for over a year trying to obtain a much-needed cash infusion, and the two sides are exploring creation of a new corporate entity that would hold FSU’s commercial rights and be able to take on outside investments. Indeed, on July 10, 2024, FSU announced a new 10-year expansion of its relationship with Sixth Street’s owned portfolio company, Legends, which is a sports venue operations and experiences company co-founded by the Dallas Cowboys and New York Yankees.  In addition to Legends continuing as FSU’s premium seating partner at Doak Campbell Stadium, FSU’s football stadium, as well as managing hospitality, concessions, catering and clubs for the Seminoles, this new deal also includes multimedia rights—a catchall term that covers many licensing deals, sponsorships, advertising and broadcast opportunities. Legends intends to assist FSU in managing and commercializing their rights, yet it remains unclear if Sixth Street will provide FSU with a desired direct cash infusion.

Private equity funds will continue to seek opportunities to capitalize on the emerging college sports market and will need to navigate ever-changing (sometimes daily) rules, regulations, guidance, and laws concerning college sports.  Federal agencies and state legislatures have been keenly focused on private equity consolidation in other industries, including healthcare, and could similarly seek to regulate private equity investment in college athletics. Private equity funds contemplating opportunities in the world of student athletes’ name, image, and likeness and college sports more broadly should be sure to stay current on all NIL-related rules, laws, and guidance to ensure compliance.

Unintended Immigration Issues for International Student-Athletes Ability to Monetize Their NIL Rights

Name, image, and likeness (NIL) deals have unquestionably altered the landscape of collegiate sports and sparked a billion dollar market for student-athletes. This opportunity, however, does not extend equally to all student-athletes. Indeed, international student-athletes are essentially “sidelined” when it comes to many lucrative NIL deals as a result of the restrictions on their ability to earn money in the United Stated under F-1 visas.

Because F-1 visas generally limit international student employment to under twenty hours per week during academic semesters in areas related to the student’s field of study, International student-athletes have had to find creative ways to seize NIL opportunities. For example, former University of Connecticut (UConn) center Adama Sanogo and former Purdue men’s basketball star center Zach Edey traveled outside of the United States to earn money from NIL deals. Sanogo, a Mali native, filmed an advertisement for Sunoco in the Bahamas after winning the National Championship in 2023, and Edey, a Canadian, traveled to Toronto to film commercials for KFC and to take pictures for trading cards to avoid actively earning money in the United States.

The F-1 visa – NIL payment conundrum may also create issues with the potential unionization of college sports teams.  For example, if college athletes are considered employees, schools may need to take steps to ensure continued compliance with immigration laws and rules, including the twenty-hour-per-week work restriction for those on F-1 visas. That might require schools to monitor and ensure that international athletes spend no more than twenty total hours per week on participation in team activities. Additionally, certain unions may require members to be U.S. citizens or permanent residents. College athletes in the United States on nonimmigrant visas may be ineligible for membership in such unions or may not be eligible for all the protections provided by unions.

In contrast, Hansel Enmanuel, a native of the Dominican Republic and a guard for Austin Peay’s men’s basketball team, secured an O-1 visa, which is designed for those with extraordinary abilities or achievements. An O-1 visa has stringent evidentiary burdens that even many professional athletes have been unable to meet; however, it is likely that we will see more high-level international college athletes attempt to obtain these O-1 visas and/or other non-F-1 visas in order to benefit from the new NIL industry. Regardless, without changes to immigration laws, international student athletes are at a current disadvantage in reaping the benefits in the NIL industry.

Houston Christian University Raises First Substantive Challenge to the House v. NCAA Settlement

Houston Christian University (“HCU”) recently moved to intervene in the potentially historic antitrust settlement between the NCAA and current and former college athletes. The proposed settlement involves the NCAA, conferences, and member schools paying $2.8 billion to college athletes to resolve alleged antitrust violations related to compensation to the athletes for their name, image, and likeness.  In addition, the NCAA and its Power Five conferences (the Atlantic Coast Conference, Big Ten Conference, Big 12 Conference, Pac-12 Conference and Southeastern Conference) agreed to allow their student athletes to receive pay directly from the universities they compete for—a complete departure from the NCAA’s long-standing system of “amateurism.” The settlement agreement is pending approval by Judge Wilken in the Northern District of California where the cases are pending.

In its motion to intervene, HCU argues that its financial interests were not adequately represented during settlement negotiations. HCU argues that the settlement will unfairly “divert funds from academics to athletics” and will negatively impact all of its students.  HCU’s argument is consistent with the majority of the criticism facing the proposed settlement—that the Power Five conferences and NCAA were the only parties at the negotiating table while non-Power Five schools will be on the hook for some of the settlement proceeds. The current settlement proposal apportions the $2.8 billion as follows: 24% from the Power Five conferences, 10% from the Group of Five conferences, 13% from Football Championship Subdivision schools, and 12% from Division I schools without football programs). HCU and other potential interveners in the proposed settlement could result in Judge Wilken denying the proposed class settlement as currently structured.

NCAA Suspends Certain Transfer Rules in Light of Mounting Antitrust Pressure

The National Collegiate Athletic Association (NCAA) is suspending enforcement of certain rules against student athletes transferring between NCAA member schools as part of its proposed settlement of antitrust litigation brought by the Department of Justice and various state attorneys general in State of Ohio, et al. v. NCAA, No. 1:23-cv-00100 (N.D.W.V.). The NCAA will no longer require that a student-athlete sit out one full year if he or she seeks more than one transfer between NCAA member institutions. This hurdle to eligibility is just one of many NCAA restrictions on student-athlete movement and compensation that has been under attack under the federal antitrust laws in recent years.

By suspending enforcement of these transfer restrictions, the NCAA has also effectively mooted related antitrust claims brought by student athletes themselves in Battle v. NCAA, Civ. No. 1:23-CV-101 (N.D.W.V. 2024).  In that case, RaeQuan Battle filed an antitrust complaint after the NCAA twice denied his request to waive its transfer rule. In addition to antirust claims, Battle also argued that the NCAA’ transfer rules constituted tortious interference and breach of contract. While the NCAA’s suspension of its enforcement of certain transfer rules mooted Battle’s antitrust claim, the court found that student athletes are “beneficiaries of the NCAA’s agreements,” allowing breach of contract claims to proceed. That finding could be significant to future litigation by student athletes challenging NCAA enforcement.

Despite the enforcement of certain transfer rules, the NCAA still only allows student-athletes to enter the transfer portal during certain times within the calendar year, which effectively prevents student athletes from switching schools mid-season. Whether and to what extent student-athletes challenge those restrictions on antitrust and breach of contract grounds remains to be seen. Please stay tuned as we monitor this rapidly changing enforcement landscape.

$1 Billion Private Equity Investment in Big 12 Conference

The Big 12 Conference is in serious discussions with Luxembourg-based CVC Capital Partners (“CVC Capital”) to enter into the first major private equity investment deal with a Power Five Conference. At the moment, the deal appears to be structured where CVC Capital would provide the Big 12 with a cash infusion of anywhere between $800 million to $1 billion in exchange for a 15-20% stake in the league. CVC Capital’s monetary contributions would then be apportioned to each of the sixteen conference members, and the partnership would give the conference more accessibility to CVC Capital’s investment services and clients—likely to help facilitate NIL deals for Big 12 student athletes.

This deal is far from finalized, but is in line with what we have seen in the college sports industry following the House v. NCAA settlement announcement. School’s athletic programs are clearly searching for additional revenue streams due to the future revenue sharing with student athletes. It did not take long for Private Equity funds to capitalize on this opportunity. It will be very interesting to following this negotiation and potential deal because while a Private Equity fund cannot take an ownership percentage in an individual school’s athletic department, they can take an ownership interest in the Conferences. For the Big 12 Conference, this new revenue stream would also help move its member insitutions closer to the Big Ten’s and SEC’s member institution’s yearly earnings, which would help the Big 12 Conference stay together unlike other Power Conferences—e.g., the Pac-12.

Private equity is an inevitability for college sports as schools seek additional revenue streams from other sources. Stay tuned for more updates on all major developments in this space.

Private Equity Takes Aim at the College Sports Industry

Following the landmark proposed $2.8 billion settlement announcement in the House v. NCAA class action litigation, in late May 2024, two high-profile private equity firms announced they are launching a college sports-specific investment fund designed to provide substantial monetary loans and operational expertise to athletic departments in exchange for a share of additional revenue generated under their partnership. This development signals how bullish the financial industry is on the future of college sports, as well as previews the inevitable increased commercialization of college sports, given the recent lawsuits, settlements, and NCAA rule changes.

As we discussed in our recent Alert discussing the House v. NCAA settlement, the financial impact to NCAA member institutions and their athletic departments, especially among the major conferences, will be significant as certain schools are expected to lose as much as $30 million per year over the next 10 years to cover revenue-sharing distribution, back pay, and expanded scholarship costs. Given the expected losses if the House settlement is finalized, combined with the rapidly changing legal, financial, and legislative landscape surrounding NIL and the monetization of college sports, financial institutions have been provided with a transformative investment opportunity. For example, RedBird Capital and Weatherford Capital together have founded Collegiate Athletic Solutions (“CAS”) to provide universities and colleges with new funding sources. CAS is currently raising money and is already in talks with a number of universities to provide funding. Although the specific details of these negotiations and partnerships has been kept private, CAS’ plan appears to be to initially partner with five to ten athletic departments, offering $50 million to $200 million to each. The structure of CAS’ proposed deals is also nuanced, as CAS is neither seeking to take an equity position in any athletic department’s commercial venture, nor does it intend to secure fixed payments in return for the upfront capital. Instead, the deals appear to be structured with all returns tied to new revenue generation by the respective university and/or college. While this deal structure is not commonplace for private equity firms, CAS’ creative approach to capitalizing the college sports industry is likely to be mirrored by other financial institutions.

This new venture into the world of college athletics does not come without complexities.  Private Equity funds must keep apprised of the ever-changing (sometimes daily) rules, regulations, guidance, and laws concerning NIL payments, and the interplay between student athletes, athletic departments, and NIL collectives. Specifically, the current NIL landscape is regulated by only a meshed web of varying state laws and NCAA rules and guidance; however, Congress (and other state legislatures) could pass legislation at any time limiting the types of capital contributions and/or communications a financial institution can have with athletic departments, student athletes, and NIL collectives.  Similarly, the NCAA could attempt to issue some regulatory oversight and/or guidance for how Private Equity funds can structure their deals with athletic departments. And as set forth above, it is also important that Private Equity firms keep a close eye on state legislatures, because not only have certain states already enacted laws concerning the NIL industry, some states have also recently been targeting Private Equity firm investments into other industries—such as healthcare organizations—and it is of course possible that some states may similarly attempt to target Private Equity investments into college athletics.

Private Equity funds contemplating entering the world of NIL investments should be sure to stay up to date on all NIL-related rules, laws, and guidance to ensure compliance.

NCAA Quarterback Initiates Fraud Lawsuit Against Florida Gators Coach and Booster

The NCAA and its member universities and colleges have faced many recent challenges by current and former student athletes with respect to rules concerning eligibility and payments for their respective name, image and likeness (NIL). On May 21, 2024, University of Georgia quarterback Jaden Rashada filed a lawsuit against the University of Florida’s head football coach and a large contributor to that university’s NIL collective. In the case captioned Rashada v. Hathcock et al., Case No. 3:24-cv-00219 (N.D. Fla. 2024), Rashada filed a federal complaint in the northern district of Florida alleging that University of Florida head football coach Bill Napier and certain wealthy University of Florida boosters fraudulently induced him to forfeit a $9.5 million NIL deal to attend the University of Miami by “offering” him a $13.85 million NIL deal to attend Florida.

The complaint alleges that Rashada’s offer from Florida was comprised of two funding sources. First, a Gators booster, through an automotive company, would pay to Rashada $5.35 million, with a $500,000 signing bonus. And second, Rashada would be paid the remaining amounts from Gator Guard, which the complaint describes as one of Florida’s NIL collectives. To support its allegations, Rashada’s complaint quotes purported text messages. Those messages include texts from boosters to Rashada’s NIL agents that “We need to lock down Jaden!” and “[Florida would] want [Rashada] to flip this week.” Based on the complaint, other texts include those from an attorney for Gator Collective, with the attorney saying, “I might go to sleep if I had $500K headed my way in two weeks … But we need a commitment to get there!!!” Based on these communications, Rashada alleges that the defendants made various representations and promises to him “knowing that they lacked both the intention and the ability to fulfill them.” Further, Rashada claims that Florida’s NIL boosters made various representations that led him to believe that they “had authority to negotiate the NIL agreement” at issue. “As such, Defendants [] acted with actual and apparent authority with respect to their representations” regarding the NIL agreement.

The complaint alleges that Rashada is “the first scholar-athlete to take a stand against such egregious behavior.” However, there is precedent for fraudulent inducement claims against universities by student athletes. In 1993, a college quarterback sued the University of Miami and its head coach, alleging that he was fraudulently induced to attend the university based of false promises of playing time. Fortay v. Univ. of Miami, Civil Action No. 93-3443 (D.N.J. 1993). That case settled for an undisclosed amount. Nonetheless, with the advancements of NIL deals and NIL collectives, it is likely that the Rashada case has the potential to set important precedent for the standards courts will impose when analyzing the behavior of the currently loosely regulated NIL collective industry. Importantly, this lawsuit is yet another type of attack that the NCAA and its member institutions are likely to face in the coming months, in addition to the antitrust claims that have been launched against the NCAA in recent years, which has caused the NCAA to become unable, or unwilling, to implement legitimate regulatory oversight over NIL.

Virginia NIL Law Brings More Change to College Sports Landscape

Sports Law BlogOn July 1, 2024, Virginia’s recently passed amendments to its NIL law—which include significant restrictions on the NCAA’s ability to enforce its NIL policies—will take effect.  Virginia Governor Glenn Youngkin signed House Bill 1505 into law on April 18, 2024.  Under the updated law, it will be illegal in Virginia for the NCAA to “take any adverse action against an institution, its supporting foundations, or an entity acting on its behalf” for any NIL activity permitted under the statute, including direct compensation from an institution to its student-athletes for their name, image, and likeness rights (provided that student fees are not used).  Current NCAA rules purport to prohibit institutions from “compensating student-athletes for use of their NIL,” but Virginia’s new law puts additional pressure on the NCAA to adapt.

On top of re-affirming the rights of student-athletes to earn NIL money and limiting the enforcement powers of athletic associations and conferences, Virginia’s amended law expressly authorizes private rights of action by athletes, institutions, “supporting foundations,” and entities acting on an institution’s behalf.  Any student-athlete “aggrieved” by an institution, athletic association, conference, or similar organization may go to court for an injunction, while any institution (or its supporting foundations and entities acting on its behalf) may recover actual damages and attorneys’ fees if it is subjected to “any actual or threatened complaint, investigation, penalty, or other adverse action of an athletic association, athletic conference, or other organization with authority over intercollegiate athletics for engaging in activities permitted” under the new law.

Virginia’s decision to allow institutions to directly compensate student-athletes stands out from other states that allow colleges to enable, but not necessarily be a direct party to, NIL deals.  As we wrote about previously, states like Missouri allowed collectives to condition NIL deals on attendance at a particular school and allowed schools to “enable” such deals.  Virginia, however, may be the first to permit direct NIL relationships between student-athletes and their colleges.

While the new law could give Virginia colleges an upper hand in recruiting for now, some stakeholders still hope a federal law will make its way through Congress.  University of Virginia Director of Athletics Carla Williams made it clear that, despite the advantage that Virginia universities may gain from the new law, the ultimate goal is “a federal solution or a national solution” to NIL.  Legislation similar to Virginia’s new law that other states (South Carolina, Nebraska, Oklahoma, Illinois, Louisiana and Mississippi) are considering may increase the pressure on the NCAA and Congress to develop a NIL law that applies nationwide.  Virginia’s law could also engender support for Charlie Baker’s proposed plan from December, as major Division I schools outside Virginia will want to minimize any advantages for schools in The Old Dominion.

Update: Judge Sides with State AGs on NIL-Recruiting Ban

On February 23, 2024, United States District Judge Clifton L. Corker of the Eastern District of Tennessee granted a preliminary injunction requested by the attorneys general of Virginia and Tennessee to enjoin the NCAA from enforcing its ban on collectives, boosters, and other third parties from discussing NIL deals with a recruit before the recruit signs at a university (referred to as the “NIL-recruiting ban”).  The ruling also bars the NCAA from enforcing Bylaw, which is its “rule of restitution” (i.e., a rule that allows the NCAA to impose a retroactive punishment if an ineligible athlete is permitted to compete under an injunction, restraining order or other order of a court).

The states persuaded Judge Corker that student-athletes would suffer irreparable harm absent a preliminary injunction (though the court was critical that the states themselves, or the universities in them, suffer any irreparable harm from the NCAA’s policy).  More importantly, Judge Corker agreed that the NCAA’s policy is likely to be found to violate the Sherman Antitrust Act by unreasonably restraining trade in the relevant market and restricting competition among schools and NIL collectives to arrange the best NIL opportunities for athletes.  The decision, while not a final adjudication on the merits of the case, may be a momentous step toward further limiting the NCAA’s power to regulate compensation to student-athletes.  It also calls into question whether state laws that impose the same recruiting limitations (like Tennessee’s NIL law) are preempted by the Sherman Act.

The court’s signal that the attorneys general are likely to succeed in invalidating the NCAA’s policy may inspire other student-athletes (or attorneys general) in other states to bring challenges to other NIL policies.  While the NCAA has been in the legal crosshairs of many student-athletes, states, and universities for quite some time, this lawsuit is among the most direct challenges to the NCAA’s ability to limit compensation to student-athletes.  The court’s decision that Tennessee and Virginia are “likely to succeed” could drive interest in attacking other NCAA policies.

Although the court’s ruling temporarily lifts the NIL-recruiting ban, schools, boosters, student-athletes, and NIL collectives still need to be cautious of state laws and other unaffected NCAA policies that remain in effect.

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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