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.