In recent years, private equity and other funding sources have been active in numerous industries, in particular healthcare. In light of the fewer restrictions on student-athlete compensation in intercollegiate athletics, National Collegiate Athletic Association conferences and member institutions are looking to private equity and other sources of capital to fund future student athlete compensation, as well as for potential back-pay obligations in light of the House v. NCAA and other antitrust litigation brought by former student athletes. Originally, these deals appeared to be structured as private credit deals where the fund would invest money into an athletic department and would then be repaid by a negotiated allotment of future athletic revenues—e.g., revenues from ticket sales and media deals. This arrangement is in line with how schools have traditionally sold their multimedia rights, and allowed public universities to structure the deals in a way to avoid the rigid framework and restrictions of higher education.
Although private credit deals appear to be the easiest method for investment, many of these deals have stalled due to schools’ hesitancy to enter into such agreements contractually obligating them to pay a specific amount of future revenues, without certainty as to those future revenue streams. As a result, schools and funds will likely start discussing ways to structure deals under a more traditional private equity framework. Nonetheless, the question remains, how can an outside investor take an ownership stake and/or buy shares in an athletic department’s future revenue streams? Currently, the answer is they cannot because athletic departments are not corporate entities. Schools, however, seem to be taking steps to remedy this issue. For example, last month Clemson University announced the creation of a new entity, called Clemson Ventures, to house all of its athletics revenue generation. Clemson Ventures is a separate entity designed to handle the university’s revenue-generating functions (sponsorships, media, marketing, licensing, etc.) and will even act as an internal NIL agency for Clemson athletes.
It seems that schools intend to use entities like Clemson Ventures, which has its own governance and board of directors, to sell equity to outside parties. This affiliated organization model could allow schools to not only offer equity to institutional funds, but also to their main boosters and could also allow schools to offer athletes equity vesting opportunities as part of their NIL compensation packages. An athletes’ ability to obtain equity in the athletic department they helped grow would be a massive bargaining tool if athletes are deemed employees in pending litigation. For example, schools could seek to retain their athletic talent by offering vesting shares in the athletic department if the athlete stays for two, three, or four years.
In sum, schools and institutional investors will continue to work to structure deals that are the most advantageous for each side. At the moment, institutional investors and funds likely favor the private credit model because they can better control the exact monetary amount paid out each year. Schools, however, will likely favor a traditional private equity model because it allocates risk between the athletic department and investors equally—i.e., if the program increases in value, both entities are rewarded, and on the flip side, if the program decreases in value, the school is not required to pay a specific monetary amount to the investors, which would greatly injure the program and school overall.