Author: Bryan Shapiro

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.

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.