Author: Sean P. McConnell

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.

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.

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.