Pluses and Minuses of Private Equity Deals

—

The evolving landscape of college athletics, particularly college football, has seen significant changes in recent years, with financial pressures, media deals, and changes in player compensation reshaping how programs operate. As part of this transformation, private equity (PE) firms have begun to enter the scene, offering substantial financial investments and business expertise to college football programs, including Utah’s announcing this week that it had reached a $500 million deal with private equity firm Orto Capital.

While the infusion of capital from PE firms promises to bring financial stability and potential growth to athletic programs, it also raises concerns about the long-term impacts on the integrity of college sports, the welfare of student-athletes, and the relationship between universities and their broader educational missions.

Utah has pushed all of its chips to the middle of the table … should Colorado be looking to make a similar deal?

Let’s weigh the pluses and minuses …

The Pluses: Benefits of Private Equity in College Football

1. Financial Support and Stability

One of the most immediate and obvious benefits of private equity deals for college football programs is the infusion of capital. College athletic departments, particularly those in less powerful conferences or with smaller football programs, often face significant financial challenges. Expenses related to coaching salaries, player scholarships, recruiting, facilities upgrades, and travel costs can add up quickly. For schools that lack major media rights deals or aren’t part of the most lucrative conferences (like the Power Four), securing sufficient revenue from traditional sources such as ticket sales and alumni donations can be difficult.

PE firms can offer a solution by providing upfront capital in exchange for a share of future revenue. This influx of money can be used to fund new or upgraded facilities (like the west side of Folsom renovation, or even the removal of the through toilets in the men’s room), support NIL initiatives, and enhance overall program quality. Additionally, private equity’s business acumen can help optimize existing revenue streams, whether through more sophisticated ticket sales strategies, sponsorship deals, or media rights negotiations.

2. Professional Management and Expertise

A significant advantage of partnering with a private equity firm is the infusion of professional management expertise. Many college athletic departments, particularly those at smaller or mid-tier schools, are often run by administrators who lack substantial experience in managing large-scale business operations. Private equity firms specialize in maximizing profitability and operational efficiency, skills that could help transform a college football program’s operations (it’s worthy of note that Orto Capital is run by a former NFL team president).

For instance, PE firms can bring in seasoned professionals who have experience managing sports properties, developing branding strategies, and handling complex financial modeling. These experts may be able to unlock revenue streams that have previously been underutilized, such as digital media content, merchandise sales, and hospitality services, which can result in increased profits for the athletic department. A PE firm’s involvement may also lead to more data-driven decision-making processes, helping programs identify areas for growth and areas that require operational improvements.

3. Enhancing Competitiveness and Exposure

With the capital and expertise that PE firms provide, college football programs could become more competitive on a national scale. The improvements to facilities, recruitment efforts, and player development programs can help a school compete with larger programs, attracting better talent and improving performance on the field. A more competitive program increases the visibility and attractiveness of a school’s football team, which, in turn, can generate more revenue through television contracts, ticket sales, and merchandise.

For schools that are struggling to keep up with the rapid pace of change in college sports, particularly with respect to NIL deals, the backing of a PE firm may help level the playing field. Given the high stakes involved in college football, the ability to draw in top-tier talent and secure lucrative media deals is becoming increasingly important for long-term financial viability.

4. Modernization of Facilities and Infrastructure

Private equity firms are often willing to invest in state-of-the-art facilities and cutting-edge infrastructure, which can be transformative for college football programs. High-end training facilities, advanced medical treatment centers, and top-notch locker rooms can all contribute to recruiting and player development. Moreover, such improvements make the program more attractive to potential donors and sponsors, creating a cycle of increased financial support.

PE firms can also provide the necessary capital to help universities innovate and modernize their fan engagement strategies, such as by developing mobile apps, enhancing social media presence, or improving the fan experience in stadiums with better amenities and entertainment options.

The Minuses: Drawbacks of Private Equity in College Football

1. Commercialization and Erosion of the Educational Mission

Perhaps the most significant concern about private equity entering the realm of college sports is the potential erosion of the educational mission of universities. College football has traditionally been rooted in the idea of student-athletes pursuing both athletic and academic excellence, with the goal of obtaining a degree while playing a sport. However, as private equity firms prioritize profit maximization, there is a real risk that these educational values will be overshadowed by commercial interests.

PE firms are driven by financial returns, and their approach may favor decisions that put profitability above academic priorities. This could result in conflicts between athletic department goals and the broader educational objectives of universities. For instance, there may be increasing pressure to prioritize football revenues over academic quality, leading to an overemphasis on football programs at the expense of non-revenue sports or academic offerings. Additionally, the fast-paced commercialization of the sport could lead to more scheduling conflicts and a reduced focus on student-athlete well-being.

One Congressman, Representative Michael Baumgartner (R-Wash.), has already proposed new legislation that seeks to prohibit agreements with certain private equity and sovereign wealth funds involving intercollegiate athletics, the latest effort to regulate the rapidly changing business of college sports. (Read more about the PROTECT Act here).

2. Impact on Student-Athletes

Although private equity deals may benefit some student-athletes by improving facilities and potentially increasing their compensation via NIL deals, the focus on maximizing revenue could have unintended negative consequences for players. College football programs might become more commercialized, with players treated as assets rather than students. The increased focus on performance and revenue generation could lead to greater exploitation of student-athletes, particularly as they are asked to balance the intense demands of playing football with academic obligations.

Moreover, the shift toward a more professionalized model of college football, with financial interests driving decisions, may lead to a further widening of the gap between football players and their non-revenue sport peers. This can create divisions within athletic departments and lead to greater pressures on student-athletes, further eroding the balance between sports, academics, and personal development.

3. Long-Term Financial Risks and Debt

While private equity deals may provide immediate financial relief, they also come with long-term financial risks. Often, PE firms require a share of the program’s future revenues in exchange for their investment, which can place a significant burden on the university’s long-term financial stability. If a program fails to meet revenue targets or if external factors such as a media rights collapse or a downturn in the popularity of college football occur, the university could find itself trapped in a financially precarious situation.

Additionally, private equity firms may not have the university’s best interests at heart in the long run. As investors looking for returns, PE firms may eventually look to sell their stake or cash out, potentially leaving the university with an unsustainable financial burden or leading to the program’s commercialization reaching levels that fans and stakeholders find undesirable.

4. Loss of Tradition and Fan Identity

College football is beloved by millions of fans because of its rich traditions, regional pride, and deep connections to university communities. The increasing involvement of private equity may threaten this sense of identity, as decisions about the sport become more driven by profitability than by the values of college athletics.

Fans may grow weary of the more corporate, business-oriented approach to college football, particularly if the focus shifts too much to monetization at the expense of maintaining the traditions and spirit of the game. The commercialization of college football could lead to a more impersonal and transactional atmosphere, alienating long-time fans who value the historical and educational aspects of the sport.

Conclusion

The prospect of private equity firms entering the college football market is a double-edged sword. On one hand, it offers the promise of much-needed financial support, operational expertise, and enhanced competitiveness. On the other hand, it brings with it concerns about the commercialization of college athletics, the welfare of student-athletes, and the potential loss of the educational and community-based values that have historically defined college football.

Ultimately, the impact of private equity on college football programs will depend on how universities navigate the balance between maximizing financial resources and preserving the integrity of the student-athlete experience. If done thoughtfully and with an eye on long-term sustainability, private equity involvement could help college football evolve while maintaining its essential role in higher education. However, if commercial interests dominate, it could lead to a future where the traditional values of college football are lost in the pursuit of profit.

The University of Utah is going all-in with its $500 million deal with Orto Capital. In a joint message to Utah supporters and alumni, school president Taylor Randall and athletic director Mark Harlan spelled out the groundwork for their deal with Orto Capital, saying the university will transfer some of its revenue-generating operations from athletics and auxiliary services to Utah Brands & Entertainment.

“Importantly, the university is not selling parts of our athletics department, ceding operational control to a third party or relinquishing control of any facilities,” Randall and Harlan wrote. “Decisions regarding sports, coaches, scheduling, operations, student-athlete care and other athletics matters will remain solely with the athletics department. … The university’s foundation will appoint a majority of the board of directors of Utah Brands & Entertainment, and the board will be chaired by the athletics director.”

Is Utah ahead of the curve? Or have the Utes sold their souls to the devil?

Time will tell. But, with schools all over the nation receiving infusion of hundreds of millions of dollars (not millions, mind you. And not tens of millions, but hundreds of millions), Colorado and its yet-to-be-named new athletic director can’t sit by and simply hope for the best.

The latest Powerball lottery is up close to a billion dollar payout. If a Buff fan were to win the lottery, and decide to be CU’s Phil Knight … problem solved.

Otherwise, it may become a case of … If you can’t beat ’em, join ’em …

–

—–