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This article was originally published in the April 2024 issue of the Lead1 FBS Athletic Director Report and is republished here with permission.

Private equity’s meteoric growth over the past decade hit a major downturn in 2023, as surging interest rates contributed to a roughly 40% diminution in deal activity. While the private investment market has cooled, investor interest in in the world of professional sports—most recently in minority positions taken in soccer giants Paris Saint-Germain, Liverpool and Chelsea, as well as the NHL’s Tampa Bay Lightning—remained relatively buoyant, as investors continue to find value in sports partnership and ownership deals, especially internationally. Still, in a media rights environment where “cord-cutting” has destabilized long-term broadcast revenue projections, and where acquisition prices continue to rise despite the cost of borrowing, many wonder whether private equity’s interest in professional sports is yesterday’s news, and whether and how college sports could represent private equity’s next frontier in institutional sports investment.

Increasing Prominence of Private Funds in Professional Sports

Private equity funds are typically attracted to companies with strong cash-flow and inherent value, but inefficient management. Professional sports teams traditionally characterized this asset profile, as soaring broadcast revenues buoyed “mom-and-pop” style business practices that might be revitalized and streamlined with Wall Street know-how.

After decades of resistance, pro sports teams and leagues in the U.S. began welcoming private equity investments over the past few years, as fund-backednow exists in more than 30 combined MLB, NBA, NHL and MLS franchises. The NFL, which currently does not allow institutional ownership of teams, has recently signaled a new approach, with therecently announcing the formation of a special committee to liberalize rules that might allow private equity fund ownership in teams. Internationally, private equity ownership of professional sports clubs is even more widespread—more than one-third of the European soccer clubs in the “Big Five” leagues havefrom private funds or venture capital firms, while CVC Capital Partners owned Formula 1 racing between 2006 and 2017, before selling to Liberty Media.

A “NewCo” Approach?

While private equity firms and professional sports entities are now accepted dance partners in the team/league ownership space, institutional investors and sports entities have recently begun to pair off in more indirect ways—via the creation of “spin-off” media rights companies that investors can buy in whole or in part. Typically, a rightsholder such as a league or team assigns certain assets (e.g., future broadcast rights) into a “NewCo” which might be owned and operated in part by a private equity fund. This spin-off model allows sports entities to retain ownership of their underlying assets (the team itself, for example), while unlocking an infusion of “bird in the hand” cash in exchange for control of long-run revenue. Ligue 1 and La Liga (France and Spain’s top professional soccer league, respectively) have created a version of the spin-off vehicle, as has Premiership and 6 Nations Rugby and even Spanish soccer giant FC Barcelona. These media spin­offs have satisfied the leagues’ need for guaranteed, short-run cash, and private equity’s confidence in its ability to improve operations and create a viable product, even in a disrupted industry like sports media. Looking across the sports-business landscape in the United States, there is perhaps no better example of a disrupted sports industry in need of funding than college sports—could this be a match made in deal-making heaven?

College Sports: A Diamond in the Rough?

For the past several years, the business and legal landscape of college sports has been roiling and transforming, with the NCAA’s ongoing antitrust battles, conference implosion and realignment, NIL gray marketeering, and the potential labor organizing and wage-eligible employee status of student-athletes. These underlying dynamics and state of flux may well make college sports an attractive business for institutional investors. Many universities and conferences have valuable intellectual property, established brand recognition, rabidly loyal fan bases, and multiple streams of revenue—including long-term media rights deals. These potentially significant assets nevertheless betray an uncertain financial future for schools, where declining enrollment has limited tuition revenue, and where a fracturing media rights environment could limit future media rights revenue. With college budget shortfalls on the horizon, private equity may already see enticing investment opportunity.

But in what form? It is difficult to imagine a world where institutional investors acquire interests in individual colleges or athletic departments. For one thing, colleges and universities typically operate as tax-exempt 501(c)(3) entities, and have neither the will nor the ability to be acquired by for-profit private equity funds. Further, most public colleges are controlled by state agencies, which typically cannot legally partner with for-profit companies. Spinning off a school’s media rights into a private equity aligned NewCo, however, could potentially avoid these obstacles.

Indeed, as schools and athletic departments eye moves to conferences bearing more lucrative media rights deals, private equity could provide the outlet for those with an immediate need for capital (e.g., for facility construction or conference exit fees). In such case, the school could spin­off certain intellectual property and media rights into a NewCo venture, seeking to attract tens/hundreds of million dollars in private equity funding. Much like La Liga or Ligue 1 in Europe, the private equity-backed NewCo would have the right to sell against the school’s assets, which conceivably could include naming rights, media rights and apparel licensing. Such an arrangement would seem to satisfy the necessary conditions for a classic private equity deal—an undervalued entity leveraging its valuable underlying assets and potential long-term returns for the cash needed to scale its growth.

The Road Ahead

Many FBS programs are in search of safe and more lucrative ports in a media-rights driven maelstrom that has already destroyed major conferences (see Pac-12) and might be willing to sell tomorrow’s rights for today’s cash. With all the disruption, and a weakening of traditional central authorities (i.e., NCAA), it is hardly inconceivable that independent college brands, aligned with or organized by private equity backers might pursue economic opportunities in unprecedented ways. However the road takes shape in college athletics, one fundamental truth emerges: private equity has an appetite for cash-strapped sports ventures holding potentially valuable media assets, and FBS ADs should consider the potential impact and opportunity of private equity investment.