What does private equity mean for the future of college sports?

Tapping into private equity puts the University of Utah into uncharted territory in college sports with an investment strategy that is viewed with a blend of admiration and suspicion.

And if other schools follow suit it could set a course for collegiate athletics and pro sports to become indistinguishable. One sports business expert speculates that college athletes might someday no longer be required to attend class.

While some universities have dipped a toe in the public equity pool, none, so far, have jumped into the deep end. Time will tell whether Utah sinks or swims. And whether others take the plunge.

Private equity could have a profound impact on college athletics. It brings with it potential legal, business and cultural landmines. At the same time, innovative new investment could help schools, players and fans thrive in the ever-evolving world of college athletics.

Each school now needs to decide for itself where it wants to fit in the college sports landscape, said David Carter, principal at The Sports Business Group and an adjunct professor of sports business at the University of Southern California

“Securing and leveraging outside investment will further drive the divide between the have and have-not programs, forcing schools to revisit the question of the extent to which they hope to balance academics and athletics,” he told the Deseret News via email. “In short, just how important, both tangibly and intangibly, is having a big-time sports program?”

Utah maintains that its academic mission will always be at the center of everything it does, but also acknowledges that for many people sports is their connection to the university. Successful athletic programs raise a school’s profile, while generating excitement among students, alumni and donors and even boost enrollment.

The future of college sports?

What Carter finds most intriguing about the rapid commercialization of college athletics are the issues surrounding athlete pay and outside investment. He said they are intertwined, and will carry intended consequences today and unintended consequences down the road.

“Even as colleges and universities craft deals while retaining financial and governing control, the voracious appetite schools are showing for capital infusion, whether from boosters, sponsors or the PE world, is certain to evolve and at some point take on a different look entirely,” he told the Deseret News via email.

“This is already underway as schools form outside corporations to handle what they believe to be this burgeoning opportunity to secure long-term economic stability and, ideally, competitiveness on the fields and courts.”

While many might tap out, Carter said, it’s fairly clear that a mega-class of 48 or so schools will form its own entity, simultaneously further advancing the debate over the appropriateness of such a development versus the economic realities of doing so.

David Berri, a Southern Utah University professor who specializes in sports economics, said the athletics program is only a tiny portion of a university’s budget. Its value is not the revenue it generates but the exposure it brings.

“Athletics is one of the primary methods universities in the United States use to advertise itself. In other countries they use academics,” he said.

The problem with private equity, he said, is that advertising doesn’t show up on a revenue statement for investors.

The equity firm might focus primarily on ticket sales or broadcasting deals, which could come at the expense of investing in women’s and Olympic sports, Berri said. Those programs, he said, also advertise the university but investors won’t realize a return on them.

“Obviously, that raises Title IX issues and is simply bad business for the University of Utah,” Berri said.

Utah administrators said that the traditional financial model for college athletics is no longer sustainable or consistent with the university’s mission to serve students and supporters. Raising student fees, cutting research and sports programs, they said, isn’t the answer. Nor was doing nothing.

In fiscal 2024, Utah athletics took in $109.8 million, while spending $126.8 million, a $17 million or 14.4% loss, according to its most recent financial report to the NCAA. The football program alone generated nearly three-fourths of that revenue.

Football made $26.8 million and men’s basketball $2.6 million, while the other 17 sports lost $21.2 million, per the report.

The University of Utah isn’t alone in running a deficit in athletics. Only a handful of FBS schools actually make money.

“The core problem though, which the smart folks in private equity have certainly realized, is this: College athletics doesn’t have a revenue problem. It has a spending problem,” ESPN’s Dan Wetzel wrote.

“Even as revenue goes up and up from richer media deals, expanded playoffs and modernized operations, costs continue to soar because of revenue sharing with athletes, coaching salaries, increased travel and debt on ever-more opulent stadiums and locker rooms.”

Berri said that historically the revenue generated by sports wasn’t being paid to the athletes. But because universities are nonprofits, that money had to go someplace. “The place we can see it going is inflated salaries for coaches and administrators,” he said.

The obvious step, he said, is to cut spending on coaches and then give that to players. But universities don’t want to do that. If they don’t want to take money from elsewhere in the budget, more money has to come from boosters, Berri said.

Or now, private equity investment.

What is private equity?

The University of Utah board of trustees last week unanimously approved a first-of-its-kind private equity deal between the school and Otro Capital to fund athletics.

“I think we can go from surviving to thriving,” trustee Bassam Salem said before the vote, echoing the optimism of the moment.

But he also added, “Are there risks? Yes. Am I concerned? Yes.”

In a nutshell, this is how private equity investment works: A private equity firm raises money from investors, buys ownership in companies, improves those companies, and eventually sells them for a profit. Private equity firms generally aim for returns in five to seven years.

The pros include access to capital, professional management and expertise, potential for growth and risk sharing. The cons include loss of autonomy, pressure for short-term gains, conflicts over priorities and exit uncertainty.

Private equity investment has seen explosive growth over the past few years with the overall value of PE-backed funding rounds surging by 61% from about $114 billion in 2023 to more than $185 billion in 2024, according to S&P Global data.

Utah is among the top states in the country when it comes to the percentage of companies backed by private equity investment, per an S&P Market Intelligence report. As of early August, the state of Utah had the third-highest share of PE-backed companies in the country, at 4.98% of all private sector businesses based in the state.

A recent report from Qubit Capital notes the advantages for entities that take on private equity investment include access to fresh capital to fund growth as well as bringing on operational expertise and strategic resources. On the downside, Qubit analysts note “the most fundamental challenge business owners face is loss of control.”

Art of the Utah deal

University President Taylor Randall acknowledged there is risk in a private equity partnership but there’s an “equal risk of not doing anything.”

“We weren’t interested in pure capital. We were interested in a partner,” he said, adding that’s a different process than just trying to find money.

“This is predicated on a set of individuals that are aligned with our values and aligned with our incentives. In terms of risk, they’re the ones that are taking risk with us. I think we both feel an obligation to make this venture successful and we both want the same thing.”

Otro Capital describes itself as an “operator-led private equity firm with deep expertise” in sports, media and entertainment. One of its founders, Alec Scheiner, was president of the Cleveland Browns. Another, Brent Stehlik, worked with NFL, MLB and NHL franchises.

Under the plan, the University of Utah Foundation would create a for-profit company called Utah Brands & Entertainment. It would be tasked with strengthening the business operations of athletics, enhancing the fan experience and growing revenues.

The foundation would be the majority owner, while Otro Capital would be the minority owner. The company would run the commercial side, including media rights, ticketing, concessions and merchandise. The athletics department would maintain control over major decisions such as hiring and firing coaches and scheduling.

Although the company would handle revenue sharing and NIL payments to players, the university would decide how it’s distributed.

NCAA president Charlie Baker cautioned schools and conferences about potential deals with new equity sources. But he said the University of Utah plan is “really well thought out and really well designed,” noting that the school retains a majority of board seats and decision-making power and also secured a minimum duration that the firm will stay committed.

At the same time, the Big 12, of which Utah is a member, is negotiating $500 million opt-in private capital deal with RedBird and Weatherford Capital, per Yahoo Sports. The conference would not give a stake or equity to the firms. The firms are also offering about $30 million to each member school in a capital credit line at a reduced rate, though they would not be required to participate.

Field of unknowns

In a Deseret News interview, Fordham University professor of law and ethics Mark Conrad said Utah’s pending deal with Otro Capital represents a dramatic and unprecedented shift in the structure of college sports. And one that, at this point, raises more questions than answers.

Conrad said news of the partnership has “certainly made a splash”, but important details have yet to be identified.

“You’re really privatizing, in many ways, college athletics by doing this,” Conrad said. “What is the overall effect? There’s no way of knowing how economically sound it’s going to be.”

Conrad warned that the public reaction and financial stability of the model remain unclear.

“Right now what we have is kind of a splashy, nouveau way of financing college athletics without knowing who is going to do what,” Conrad said. “Who will bear losses? How much risk is the school taking? Really, we don’t know that.”

Conrad said he considers Utah’s pursuit of a private equity agreement further evidence of a broader weakening of the NCAA. He noted the association’s power has been diminished by a series of court rulings and policy shifts, including new NIL rules and player compensation programs, that have greatly reduced the organization’s effectiveness, particularly for top-tier college programs.

“There’s no question the NCAA’s enforcement powers have been emasculated,” Conrad said.

While the university would retain majority control of the Utah Brands & Entertainment, Conrad pointed out that although the school remains bound by Title IX, Otro Capital is not. That could set the stage for legal challenges if decisions about budget cutting or program elimination conflict with federal equity obligations.

Conrad said that eliminating money-losing parts of a business is a common cost-saving tactic in the private equity realm. In college athletics, that’s nonrevenue or Olympic sports. Doing away with those, he said, risks alienating alumni and provoking litigation.

Utah administrators said they’re committed to not only retaining but growing nonrevenue sports and the private equity infusion would provide money to do that.

Power to the players

Carter said future legal developments connected to the momentum athletes have will result in their growing power as a labor unit, ultimately leading them to be able to collectively bargain for rights, especially those associated with revenue generation and other benefits.

“From my perspective, it will be fascinating to see at what point college athletes are no longer required to attend classes. As farfetched as this might sound, it may be one of the longer term results,” he said.

That might alienate some fans and consumers, but those who once enjoyed college sports — at least partially due to its perceived amateur nature — will need to decide the extent to which they remain interested amid the transition to the professional sports model where it is all about revenue generation, return on investment and asset appreciation, Carter said.

The NCAA has done everything in its power to prevent college athletes from being deemed university employees. Universities across the country have called for federal laws establishing that players aren’t employees. The Utah Legislature, for one, passed a law explicitly stating college athletes are not employees.

Dartmouth basketball players dropped their push to unionize but college sports has shifted again with private equity moving in.

As the Big Ten pursued a $2.4 billion private equity partnership for the conference this fall, Jason Safran, Texas Christian University’s chief investment officer, told TCU News there are several risk factors to consider.

The mechanics of any deal must be aligned with the mission of the universities, he said

“It is no secret that public trust in higher education has declined over the last decade. University leaders need to reaffirm the value they bring to students and society at large. Does the inclusion of private equity help or hurt this issue?,” he said.

For the University of Utah, that mission includes education, health care and research as well as athletics.

Randall said the old model for funding sports often put those missions at odds.

“This new innovation, this new way of doing business, actually allows them to complement each other in ways that we have never seen before, and we are excited to start executing on this new vision,” he said.

Legal land mines

Whether the University of Utah or any other school gets that opportunity could be ensnared in a web of legal issues and new laws.

This week, Rep. Michael Baumgartner, R-Wash., reignited conversation about a bill he filed in October to ban universities from entering into agreements with private equity or sovereign wealth funds that give those entities ownership stakes or profit-sharing rights in athletic departments.

“Congress will be taking a hard look at the tax exempt status of universities that enter into private equity deals,” Baumgartner said in a post on X. “If you want to act like a non-public entity, you better be ready to be treated like one.”

Colleges, he said previously, aren’t pro franchises.

Alex Baker, a Salt Lake City lawyer who represents clients in commercial litigation and white-collar criminal and regulatory matters, sees Title IX issues, tax implications for donors, Securities and Exchange Commission scrutiny, transparency questions and the proposed bill as potential stumbling blocks in private equity deals.

“Are there land mines the university will have to carefully sidestep? Absolutely. They are navigating a Title IX tightrope, inviting the SEC to scrutinize their donor lists, dodging transparency laws by turning the department into a black box, and betting the house that Congress doesn’t burn it all down ... ,” Baker, a University of Utah graduate, wrote on his Substack account The Millennial Mandamus.

“But the risk of inaction is irrelevance. Utah chose to leverage their assets to secure their survival. It’s bold, it’s legally creative, and frankly, it’s the kind of forward-thinking strategy that makes me think (and desperately hope) the Utes are going to be just fine."