The NCAA and major conferences are currently negotiating a legal settlement that could revolutionize big-time college sports. The settlement may allow athletes to receive a share of the billions in revenue they help generate.
An agreement might also pave the way for institutional capital to enter college sports. For years, schools and private equity firms have discussed various investment scenarios to finance the increasing professionalization of top-tier NCAA athletics.
The appeal of college sports as an investment is clear. Apart from the NFL, NCAA football is the biggest commercial sport in the U.S. The most valuable athletic departments possess attractive business characteristics like contractually obligated revenue, scarcity value, and revenue uncorrelated to other popular assets.
There’s a belief that the Alabamas, Notre Dames, and Michigans are about to make a lot more money with the upcoming changes within the NCAA. This means more spending on athletes, coaches, and facilities. Schools and leagues are seeking institutional money because they know they’ll need it.
However, determining the exact amount needed is challenging and likely requires more clarity before contracts are signed. Schools are looking for capital infusions, but the talks are more likely to yield private credit deals than private equity deals.
Private credit is structured like a loan, where the fund receives a guaranteed annual return instead of equity. It’s an easier sell in public academia and can be backed by stable income streams like media rights and football ticket sales.
A potential legal settlement could provide clarity on borrowing needs. If a settlement is reached, it would give schools financial clarity on revenue shortfalls in the coming years, plus a framework for what they might need to give athletes.
With this clarity, the ball may start rolling on a new era of financing in college sports. The “barbarians” (private equity firms) are waiting at the gate for it to unlock.
Photo: NCAA.com
