Continuously serving Kosciusko County since 1854
Private Equity (PE) firms are circling like vultures around major college athletic programs who – despite revenue exceeding expenses in football or basketball – operate completely in the red after all sports are funded, staffed, and effectively managed.
PE folks like the moniker venture capitalists, but in my experience with these firms, I prefer the term vulture capitalists.
Many of you have already heard or read this term before, and in the case of the new order of comprehensive business operations among all college sports, the first PE firm to swoop in on an institution who realizes it’s not long for this world in the new world order is Otro Capital.
The University of Utah breathed a heavy, exasperated sigh and threw their arms in the air because they realized the means required to finance and maintain a competitive Division I (D1) football program will leave them with even less in their coffers for funding Olympic and Title IX sports.
College athletics keeps insisting it is not just another business. That claim is now even harder to defend thanks to the first predatory vulture capitalist endeavoring to lend a helping hand to a major college institution in need of funding.
I’d be remiss if I did not move forward without a statement about the financial condition of college sports.
The money is bigger. The television contracts are richer. The coaching salaries are louder in visibility because many of these coaches are state employees; disclosure is required. The facilities are fancier (I’m talking to YOU Northwestern).
Athletes can now earn money from their name, image and likeness (NIL), and schools are preparing for direct revenue sharing with players. Any return to the old amateur model will now require time travel.
Well, look who’s here to save the day.
Private equity. The vultures looking for some red meat while it’s still wobbling around, but easy enough to begin preying on it.
Vulture capitalists will approach athletic departments facing rising costs, and their opportunity to infuse outside capital might seem like a relief, but it’s the beginning of a pervasive wave of predatory partnerships.
PE firms can promise modern staffing models, better ticketing systems, sharper sponsorship sales, stronger data tools, and more professional operations. In a world where athletic directors are expected to run billion-dollar entertainment brands while still answering to university presidents, they might tell their collective institutional governance, “I’m not really seeing the downside here.”
Back to Otro Capital and Utah.
The PE firm created Crimson Brand Partners (Crimson) and moved almost all the athletic staffing under its employ. Each affected employee was furnished a letter to let them know Crimson will meet with them individually.
*sigh*
Do you see where this will go?
Here is a list of nearly two-score college athletic programs operating where their revenues exceed their operating expenses; in the black.
Ohio State, Texas, Alabama, Michigan, Georgia, LSU, Texas A&M, Florida, Penn State, Oklahoma, Auburn, Michigan State, Indiana, Virginia, Florida State, Kentucky, Clemson, Oregon, Arkansas, Iowa, Wisconsin, Louisville, Illinois, Nebraska, Missouri, Minnesota, North Carolina, California, Kansas, Utah, Purdue, Iowa State, Mississippi State, Texas Tech and Georgia Tech.
Utah is in there now, but Utah – in order to keep its football program at one of the two top tiers of on-field success – realizes it will drain all its resources in one sport, and land in a financial operating crisis.
Crimson… is the spawn of Otro Capital, a firm monomaniacally focused on investor returns.
This matters because college athletics is not a healthy, broadly profitable industry waiting for Wall Street polish. It is a lopsided financial ecosystem where a small number of schools generate enormous revenue – hence my nearly two-score list versus all the rest of the institutions.
Most university athletic programs depend on institutional support, student fees, donor money, or accounting choices that make the bottom line look cleaner than it really is.
Even among the highest-profile level of college football, most athletic departments did not cover their expenses with the revenue they generated.
Folks, the list I furnished probably needs an asterisk. Especially with the likely swoop of PE vulture capitalists swooping to the ground for prey.
“Reported athletics revenue exceeded reported athletics expenses” is not the same thing as corporate-style profit. These figures can include donor contributions, conference distributions, institutional support, student fees, debt assumptions, and one-time gifts. Profit is often less – in college sports - a clean number than a debate over what belongs in the calculation.
Are you nervous yet?
PE can bring discipline, capital, and expertise to the NCAA’s willing participants, but its basic incentive is different from a university’s basic mission. A private firm exists to generate returns for investors. A university exists to educate students, serve a community, support research and, in theory, use athletics as part of a broader campus life.
How long will the overlap of these missions remain aligned?
The NCAA – look at the recent events related to a Texas Tech quarterback – could never publish books nor conduct seminars on governance, nor on due diligence.
Each major change in recent years was made in haste, then the reactive chase to properly govern the outcomes from the hasty decision ensue; sometimes too little, too late.
College athletics are part of the foundation of this new world order, not innocent victims,
Institutions chased television money, switched conferences, expanded football palaces, paid contract buyouts, raised ticket prices and asked donors to keep filling the gaps. How long does anyone think vulture capitalists took to notice this?
So, here we are. If you’re a supporter (alumni, booster, event sponsor to name a few), or a student athlete who has to survive under this business model, there are fair questions to ask.
PE firms should be comfortable answering these questions in an open audience, or before the press:
That last listed question is the biggest of them all.
If the answers to those questions are vague, the deal should not happen.
Beware the arrival of saviors appearing in Prada shoes, tailored suits ready to sign a deal with Mont Blanc pens.
If your favorite collegiate athletic team’s mascot is some sort of animal, and these investors swoop into your organization, how long will it be before that mascot is carrion?
