College sports are a big business. Athletic programs at some major universities are valued at more than $1 billion. The top 75 programs have a combined value of over $50 billion. Revenues for the top football schools are growing at double-digit rates. This is a growth business. But many sports programs are under financial pressure. Costs exceed revenues.
Some major universities are turning to private equity firms as a source of new capital and for business expertise in growing the revenue stream of their major sports teams, especially football and basketball. Private equity firms are typically capital-rich companies that are not traded on public stock exchanges.
In the past few years, college sports have changed. Athletes are now paid. Some make several million dollars a year. Two judicial decisions changed the dynamics of college sports.
The Supreme Court in 2021, in NCAA v. Alston, ruled 9-0 that limits imposed by the NCAA on education-related benefits, such as computers and admission to graduate programs for athletes, were a violation of antitrust laws. This decision paved the way for the House case, where the Supreme Court upheld a lower court ruling that athletes could be compensated for their “name, image, and likeness,” NIL.
With the decisions, the financial floodgates opened. To compete at the highest level, which is what students, alumni, and fans want, major universities need big money. Moreover, with the court rulings about paying athletes, second-rate football programs suddenly shot to prominence — witness Indiana University and Vanderbilt University.
The University of Texas and the Ohio State University have the most valuable sports programs. Each institution’s athletic teams are valued at more than $1 billion. The Texas sports program by itself has a value of almost $1.5 billion. But the athletic departments struggle to make money. The University of Texas athletic department generates annual revenues of around $331 million. Yet, it only generates a profit of about $6 million, a net margin of just 2%.
The current financial picture for Ohio State is more acute. The program loses money even with revenues in excess of $250 million. Other major universities face similar financial challenges. The University of Utah is the first major university to partner with a private equity firm. A for-profit entity separate from the university has been created. The firm has an ownership stake in this separate venture, which receives revenues from the athletic programs of the university. Utah sees private equity capital as a path to competing and winning at the highest levels.
Under the judicial decisions, a university can pay its athletes up to $20.5 million each year for playing for its sports teams. The $20.5 million limit applies to all sports teams, football, basketball, baseball, and other activities. Star football players receive the most money. The quarterback for the University of Indiana, which is in the hunt for the NCAA college football championship, makes about $2.6 million a year.
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There is a tension between the new money and business expertise that private equity brings to college sports and the primary mission of a university, education. Will universities lose control of their athletic departments? Will institutions incur too much debt and have to turn to state taxpayers for financial bailouts?
But winning is everything at the highest level of college sports. Major programs ignore ethical concerns as long as the coach wins. The other issue that more money brings to college sports is gambling. In the U.S., sports gambling has become an addiction for many, especially young men. Where money and addiction join, the risk of corruption, throwing a game, or deliberately missing a play becomes an ever-present risk.
Private equity and college sports is a Pandora’s box.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He publishes a daily Substack on financial markets, politics, and society. He can be followed on X and reached at [email protected].
