College Football's New Private Equity Playbook

The biggest news in college football entering Thanksgiving week comes out of Ann Arbor, as the University of Michigan balked at a proposed investment partnership between the Big 10 conference and the non-profit manager of the University of California pension system.  Big 10 commissioner Tony Petitti's proposed $2.4 billion investment deal by was stuffed at the goal line by one of the conference's two marquee schools. This isn’t the first attempt by private investors to get in on this game - just over a year ago, the Big 12 conference was rumored to have considered selling a 15% to 20% stake to European private equity firm CVC Capital Partners - but this proposed Big 10 deal seems like it got a lot closer to the end zone.

THE DEAL

The proposed transaction would have seen each university receive a one-time payment of at least $100 million, in exchange for 10% of the conference's future media rights earnings. Conference members would have to agree to continue to pool their media rights through 2046, and UC would be able to sell its revenue share after 15 years.

While the heavyweights squabbled over the allocation to each school (USC was said to be upset at being placed in a lower tier than Michigan and Ohio State), Athletic Directors from mid-tier schools like Oregon's Rob Mullens and Iowa's Beth Goetz touted the benefits of the cash grab / payment, highlighting all of the good that the money would do for endowments, athletic scholarships and staff focused on nutrition and endorsements for athletes. I am sure that only a few million of the new money will go to AD salaries and bonuses, or to pay buyouts for coaches.

I really want to move on from this particular deal to talking about what the inevitable wave of private investments in college sports-football might look like and mean especially for us fans, but some of these quotes are just too juicy, and let’s be honest, it’s entertaining to watch brazen money grabs blow up in the faces of their architects. From Rachel Bachman's article in the WSJ:

“The Big Ten has expanded four times, adding seven schools, in the last 14 years,” said Jordan Acker, a regent at the University of Michigan, in a recent meeting. “On each of those occasions, we were told the new revenue would be enough to cover soaring expenses.” 

“You can’t borrow your way out of a spending problem,” he added. 

A Big Ten spokesperson said the conference commissioner had a fiduciary duty to athletes and a responsibility to the Council of Presidents and Chancellors “to bring innovative solutions forward to our member institutions.”

A fiduciary duty to being innovative solutions forward! This development shouldn’t have been a surprise given Petitti’s background (media rights acquisition for sports at CBS and ABC, and a stint at MLB and MLB Network), but what is a surprise is that he apparently tried to strong-arm Michigan into doing this deal. How do you get all 18 constituents of the Big 10 (yep) to approve a deal like this? You get Michigan and Ohio State and USC on board and then you cram it down on the remaining 15 schools, who don't matter to this deal and some of whom you'd probably be happy to be rid of. But you don't bully the Wolverines, Tony.

So we have a pretty good bead on Petitti, but what about the other side of this deal? What is the University of California’s pension system doing on the buy side here? I mean, it’s clever in the sense that a public pension plan making the first big private investment into college sports football is likely going to be more palatable to the public and other stakeholders than KKR or Blackstone, but one thing that is unclear is who is advising UC Investment chief Jagdeep Bachher on this transaction. The answer likely lies with the same deep-pocketed investment firms now circling the entire sports world, as we explore next.

WHY COLLEGE FOOTBALL AND WHY NOW

The stage was set when the NCAA lost two huge court cases (O’Bannon vs NCAA, 2014; NCAA vs Alston, 2021) that blew up first the prohibition on student-athletes being paid for their “name, image and likeness (NIL),” and then the entire amateurism model. Most college sports fans didn’t shed any tears at watching the heartless NCAA bureaucrats take those Ls, but I am probably not the only one wondering about the monster that’s been created in its stead.

The combination of free agency (the transfer portal) and legal compensation for college athletes has created chaos for Athletic Directors and football and basketball coaches in particular. These dramatic changes have also necessitated 8-figure annual obligations for schools in major conferences to attract and retain players as well as fueled further increases in compensation – and buyout amounts – for top coaches, many of whom are now paid $10+ million a year and have $50+ million buyouts if the school wants to replace them.

On the revenue side, the big media rights packages from ESPN, FOX and CBS aren’t growing at nearly the same rate as they used to, as consumers have started to balk at paying up for cable or streaming services that include ever more expensive sports packages.

And the collapse of the old conference system, with only two mega-conferences (Big 10 and SEC) that look in any way sustainable, has turned the whole collegiate sports system into more of a media platform than a network of collegiate athletics systems.

Financial pressures, potentially billions in capital that could be deployed, a massive consumer market and live events that should hold even more value as one of the few shared, non-digitized experiences left? That’s a perfect formula for private equity.

PRIVATE EQUITY AND SPORTS

Private equity sponsors have been investing in global sports like F1 and European soccer for years now, but until 2019, they had been boxed out of the dominant U.S. professional and college sports sectors because they were money-printing monopolies in the case of the NFL / NBA / MLB, and part of a regulated system that relied on deep-pocketed superfans (“boosters”) to augment university funding in the case of college sports.

But as the valuations of the regional monopolies (teams) in pro sports soared into the billions, the teams started to worry about running out of billionaires who would be capable of buying these multi-billion-dollar franchises, and leagues started to relax their rules about outside / private capital investment. In 2019, MLB relaxed its rules to allow private equity to own up to 30% of a team, and the NBA followed suit a year later. In 2024, the NFL approved minority stakes up to a 10% ownership limit.

Around that time, noted private investor Gerry Cardinale of Redbird Capital called college football “undervalued,” noting that in terms of media rights revenue, college football was earning ten times less than the NFL.

WHAT TO EXPECT IN COLLEGE FOOTBALL

The Private Equity Playbook for college sports is likely going to look something like this:

Growth Strategy: Maximizing Revenue

Content Expansion

Expanded playoffs will be a no-brainer. Moving from the current format of 12 teams with 4 byes to a 24 team tournament with 8 byes would more than double the number of these high-visibility, high-revenue games (from 11 to 23).

Get ready for more football during the week. There are a handful of college football games played earlier in the week these days, but this number will skyrocket to capture unique time slots and maximize viewership.

International games will be a big part of the strategy. Get ready for early-morning kickoffs from European stadiums, just like we’ve seen in the NFL. Raising the visibility of college football overseas will increase the number of fans and also the value of international media rights.

Pricing

Aggressive variable pricing for tickets, seating licenses and premium experiences will be among the first big changes driven by bottom-line-focused investors.

Everyone will become a booster with NIL-driven opportunities focused on merchandise, special access, microtransactions and fan travel packages

Concessions prices and other stadium amenity costs will continue to increase.

Advertising and Sponsorship

More and more intrusive paid advertisements and sponsorships are coming. In addition to the usual fare, expect even more gambling and financial services focused ads and sponsorships in more physical locations and on screen.

Streaming services will become as if not more important than traditional TV, and thanks to the detailed fan / viewer data that comes with it, get ready for more highly targeted and personalized ads.

New Revenue Streams

College fantasy football leagues, which are currently a niche thing because of the huge number of teams and players, will become far more prevalent as the number of teams in the elite tier makes fantasy games and leagues more appealing to current pro fantasy football players.

Sports betting partnerships and infrastructure will allow odds, micro-betting and live wagering to be embedded into streaming platforms.

Distribution and Data: Controlling the Asset

Conference-controlled streaming platforms will replace the current network-based media rights structure and will include multiple tiers with varying levels of access, camera feeds, enhanced analytics and exclusive content.

International media rights will be unbundled from domestic rights to take advantage of growing interest in college football outside of the U.S.

Athletes will be treated as media properties, and the conferences will likely invest in creator studios and film crews to generate high-quality NIL content “drops,” as the booster-funded model transitions to a formalized, brand-partnership-driven NIL strategy.

Vertical integration of production is coming, as conferences will buy or build internal production studios to control the cost, quality and distribution of broadcoast content, including not only games but studio shows, documentaries and NIL content.

Governance and Structural Changes: Control and Efficiency

The new PE-backed Super Conferences will become the de-facto rule-makers, replacing what’s left of the NCAA’s authority. Formal collective bargaining agreements and a labor deal for athletes will likely be one of the first agenda items, and the most challenging, logistically and politically.

A two-tier system is inevitable, with football and basketball operating as fully funded, commercial entities. Other collegiate sports programs and teams will be under pressure to adapt to a new world that sees subsidies from high-revenue sports eliminated, forcing them to get funding from student fees, endowments and external fundraising.

Operational efficiency in the form of consolidation of administrative and non-coaching sports functions across the member universities is also a likely outcome of private capital investment, although this of course will be less visible to fans.

ENJOY IT WHILE IT LASTS

I know, it feels like a lot has already changed in college football, with the playoffs and NIL and everything else, but it’s going to change even more and even more quickly as big dollars get invested and require big returns. Tailgates will turn into inventory. A lot of the irrational quirks about college football – the rankings, the old rivalries, the conferences – won’t survive. Let’s hope that somehow the tribal, emotional, unpredictable excitement of it all isn’t ultimately rationalized, segmented and monetized away.