This article appears in the August 2024 issue of The American Prospect magazine. Subscribe here.
In 2022, Gervon Dexter, who starred at defensive tackle for the University of Florida’s football team, was entering his junior season, a pivotal year before players are officially eligible for the NFL draft. Dexter, a five-star recruit out of high school, was projected to be a top selection if he delivered another high-performing season.
In the near term, though, he found himself in the same financial bind as scores of college athletes before him: struggling to pay his bills, as most of his waking hours were devoted to training and attending classes. Despite receiving a full-ride scholarship, Dexter ran into some trouble with a high-interest auto loan he agreed to as an 18-year-old. He couldn’t pay rent at his apartment and got evicted. As the bills piled up, Dexter had his first child on the way.
Around this time, he received an email from a company called Big League Advantage, promising a six-figure financial opportunity that could unlock his market value and make all his troubles go away. By signing with them, Dexter immediately received more than $436,485 up front, more money than he’d ever seen before.
But in the fine print, Dexter had signed away 15 percent of his future pretax earnings to BLA for the rest of his athletic career. When the Chicago Bears drafted him 55th overall in 2023, giving him a $6.7 million contract plus a $1.8 million signing bonus, BLA came calling for their share. Dexter took BLA to court, alleging they’d deceived him.
Big League Advantage, an investment fund with top investors such as Cleveland Browns executive Paul DePodesta and George W. Bush’s younger brother Marvin Bush, operates like something between a payday lending outfit and a private equity firm. It is just one of the many predatory actors prowling college campuses, slipping ambiguous language into contracts that force athletes to pay commissions up to 40 percent or sign away their intellectual-property rights.
Investment firms have entered the burgeoning market for college athletics because of expanded opportunities for profit. Thanks to new state laws and a Supreme Court ruling, Division I college athletes can finally earn their fair share from a business that raked in $17.5 billion in revenue in 2022. Student athletes are now able to profit off their name, image, and likeness (NIL), an activity previously banned by the National Collegiate Athletic Association (NCAA). Practically overnight, top stars can sign deals for brand sponsorships and other commercial advertising. Caleb Williams, a Heisman Trophy winner, quarterback for USC, and the number one draft pick in 2023, made $10 million from NIL last year.
Investment firms have entered the burgeoning market for college athletics because of expanded opportunities for profit.
But that bounty is only available to a small segment of the college sports universe. Dexter’s case speaks to how the booming market for college athletics has become a Wild West full of promise and peril. With little regulatory oversight of the brand-new NIL process inviting all kinds of questionable financiers, top athletes can score big while others get left holding the bag.
And that’s just one side of the immense shake-up playing out in college sports. Financial firms are investing in the NIL market on the one end, while also eyeing private credit deals with college programs and power conferences on the other.
The business of running a college sports program is about to dramatically change after the NCAA’s recent $2.8 billion legal settlement that establishes athlete compensation as the future for Division I sports. Private equity wants a major cut of that new market in exchange for providing capital for the programs to manage the transition period and invest in revenue-generating areas of the business to make up for the added workforce expense. In other words, investors want to do to college athletic departments what they did to Gervon Dexter.
As the settlement takes effect, it’s still unclear whether students will be considered employees entitled to full collective-bargaining rights, which the NCAA and its member colleges are aggressively fighting. The long road to a unionized college athletics workforce is especially arduous, because organizing must take place at each individual sports program, not just school by school.
Athletes may need some form of a players’ association to weather the storm of financialization coming for college sports, which threatens to shortchange universities too if they’re not careful.
THE NCAA HAS OPERATED FOR DECADES as a monopoly over college sports, mainly through their control of lucrative television contracts, including for the popular March Madness basketball tournaments. Though the athletic conferences are somewhat independent and negotiate their own TV contracts, schools need to be a part of the NCAA to participate in Division I athletics.
For decades, the NCAA prohibited athlete compensation, even banning individual players monetizing their own name, image, and likeness. This ensured that the NCAA would capture all the money that flowed into the industry. Their justification was that college sports operate on an amateurism model, not a professional one, which they claimed was a huge part of its popularity with consumers. The only form of compensation allowed was academic scholarships. “NCAA uses a standard consumer welfare defense [in antitrust terms], basically claiming that consumers enjoy watching an unpaid workforce,” said Ted Tatos, an associate professor of economics at the University of Utah who has researched the anti-competitive impact of the NCAA on athletes.
For years, the NCAA used a throwaway line from a 1984 Supreme Court decision as a legal shield. In NCAA v. Board of Regents, the Court ruled that the NCAA abused its monopoly power by threatening to blacklist any college football programs that broke away to negotiate their own television contracts with a separate association. But in one part of the decision, judges said that the ruling was not based on “our respect for the NCAA’s historic role in the preservation and encouragement of intercollegiate amateur athletics.”
Amateurism might have seemed more plausible 40 years ago, before the full commercialization of college sports. In subsequent decades, Division I colleges have built up a multibillion-dollar industry through merchandising, licensing, and primarily television deals to broadcast games.
SUSAN RAGAN/AP PHOTO
UCLA star Ed O’Bannon successfully sued the NCAA for licensing his image to EA Sports for their college basketball video game.
The Power Four football conferences bring in $16 billion from broadcasting agreements with various networks, which is roughly on par with other professional sports leagues. The Big Ten, which now has 18 schools, signed the largest television deal in history for exclusive broadcasting rights at $8 billion, greater than the TV deal for the PGA Tour or European soccer leagues. The deal involves Fox, NBC, and CBS, along with cable and streaming networks.
Colleges invest more than ever in winning football and basketball programs, based on the theory that it brings in more alumni donations and boosts student enrollment. But there’s hardly any feedback loop for sports revenues to actually improve a school’s core educational mission. The funds typically go right back into the athletics department, for a new football stadium or head coach. Football coaches are the highest-paid public employees in most states.
Until recently, the athletes themselves weren’t seeing a penny from their on-field performance, despite enriching their schools.
In the 2010s, antitrust actions started being filed against the NCAA for using its monopsony power over athletes to suppress wages. Former UCLA basketball player Ed O’Bannon was at the center of a critical case challenging the NCAA’s licensing of his image to EA Sports for their NCAA basketball video game without his approval.
In 2015, the Ninth Circuit Court of Appeals ruled in favor of O’Bannon, affirming that the NCAA’s ban was an illegal restraint of trade. The Supreme Court didn’t take up the case. Then, in 2021, the Supreme Court ruled in a related case, Alston v. NCAA, overturning the NCAA’s ban on NIL deals as a violation of antitrust law. This implicitly meant that the NCAA’s long-held amateurism defense was dead. The decision led to a slew of state laws that legalized NIL deals for athletes.
This opened the door for former athletes to then file numerous class action lawsuits, demanding fair compensation from past revenue streams the programs brought in. In House v. NCAA, which involved back pay damages for student athletes, the NCAA and the power conferences chose to settle this May, agreeing to pay $2.8 billion for violations against 14,000 athletes dating back to 2016. The settlement also set up a direct compensation system for the first time in NCAA history. This is driving a full-scale overhaul of college program finances.
AS OF LAST YEAR, ONLY 25 OF THE 130 Division I football schools’ athletic programs were revenue-positive. Only a couple of sports actually make money for colleges, and often not enough to offset other costs. The $2.8 billion settlement will come out of colleges’ revenue distributions for the men’s basketball tournament and other events. That means that schools, most of which were already in the red, will take a hit, and once athlete compensation is fully established in 2025, they’ll have even more liabilities on their books.
As a result, college programs are undergoing a huge transformation to drive new revenue growth. It began with power conference consolidation to obtain bargaining leverage for television contract negotiations. Last year, 10 of the 12 universities from the West Coast–based Pac-12 left for other conferences, triggered by UCLA and USC departing for the Big 10, which has the most lucrative TV deal. It has created the absurd situation where Stanford and Cal Berkeley, both in the Bay Area on the edge of the Pacific Ocean, will compete this fall in the Atlantic Coast Conference (ACC).
League games that span the continental United States are worse for the student athlete experience, as players will have to repeatedly travel cross-country for games, making it all but impossible to be a student. The decisions were driven by revenue sports like football, which only plays once per week in the fall.
The ACC could soon collapse as well, if Florida State and Clemson win a lawsuit over the conference’s exit penalty that would allow them to leave. Ultimately, we could see one or two national “super-conferences” spanning the country, able to earn maximum revenue. Novel opportunities are under discussion; the Big 12 is apparently considering auctioning off naming rights to the highest corporate bidder. Reports indicate that it could become the Allstate 12.
But consolidation doesn’t solve all of university athletic departments’ problems. With the new cost of paying players estimated at $15 billion over a decade, colleges are in dire need of operating capital, so they can continue to upgrade facilities and compete for coaches. Some non-revenue-driving sports are at risk of being phased out because of the cash crunch. Conferences also need up-front investment in the realignment wars, to bring in additional schools and fend off raids from rivals.
Enter the private equity industry.
Some call the new system player empowerment, but it does set up a glaring disparity between stars and all other athletes.
From Wall Street’s perspective, there’s been growing interest in the overall sports industry for a number of years. Virtually every major sports league has allowed alternative investment funds to take minority stakes in teams, though the footprint is largest in the European soccer leagues. This trajectory follows a pattern for private equity, expanding into previously non-financialized sectors, such as family businesses struggling after the Great Recession and more recently the higher-education business.
Seeking larger returns, university endowments helped establish the flow of institutional investment cash into private equity and hedge funds. Private equity also has other existing relationships with higher education, for example backing the management companies that run online college courses in an attempt to grow enrollment numbers.
Amid uncertain finances, private equity and other investment firms are inserting themselves into college sports, on both the player and the program side. Middlemen platforms like Opendorse that help athletes find NIL brand deals have top investors such as Advantage Capital, Serra Ventures, and Flyover Capital. Two companies, Learfield and Playfly, which negotiate television contracts on behalf of conferences, are financed by private equity and venture capital funds.
Now, Wall Street is looking to provide direct financing to college athletics, and the first dominoes may be about to fall. The Big 12 is in an advanced stage of negotiations with Luxembourg-based CVC Capital for a roughly billion-dollar investment in exchange for 15 to 20 percent of revenues over an unspecified number of years. Another firm, Weatherford Capital, co-founded by a former Florida State quarterback and his brother, the former Speaker of the Florida House of Representatives, is seeking to invest in individual college athletic departments. Weatherford and another firm, RedBird Capital, have formed Collegiate Athletic Solutions (CAS) for this purpose.
The structure of the deals being discussed with college programs is not anything like the leveraged buyouts or ownership takeovers typically associated with corporate raiders, where acquisition targets are loaded up with piles of debt. For now at least, the terms of these deals could be structured as two different types of investment vehicles: either some form of growth equity and private credit, or a quasi-joint venture where the school licenses out its intellectual property and splits royalties with its investors.
The Big 12 deal with CVC represents the former, where private equity invests in an industry for a set amount of guaranteed future revenues. According to The Athletic’s reporting on the deal, the Big 12 claims that CVC would be “prohibited from involvement in any sports decision.” In other words, it’s just a straightforward private credit transaction, with the effective interest rate fluctuating depending on the success of the business.
But sports programs are still more exposed if a bad deal goes awry. If they don’t invest the capital successfully to grow the business, they’ll be on the hook for future payments down the road. If the circumstances are dire enough, they might have to raise student fees or make cuts to other sports programs. That’s why the terms of the deals negotiated and what percentage of revenues are locked in for investors are being scrutinized.
This explains the mounting skepticism about whether this pairing with private equity is in the long-term best interest of higher-education institutions, given the industry’s track record of hunting short-term returns. “You’d think if they’re so worried about the financial burden of paying players, [colleges] wouldn’t want to auction off another portion of the revenue to Wall Street,” said Sandeep Vaheesan, legal director at the Open Markets Institute.
AS PRIVATE EQUITY EXPERT JEFFREY HOOKE EXPLAINS, universities have a knowledge disadvantage in negotiations with sophisticated Wall Street sharks, which makes him concerned about their ability to protect their interests in these deals.
“The first deal that’s done will be the template for all the rest, because in banking and finance people just copy the one that’s been done before,” said Hooke, who spent several decades working inside private equity firms.
Some of the firms at the center of the negotiations have been in litigation for shortchanging professional sports franchises in similar transaction deals. For example, CVC was embroiled in a legal dispute over a 50-year deal with La Liga, the Spanish soccer league, where the fund invested $1.7 billion through a new company, in exchange for control of the league’s intellectual-property and marketing rights.
Several of the soccer clubs in La Liga—including FC Barcelona, Real Madrid, and Athletic Bilbao—sued to block the deal, because they’d lose out on a major chunk of their future business.
Private equity expert Eileen Appelbaum also warns that growth capital may seem benign, but it’s often a first step for firms to dip their toes into a market before coming back for a much larger position or even a takeover. “That’s often the playbook we’ve seen with takeovers in health care or insurance companies,” said Appelbaum.
Other financial arrangements being discussed could cede more control to Wall Street fund managers. Since 2022, Florida State has been in extensive negotiations with Sixth Street, an investor in Real Madrid, FC Barcelona, and the San Antonio Spurs. Florida State may need capital in part to offset the massive exit fee it will have to pay to leave the ACC.
A trove of documents obtained by Sportico and the Tampa Bay Times offers a window into the terms of the deal, known internally as “Operation Osceola.” With JPMorgan Chase serving as its main financial consultant, Florida State would receive a roughly $250 million capital infusion from Sixth Street. Similar to the La Liga arrangement, the capital would come through a separate entity called a “NewCo” created under a “super license agreement,” a legal workaround because technically a state agency can’t form an official joint venture with a for-profit entity.
The university would then transfer its intellectual-property rights to this NewCo, license it out to Sixth Street, and share the revenues, according to emails between FSU and Sixth Street. In documents obtained by Sportico, Sixth Street is pushing for the IP rights to be made “exclusive.”
It’s not clear what the exact profit split would be, but according to sports finance blogger and former USC professor Bill Farley, it’s typically proportional to the outside investors’ equity stake. There’s discussion in the documents about a “management fee” to investors in the NewCo, which might amount to $500,000.
Sixth Street would not be a passive investor; it would acquire some degree of influence in managing the use of the program’s IP to grow revenues. With a separate outside entity, there would be far less transparency about the finances than is usually offered for a state-run school.
GRAY QUETTI/AP PHOTO
Florida State University’s athletic department has been negotiating with an investor for a $250 million capital infusion.
Some of the revenue growth outlined in the documents entails FSU investing in a minor league baseball team in Tallahassee, selling off the naming rights to its football stadium, and using it for more live entertainment events, similar to a partnership University of Texas struck in 2022 with Oak View Group and Live Nation.
Health care management companies are also cited on numerous documents, the details of which are entirely redacted. University-run hospitals are a huge revenue source for school systems and also a major target for private equity firms, potentially indicating that through the NewCo, Sixth Street could try to expand its control of FSU-affiliated hospitals.
These are high-risk gambles, and higher education doesn’t have the institutional know-how or track record of pulling them off. Individually, these moves might sound justifiable to grow the overall money pot for college sports. But they could put schools in a fragile predicament down the road.
THE TERMS OF THE HOUSE SETTLEMENT SET A CAP for total athlete compensation, which can top out at 22 percent of their athletic department’s revenues. This is much smaller than the revenue-sharing agreements for professional sports leagues, which are closer to 50 percent. Moreover, it’s at the discretion of each school to decide how to spend their 22 percent, and there’s no floor for each athlete. Outside of star players and recruits in revenue-producing sports, many might not get much pay at all.
Another complication is Title IX, which requires that equal benefits be offered to female students. “Scholarships had to be doled out evenly to both men’s and women’s sports and it’s unclear how exactly that will apply to athlete compensation,” said Richard Paulsen, a sports management professor at University of Michigan School of Kinesiology.
The House settlement accompanies two other major NCAA rule changes, allowing certain forms of inducements to recruit players. Players can also enter the transfer portal after each consecutive season without needing to sit out for a year, creating potential bidding wars from colleges for their services, much like free agency in professional leagues.
Some call this new system player empowerment, but it does set up a glaring disparity between top stars and all other athletes, who may put in just as many hours of labor outside of being a student. And it doesn’t prevent players like Gervon Dexter from being lured into up-front cash agreements that could damage their financial futures.
A bigger complication would arise if a private equity deal with a university goes awry. In that case, athletic departments could be legally obligated to pay off debts to the investment firm, leaving players with nothing or slashing athletic programs entirely. It puts players in much the same situation as workers at private equity–owned portfolio companies, taking on added risks through no fault of their own.
This all raises the question of employee status and unionization. After the Alston decision, National Labor Relations Board General Counsel Jennifer Abruzzo issued an official policy statement putting schools on notice that misclassifying workers as “student athletes” violated federal labor law and would subject them to violations. The National Labor Relations Act, in Abruzzo’s interpretation, “fully support[s] the conclusion that certain Players at Academic Institutions are statutory employees, who have the right to act collectively to improve their terms and conditions of employment.”
In a recent ruling, the Third U.S. Circuit Court of Appeals opened the door to college athletes being classified as employees protected by federal minimum wage and hour laws, though not in all instances for every sport.
Colleges and the NCAA do not accept this designation, and are fighting against this classification of athletes as full-time employees of the school. They’re trying to lobby for an antitrust exemption to make their problems go away. Last month, a House committee marked up a bill that would prevent college athletes from being seen as employees of their schools, and thus leave them unable to unionize.
In March, the Dartmouth men’s basketball team formed the first college athletics union, which could set a template for other programs. But for that tactic to be sustainable, there would likely need to be some version of a sectoral-bargaining law. There are over 350 Division I schools, with over 500,000 male and female student athletes as of 2022. The Dartmouth vote created a union for just 15 players.
“Players’ associations work for professional sports, and I don’t see why college athletes shouldn’t have their own to get a real seat at the table,” said Vaheesan, who submitted an amicus brief to the Supreme Court in the Alston antitrust case.
Sen. Chris Murphy (D-CT) has actually introduced such a law to Congress, which would make all colleges within an athletic conference a single bargaining unit. That’s the kind of protection that may be necessary for players to avoid being caught in the same private equity trap that so many have fallen into in America.
