With college sports at critical juncture, private equity groups pushing for their piece

For a year now, Drew Weatherford has been working in the shadows of college sports.

He held clandestine meetings with representatives from more than 50 Football Bowl Subdivision programs — dozens of athletic directors, a few university presidents, even school board members and chief financial officers.

There were phone calls from his office, Zoom chats in hotel lobbies, and in-person meetings in coffee shops. Most of them play out the same way. Gregarious and charming with a big white smile, Weatherford, the former FSU quarterback turned private equity investor, presents a slide presentation detailing a project he and co-partner Gerry Cardinale of RedBird Capital Partners launched last year last.

Their goal is quite simple: inject money instantly into major university athletic departments.

“No school said, ‘No, that’s not something we would consider,’” Weatherford said.

In one of the most important weeks in college athletics history, as leaders are poised to approve a historic settlement in an antitrust case and adopt a new revenue-sharing model with the athletes, Weatherford speaks publicly about his exploits for the first time. In two separate meetings with Yahoo Sports, he revealed and then explained the presentation he has given to university administrators and staff over the past 10 to 12 months.

Weatherford Capital and RedBird Capital Partners have combined their powers (and billions in cash) to create Collegiate Athletics Solutions, a dedicated campaign and business-building platform to invest capital in college athletic departments during the most transformational time in sector.

“I had a feeling that this revenue sharing thing was real. This is going to be another blow to athletic departments,” Weatherford said.

College administrators are preparing for the new reality of sharing revenue directly with athletes under the terms of the House settlement agreement.

While the NCAA and schools will pay $2.8 billion in back damages, they also agreed to a future player revenue sharing model with a quasi-salary cap of up to $22 million per year per school . Most power conference executives expect to spend up to $30 million in new revenue per year when considering the revenue sharing cap, plus a reduction in the NCAA’s distribution for damage to dos and the addition of new scholarships in a model that, to some extent, removes financial aid limitations.

That’s $300 million in new money over the life of the 10-year settlement. That’s why, over the past two weeks in particular, Weatherford’s phone has been ringing more than usual.

According to the Wall Street Journal, last week, RedBird Capital added $4.7 billion to its arsenal for new projects, bringing the company to an estimated capital of $10 billion.

As part of the Collegiate Athletics Solutions platform, Weatherford and Cardinale are seeking five to 10 programs in which to invest between $50 million and $200 million. They are in “extensive conversations” with a “handful” of programs, although Weatherford declined to identify or discuss specific schools.

At least three athletic directors from Power Conference schools confirmed to Yahoo Sports that they have spoken in depth with Weatherford and Cardinale about a partnership. They declined to reveal their identities because the deals have not been finalized.

“If you want to compete at this level, private equity and capital are really important,” one athletic director said. “I’ve been talking to these people for 10 to 12 months. I didn’t pull the trigger. But is this what you will need to succeed and survive? Yes it is.”

Private equity and private equity are nothing new in sports.

In fact, RedBird acquired Italian soccer giant AC Milan for $1.3 billion in 2022 and has stakes in Formula 1’s Alpine and Fenway Sports Group, owners of the Boston Red Sox and the English soccer team from Liverpool. EverWonder, RedBird’s independent content studio, is hosting the new eight-team men’s college basketball tournament, based in Las Vegas over Thanksgiving weekend. The tournament is expected to pay participating teams up to $2 million in NIL transactions.

These companies are also not entirely uncommon in the world of higher education. But in college sports, this is highly unusual. The words private And equity together, scare some. Many frown at the idea of ​​athletic departments — originally meant to be a nonprofit marketing and entertainment entity of a university — ceding control of part of themselves for money fast.

Weatherford describes Collegiate Athletics Solutions (CAS) as “private equity,” not equity. There is no property here, he said. Schools have the freedom to be flexible with the lump sum of $50 million to $200 million. It’s supposed to be spent along with other existing capital — think traditional debt, booster donations and bonds — to offset expenses like athlete revenue sharing, coaches’ salaries and facility improvements. But freedom belongs to them.

The CAS project does not require a management role within the athletic department as private equity firms often do, he said, although they aim to advise presidents and athletic directors in managing income growth.

After all, they have an incentive to see a department’s revenue increase: they earn a percentage of any new annual growth. Over a 10 to 20 year period, this percentage drops from perhaps 22% in the early years to 2% at the end, as the company reaches its initial principal investment. Weatherford describes this as a “tax levy.”

If there is no growth, the company does not take share.

“They don’t have to give us back the money we give them,” Weatherford said.

These capital companies are built around wise investments in income-generating entities. Why take a risk in the volatile state of college sports if you’re not guaranteed a profit?

“Personally, I believe deeply in college athletics,” Weatherford said. “As a former athlete, I owe a lot to that and so does my family. We believe in college sports. I don’t like the fact that 10-15 teams have a chance to win a national title every year. I wish it was 40-50. The playing field is not level. Not everyone has the resources to compete.

New sources of revenue are more important than ever for college athletic departments that, over the years, have saved little or no money in their reserves.

Most athletic departments use profits from their only true revenue-generating sport (football) to subsidize the rest of the department. This means funding loss-making Olympic sports and paying for football-related expenses.

Over the years, fueled by multimillion-dollar television contracts, athletic departments at the highest levels found themselves flush with cash. Unable to directly pay athletes and located in a competitive environment, departments poured excess money into gaudy facility projects and million-dollar coaching and administrator salaries in an effort to compete with their rivals on the recruiting trail.

This result? Many schools are saddled with significant debt that continues to grow as the arms race to upgrade facilities and coaching salaries progresses — until perhaps now. Schools will be allowed – but not required – to pay athletes directly. The facilities arms race is quickly evolving into one solely focused on compensating athletes.

“Every school I talk to says they need to maximize revenue sharing or they will no longer be competitive and run the risk of being relegated out of their conference,” Weatherford said. “They need to generate more revenue. And the truth is that their access to capital is largely restricted. They took on a lot of their debt to finance facilities. They went into debt, raised huge amounts of money from donors to build the facilities and I’m not going to say there’s no more room, but they’re on the verge of exhaustion.”

But many still question the need for private equity or capital in college sports. College board members and school presidents, while more supportive of the idea, are understandably hesitant. The same goes for the most powerful executives in sports.

“What could private equity do that schools can’t do with their donors?” » asks outgoing American Athletic Commissioner Mike Aresco. “Another question… does private equity match your goals? I question its role in college athletic departments.

In an interview last month, SEC Commissioner Greg Sankey dismissed the insinuation that private equity is somehow a savior for the industry. “If you use the cliché, ‘If I bought stocks, I’d buy stocks in college sports,’ well, apparently there are a lot of people who believe that outside of college sports,” he said. -he declares. .”

However, the impending revenue sharing model has administrators scrambling for money. The new model should come into effect from the next academic year, in the fall of 2025. Fourteen months to raise more than $30 million is not easy.

For those in the Big Ten and SEC, the task isn’t as difficult. Over the next few years, more than $25 million in new television and College Football Playoff funding will be on the way to each of these members.

In the ACC and Big 12, things are trickier.

In fact, one ACC school may be further ahead than others in pursuing private money. Florida State and athletic director Michael Alford are believed to be seriously exploring such a path, with multimillion-dollar figures emerging from public records obtained by Sportico and the Tampa Bay Times.

Although Weatherford serves on the FSU board of trustees, he is not involved in the Seminoles’ private equity plan, he said. However, perhaps in the not too distant future, Collegiate Athletics Solutions, or another entity, will write a giant check to an athletic department near you.

“It’s basically like taking out a loan and paying it off over 15 to 20 years,” another Power Conference athletic director said. “Here’s the thing: How desperate are you? Because you have to pay this bill.

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