Private Equity and College Sports

Well, college sports is no longer exploitation ball since the players are now getting paid, in many, many cases much more than they will make in the “professional” leagues. This is a good thing in just about every way. There are some down sides to the new world of college athletics (the end of the Pac-12 is one primary example), but in most ways, it’s a positive thing that gives players a lot more opportunity. However….this is all attracting the vultures of the modern world, private equity.

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.

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.

The players need to lawyer up from the first moment. But the schools probably do too. Giving private equity access to the entire athletic department budget sounds like…..well, sounds like every other industry when these vultures get their plague-inflected claws in them. And do you trust university presidents to do the right thing? Ha ha ha ha ha ha ha, that’s hilarious. The linked article goes into a really deep dive on these issues. Here’s another excerpt:

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.