Last month, it was reported that Florida State University (FSU) engaged in discussions with private equity firms that could revolutionize the financing of college athletics. FSU is working with JPMorgan Chase to explore how the school’s athletic department could raise capital from institutional funds and private equity firms.
FSU is working with JPMorgan Chase to raise capital because it is concerned that it, as a member of the Atlantic Coast Conference (ACC), is financially falling behind rival schools in the SEC and Big Ten. [1] Both the SEC (adding Oklahoma and Texas) and Big Ten (adding UCLA and USC) have risen financially above the other collegiate athletic conferences, leaving schools in every other league to evaluate their options. [2] As these leagues have grown, it only widens the financial gaps between them and the ACC. FSU says the current revenue gap between it and its comparable peers in the richer Big Ten and SEC conferences was about $7 million in 2023. That number will grow to $30 million per year in 2024, as the realignments and new TV deals start to take shape. This gap is a big part of FSU’s desire to leave the ACC. [3]
Viewing this gap as an “existential crisis,” FSU’s president stated that leaving the ACC is a real possibility unless there was a major change to the ACC’s revenue distribution. [4] FSU’s media contract with ESPN, however, does not expire until 2036, which would preclude the school’s ability to achieve any substantial change to the ACC’s revenue distribution. [5] Because of this, FSU’s only remaining option to remain competitive with its peer schools would be to leave the ACC. But this is nearly impossible. Leaving the ACC would cost about $572 million to immediately buy out the league. [6]
To solve both of these issues, FSU is considering an investment structure, where commercial rights are rolled into a new company, the private equity fund then invests in that entity, and finally recoups its money via future media or sponsorship revenue. [7] FSU, however, will need to comply with a series of Florida laws that govern nonprofit universities and bidding contracts. Public schools are required to implement strict rules around transparent, competitive bidding for university contracts, and certain deal structures would be needed to avoid jeopardizing a university’s tax-exempt status. [8]
State entities like FSU cannot join a for-profit business with a joint venture or private equity firm because it would then lose its tax-exempt status. But there’s an alternative, called a “super license agreement.” [9] In this scenario, FSU can move its intellectual property—including its logos and names— to a new university entity. This new entity could then license FSU’s intellectual property to a private-equity firm or any other investor. From here, the firm would then attempt to profit from the licensed material by using it better, more efficiently, or in newer ways. [10] Last year, FSU created a new non-profit entity called FSU NewCo.
Last year, FSU met with two investment firms that were interested in profiting from FSU’s intellectual property, but chose to do business with Sixth Street, which has previously placed investments in the San Antonio Spurs and the sports entertainment company Legends Hospitality. [11] It was reported that in at least two scenarios Sixth Street will provide FSU with $250 million in private equity. [12] In addition to maintaining its current level of competition, FSU plans to use the equity to pay off its debts and make improvements to its football stadium.
FSU and Sixth Street’s agreement represents a larger trend in sports where private equity groups are investing in professional or collegiate sports. Back in 2019, the Pac-12 hired the Raine Group to explore the possibility of raising money from private equity firms by allowing them to invest in the league’s media enterprise. [13] More recently, Silver Lake backed the New Zealand All Blacks rugby team and Corporate Venture Capital financed LaLiga, the top Spanish soccer league. [14] If Sixth Street’s investment in FSU is successful, college athletics will be fundamentally changed with more financial groups looking towards college athletics as the next big investment opportunity.
[2] See id.
[3] See id.
[4] See id.
[5] See id.
[8] See id.
[10] See id.
[11] See id.
[12] See id.
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