What Utah’s private equity deal means for the future of college athletics

Irwin Kishner, co-chair of Herrick's Sports Law Group and co-chair of Herrick's Corporate Department, was quoted in Sports Illustrated on the landmark deal struck between the University of Utah and a New York based private equity firm and how the deal will affect other schools and major conferences going forward.

According to the article, "Utah's board of trustees unanimously approved a first-of-its-kind partnership with a private equity firm called Otro Capital. The marriage, along with help from donors, will see an infusion of over $500 million in capital for the university's athletics, as well as the creation of a for-profit entity called Utah Brands & Entertainment LLC."

The article notes that while private equity in professional sports is not new, at the collegiate level, Utah's arrangement is the first of its kind.  "And it's a rather intriguing one, considering it involved a public institution setting up a for-profit entity" to provide a path for a private equity firm to come in and infuse capital into the school's athletic department.

"[The University of Utah is] a public institution, meaning you have to deal with the public charter and you have to deal with the local space laws," said Irwin. "But that said, universities or endowments or not-for-profits do own assets that are often sold or monetized for liquidity purposes.

"Along with Utah's board of regents, the NCAA had a say in the school's deal as well."

"I can assure you that the University of Utah was keeping the NCAA very informed of exactly what was going on," Irwin said. "The NCAA was absolutely kept up to speed."

The approval from Utah's board of regents, along with the NCAA, gives Irwin a reason to believe the deal was crafted with a great deal of diligence and care.

The article also discusses the risks associated with private equity, including unforeseen circumstances that drastically change the financial outlook of the parties, or a decline in merchandising, TV rights or stadium sales, among other factors. 

"There could potentially be tension there," Irwin said. "The programs would typically be relegated, I would imagine, to the universities as to what they decide to run. But there might be some kind of guardrails that say, you can't lose more than 'X' dollars or 'X' percentage of dollars in any one of these programs. Those are things that will have to be negotiated going in."

Whatever the nuances of the deal, "it's clear the university intends to maintain control over decisions regarding coaching and player personnel. How the firm's goals of turning a profit influence the school's decision to continue to run several programs in the red, however, remains to be seen."

"That ability of the university today to cut those programs still exists," Irwin said. "So are they going to do it now that there's a private equity firm? It's within the possibilities, but I would technically think that would be a decision that would require the university's buy-in, also."

In discussing pushback from federal lawmakers, Irwin noted that he "doesn't believe private equity would have any direct correlation to schools funneling money under the table, so to speak. Nor is he sure it'll ever lead to students being considered employees. But he does know efficiency and profit are two important values to any private equity firm, which means the average fan experience inside Rice-Eccles Stadium or Jon M. Huntsman Center could look different in the future."

"One of the things that private equity will bring to the table is refined management and refined business skills," Kishner said.

The article also notes that time will tell as to how much influence the private equity firm will have over personnel and coaching decisions from a financial standpoint. 

"It's very unusual to see a private equity shop just be silent," Irwin said. "That's not the way these work."

"There may be something [in the deal] like, if you want to hire XYZ coach and pay them — I'm making this up — $20 million a year, you can't do that unless I approve it," Kishner said. "If you looked at the salaries of coaches and the salaries of players — and I'm not saying they shouldn't be compensated — but if there was $100 that was generated by the program, the players were getting zero of that,"

According to the article, there are a lot of questions about the "ripple effect" the deal will have on the university and college sports ecosystem.

"I'm wondering how it all plays out," Irwin said. "There's been talk about this now for several years, but seeing it come to fruition and the floodgates sort of opening, you can certainly predict that there's going to be a lot more deals. And it's all very interesting."

Read the full article in Sports Illustrated here. Access may require a subscription.