After spending the past few years circling from above, the private equity industry is at last swooping in to take a bite out of the college athletics industry.
Sports Business Journal reported Monday that the firm Elevate will create a $500 million fund backed by the private equity firm Velocity Capital Management and the Texas Permanent School Fund to invest in college athletics programs, and that the new venture has already closed deals with two Power 4 schools. The schools were not disclosed, and the number of Power 4 institutions to strike deals is expected to grow to as many as eight by the beginning of the football season.
Typically, private equity firms inject capital in exchange for an ownership stake in a company, often stripping off unprofitable sectors of the firm before turning around and selling the company for profit. The folks the College Investment Initiative say this is different. Per SBJ, the CII will not take an equity stake in the athletics department it invests in, and will instead recoup its money by taking a percentage of the new revenue its investments create.
“One of the needs that we’ve seen that’s gone unfulfilled is the need for project-based or bridge capital that a school might not be able to achieve within the university debt structure or via bonds,” one executive told SBJ. “We’re looking more to provide debt-type capital or credit, [and] that ultimately we can help a school monetize that investment and that return on capital more than anyone else.”
The move is viewed as a downstream effect of the House settlement, which was finally approved Friday night. Up until about 15 minutes ago, athletics departments fundraised to build and renovate facilities, since that money could not go to players. Now, obviously, it can. Donors are going to be less likely to donate to renovate a locker room when they can instead contribute to acquiring players to fill that locker room, but the need to build and/or improve facilities will still exist, which is where the CII comes in.
“The sheer amount of investment in infrastructure on these projects is astounding,” another executive said. “If you just forecast over the next call it five years … you’re talking at the lowest-end level, conservatively, roughly $10 billion of infrastructure projects that I would consider publicly or at least quietly being talked about on these campuses. I truly think that the winning combination is a service provider that has access to capital where deemed appropriate.”
The first executive said Elevate has also considered investments in conferences as well, which has been previously reported. Since conferences do not build facilities on their own, private equity would recoup its money through jersey patches, field logos, ticketing, or other revenue streams.
This post was originally published on this site be sure to check out more of their content.
