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Private Equity Off to College as Florida State Goes Pro

brendan coffey
·5 min read

Private equity has spent years trying to find a way to invest in college sports directly. Florida State University’s desperation to exit the ACC may finally open the door.

As Sportico reported Friday, FSU is in discussions with bankers at JPMorgan Chase to explore how the school could raise capital from institutional investors, including private equity funds.  How could FSU, a public school, sell anything to private investors? It would likely have to follow a model seen in pro sports similar to the ones that allowed  New Zealand’s All Blacks rugby team to take investment from Silver Lake in 2022 and Spain’s LaLiga get backing from fund giant CVC the year prior.

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In the case of New Zealand, the rugby union is a public entity. With LaLiga, its corporate structure prohibits the sale of equity to external investors under Spanish law. In both cases, separate businesses were crafted to house money-generating assets–including All Blacks merchandise sales and 50 years of LaLiga broadcast revenue–which private money could buy into.

“Generally they’re monetizing a stream of media rights or naming rights or other contractually obligated income,” said Pro Sports Consulting’s Steve Patterson in a phone call. Patterson is a former GM and top-level executive with team in the NBA, NHL and NFL, as well as a former athletic director at two Power Five schools. In such deals, the amount of future money is given a discounted present-day value by lenders, who provide cash upfront in return for collecting the stream of money in the future. “Then,” said Patterson, “you get a corpus of funds that you can use to construct a building, make an upfront payment on a contract—or try to exit a conference.”

It’s not immediately apparent why Florida State would want to tap institutional investors for fund raising, although the timing suggests it may have to do with the Seminoles’ desire to exit the ACC to pursue greater football-related media payouts in the SEC or Big Ten. The ACC requires exiting schools to pay a $120 million fee to the conference. While that would release FSU to play elsewhere, the conference would still own FSU’s media rights through 2036 under a grant-of-rights each of the ACC schools signed in 2016. Multiple outlets have cited anonymous estimates that FSU could buy its TV rights back from the ACC immediately for as much as $400 million more. In such a scenario, private equity would give the Seminole athletic department the capital upfront to cut ties with the ACC for good in exchange for getting that money back—plus healthy interest—in coming years from FSU’s presumably superior media rights income with another conference.

While college football powers recognize they have desirable brands, the prospects for further growth in media rights and the economics of athletic departments, especially at public schools, don’t make college sports a slam dunk investment for institutional investors. Private equity typically wants either to purchase an asset at a depreciated value, restructure it and sell it within a decade at a substantial profit, or lend money on a fixed term to earn 10% or more annually on their money, according to loans seen in recent pro sports and media deals.

There are exceptions. Sixth Street bought an NWSL expansion team earlier this year through its TAO fund, a rare private equity vehicle that doesn’t have a target hold period for investments.

“In [a collegiate] scenario, it’s going to be hard to create an entity that you can show a great deal of appreciation on and then flip. If you’re on the private side—PE or other financial firm—it’s about your rate of return on the funds you’re putting up for the school,” said Patterson, who said he was approached by institutional investors seeking to buy into collegiate sports at schools he worked for. “The problem generally is that no one can borrow money cheaper than the government.”

One reason private equity hasn’t been involved directly in funding college sports to date is that universities can raise money through municipal bonds. Since muni bond interest paid to buyers is exempt from state and federal taxation, it ends up being the cheapest way to raise cash. Over the years, Power Five athletic departments have issued billions of dollars in tax-exempt bonds to build stadiums and field houses, guaranteeing the bonds with athletic department revenue streams, such as ticket sales, student fees and media rights. With the rise in interest rates in recent years, it is even harder for private financing to compete with muni bonds—it’s just too expensive for private money to justify the returns.

Yet the motivation for schools willing to work with private equity now could be a result of politics. In some cases, state legislatures are forbidding public universities from issuing more debt. In FSU’s case, it had $6.5 million vetoed by Gov. Ron DeSantis in the most recent Florida budget. Faced with government spending restrictions, schools can create what is essentially an off-balance-sheet transaction by packaging assets like the next 20 years of stadium naming rights payments and swap them for an immediate lump of cash, without government approval. Public schools that have abundant land can also lease land for private development.

Governments tend to approve the deals because privately developed property generates payments-in-lieu-of-property-taxes (PILOTS) on previously untaxed land, while the school gets money from the developers and the state taxpayers don’t take a hit.

“There is so much money sitting on the sidelines right now, people are looking for creative places to put it. This isn’t far off the kind of financing that goes on in the private sector all the time,” Patterson said. FSU’s move may be just another sign of college sports becoming more like big business.

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