
House v. NCAA: Where to Find $20M+ Annually
The House v. NCAA lawsuit has put financial pressure on Division I athletic programs, with the potential for $20M+ in annual payouts. While these payouts aim to address fairness in athlete compensation, they also present a significant operational challenge for athletic departments accustomed to tight budgets and complex revenue models.
The question becomes: How can athletic departments navigate this new reality, protect their core operations, and continue to grow their programs? The answer lies in a strategic approach that focuses on high-ROI opportunities and that carefully evaluates funding options. One of the most discussed funding sources is private equity, but is not the only option that athletic directors and university presidents have at their disposal.
Evaluating Funding Options
The first step for athletic departments is to evaluate whether external capital is necessary. This is where decision-making becomes critical, as the choice between internal optimization, traditional financing, or private equity partnerships can directly shape an athletic department’s long-term trajectory. Those working in athletics are likely tired of being told that they are lagging behind professional sports properties as it pertains to revenue generation. And it isn’t a fair comparison– we all understand the confinements of operating in a non-profit educational institution whose mission extends far beyond athletics. Still, there are lessons to be learned from the pros when it comes revenue generation.
Option 1: Internal Optimization
For programs that decide against seeking outside capital, the focus should be on internal efficiency and self-financed opportunities. This approach emphasizes low-risk projects that yield measurable ROI, including:
- Reduce Spending: With most departments already operating on tight budgets, making cuts without negatively impacting core offerings can be nearly impossible. Assess non-essential expenditures to look for cost-saving measures, or reallocate resources to better RIO functions.
- Recruit Differently: Prioritize staff and athletes who align with the program’s financial goals, even if it means finding “diamonds in the rough,” understanding that it’s hard to find diamonds if you don’t have a team of people scouring for them – and can you be sure they are looking for the right things.
- Avoid Contract Buyouts: Avoid overextending resources on expensive coaching contracts that could create financial liabilities. Investing in candidate diligence on the front end is money far better spent than paying coaches to sit at home. Navigate has worked with our clients in the collegiate space to evaluate coaching hires to gain greater confidence for both immediate success as well as long-term fit.
- Position Athletics as a Powerful Marketing Asset: Athletics is often the most visible face of the university. A strong commitment to athletic success can increase applications, especially from out-of-state, and can ultimately yield significant ROI for the university.
While this approach demands creativity and discipline, it could provide a more sustainable path forward for departments not looking to make sweeping changes. But the question remains: will it be enough to close the estimated $20M gap?
Option 2: Traditional Financing
For those willing to seek external funding but wanting to maintain maximum control, traditional financing is an attractive option. At the collegiate level, fundraising takes a range of forms from traditional loans and lines of credit to state funding, and of course engaging wealthy boosters. The key advantage here is control—traditional financing typically doesn’t involve sharing decision-making power with outside investors nor sharing of future revenues. Of course, when it comes to university politics and donor relations, control is not always easy to measure. Especially when that investment is made in athlete compensation, a very nontraditional method. Financing can’t just cover growing expenses; it has to significantly increase revenue capabilities. Traditional financing often doesn’t come with a strategic consulting partner, so do you have the strategies and expertise in place to use financing to facilitate drastic revenue growth?
Option 3: Private Equity Partnerships
For athletic departments seeking a long-term capital infusion that allows them to stay competitive or get ahead in a competitive landscape, private equity can offer an immediate lifeline to secure or improve their position in the industry. There is ample capital ready, willing, and waiting to be invested for those schools ready to find the right partner. These partnerships can provide substantial funding and operating consultants, but they come with a trade-off: shared control and/or revenue. It’s critical to select a partner who aligns with the department’s vision and goals, ensuring the terms of the deal maximize benefits without compromising the program’s autonomy.
It doesn’t have to be a precedent-breaking investment. Many colleges are already exploring some form of relationship with private equity, and firms are aware that investing in college athletics won’t be the same as buying a minority ownership stake in professional team. Funds that expect a high-level of managerial control and easy liquidity, may look elsewhere than college sports. Because of that, these revenue-sharing models may resemble more-familiar long-term debt in terms of financial commitment, which may make for an easier internal sell. So even if you maintain control and the lion’s share of revenue, it’s a long-term relationship that will impact subsequent athletic directors and others in university leadership.
Investing in High-Growth Opportunities
Regardless of the funding source, athletic departments must prioritize investments that deliver the highest ROI and the best outcomes for athletes, fans, the university, and stakeholders. The coming months and years will determine outcomes for the next several decades.
Some of the most promising high-growth opportunities include:
- Stadium and Facility Upgrades: Modernizing infrastructure to attract fans, athletes, and sponsors alike. Updated facilities enhance the game-day experience and create additional revenue streams through commercial events and rentals.
- Content and Sponsorship Assets: Creating new assets and optimizing existing assets has become an essential task at all levels.
- Premium Hospitality Experiences: Offering enhanced fan experiences, such as luxury suites or VIP hospitality, generates significant revenue from high-spending audiences as well as boosters.
- Ticketing Strategies: Leveraging data to optimize ticket pricing, sales strategies, and promotional offers can help maximize attendance and revenue. This is one area where colleges objectively lag behind the pros.
- Roster Additions: Allocating resources to recruit top-tier athletes can elevate the program’s visibility and competitiveness, which translates into increased revenue opportunities through ticket sales, merchandise, media exposure, and potentially even conference membership.
- Mixed-Use Real Estate Developments: Exploring real estate projects around campus can create long-term revenue streams. Utilize the recurring traffic on gameday to create space for businesses and multi-purpose hubs.
A Strategic Path Forward
Decision-makers must leverage strategic thinking to embrace a results-oriented approach. Whether through private equity, traditional financing, or internal optimization, the focus must remain on high-ROI initiatives that ensure long-term sustainability and allow you to continue providing a world-class experience for athletes, fans, and stakeholders alike.
The House v. NCAA decision presents a challenge, but it also offers an opportunity for universities and athletic departments to rethink how they operate and innovate. By using this decision chart as a starting point, programs can make informed choices about their funding strategies. The ultimate goal is to not just survive this new era but thrive in it. Think strategically and embrace innovation. Your future depends on it.