Private credit lenders, usually known for financing loans to companies, may be recruited for a new role: funding athletic programs as the NCAA changes rules on compensating players.
Until now, US colleges have enjoyed an unusual advantage in their business models by not having to pay athletes.
That’s set to change. Final approval of a $2.8 billion antitrust lawsuit is imminent, paving the way for college athletics programs to share revenue with their players. The rule change could mean up to $20.5 million of direct payments to student-athletes per school, per year, starting in the 2025-2026 academic year.
But since most Division I programs operate at a deficit, there will be a meaningful gap between college athletics programs’ immediate cash needs and their coffers.
Enter direct lenders, who are positioning themselves as an answer to these new problems. Even a shot at a slice of the billions of dollars at play would present a massive new market for private credit providers.
“Schools will have to find ways to increase revenue to compensate for these new costs, and to do that universities and conferences will need to take on capital partners to fund investments and unlock new revenue streams,” said Matt Rosenberg, head of sports, media, and entertainment at Monroe Capital, in an interview with LCD.
“Institutional capital will be needed.”
Looking for lay-ups
Although not a requirement, any program that wants to remain competitive will likely use the salary option to recruit top talent. For the inaugural 2025-26 season, payments could amount to as much as $328 million for the 16 schools in the SEC conference alone, for example, according to an analysis by LCD.
Including all 67 universities in the Power Four conferences, the new revenue-sharing rules could amount to $1.4 billion in direct payments to student-athletes in the first season, assuming all universities use the maximum allotted amount allowed to pay athletes. That figure could rise to nearly $2 billion once yearly payment allotments rise to $30 million per school, per year, as they are set to do under the current proposal.
Moreover, those sums only reflect payouts in the top four conferences. The total addressable market of this new opportunity may be even larger considering that there are dozens of conferences in Division I college football and basketball alone, market sources say.
Kevin Griffin, founder and CEO of MGG Investment Group, has held conversations with universities and their athletics programs and other participants in the college sports ecosystem to understand what the investment landscape could potentially look like. These talks are in the early stages as the NCAA settlement has not yet been finalized, nor have the precise rules around what can and can’t happen regarding private credit participation in college sports.
“Until the law is clear, lenders will be on the fringes and watching closely without deploying capital. Once the law is settled and the investment concept is proven, we expect to take a serious look at the space,” said Griffin.
Early in the quarter
College athletics programs have historically spent more than they have brought in. The new balance sheet line item on the sports programs’ balance sheets will dramatically increase capital needs that tuition increases and alumni donations can’t solve.
According to lenders, advisors, and law firms to whom LCD spoke, banks will not be able to meet the additional financing needs. What’s more, a dearth of sponsor-backed M&A and buyouts makes these opportunities more enticing for lenders with capital to put to work.
Several private credit providers told LCD they’ve already begun holding early conversations with universities and conferences about forming new lending relationships.
It’s likely that schools will need to demonstrate additional revenue streams to support any potential incoming capital infusions to offset normal operational deficits.
Randall Boe, senior counsel at Akin Gump and former commissioner of Arena Football League, says that private credit will prioritize transactions that fund projects and renovations that will generate new streams of revenue and help schools transition to the new business models necessitated by changes in the college sports landscape.
“For lenders, the challenge will not just be what will these deal structures look like, but also developing new operating models for college sports, supporting these obligations to pay athletes while continuing to offer a broad base of athletic opportunities,” Boe said.
For instance, venue and training facility renovations could potentially generate a high enough ROI to justify credit investments. In Europe, direct lenders are already financing the renovation and construction of new soccer stadiums. These projects can add seats, upgrade concession and luxury suite options, and expand advertising capacity — all of which would serve to boost the program’s revenue.
Rosenberg said that one way lenders can get comfortable with a college athletics transaction is to lend to a vehicle with commercial rights to cash flow streams, where the lender has security interests in those rights but would not take ownership of them. Commercial rights could look like media rights, ticketing revenue, or other sorts of intangible assets that have historical records of cash flow and quantifiable value.
Boe also noted that the shifts in the college sports landscape and how schools and conferences operate could well create new competitive opportunities, including the potential formation of new leagues in a variety of sports, offering not only new revenue opportunities for schools and conferences but operating efficiencies in smaller sports programs.
“Schools and conferences are currently locked in a system where all sports are basically operated the same way, so volleyball and soccer and other sports had to play in the same conference structure, including incurring substantial travel and other expenses, that may only make sense for football and basketball,” said Boe.
“The formation of new custom-tailored leagues will be another opportunity for these schools to generate more revenue and for lenders to support these innovations.”
Hoop Dreams
While lenders are eager to participate in any incoming opportunities in the college sports world, they also maintain that we’re in the early stage of what could be a bona fide new industry for lending.
“The NCAA is uncharted territory. Few people know what’s going to happen in six days, let alone six months. This makes deals involving college athletics more challenging to underwrite, particularly the role for private credit,” said Aaron Kless, CEO of Andalusian Credit Partners.
He also adds that it may be harder for pure credit investors to get comfortable with the space because of the risk involved. “Today, college players can enter the transfer portal twice per year, for example, and the entire business model of these programs is undergoing a dramatic transformation,” he said.
Private credit typically follows wherever their private equity counterparts go. Indeed, Sportico reported in January that the Big Ten conference retained Evercore to advise on private equity transactions.
When the starting whistle blows, lenders will not be far behind.
Featured image: Emilee Chinn/Getty Images
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