By: Tavis McClain

In the new era of college sports that allows players to profit from their name, image, and likeness (“NIL”), growth is rapid and more entities seek industry involvement. Initially, in 2021 when NIL became legal, college athletes could not be paid by the universities directly. Recently, a District Court Judge granted preliminary approval for a settlement that would allow universities to pay their athletes directly. Seeing a lucrative investment opportunity, private equity firms have recently begun investing in college sports. For many years, the NCAA has rejected investment from outside sources, such as private equity firms. College sports is heading toward becoming a semi-professional industry direction, due to a combination of NIL factors and the NCAA allowing private equity firms to invest in college sports. This blog will provide a brief history of why investment in college sports has changed, and cover the various legal issues that may arise with private equity firms’ investment in college sports including antitrust law, regulatory/compliance concerns, and labor law implications. 

History 

In October 2024, a settlement was reached in House v. NCAA that required the NCAA and its power conferences to pay out $2.8 billion in backpay for former athletes over the past ten years. The settlement further requires that athletic departments find up to $30 million annually between revenue sharing with athletes and reduced NCAA distributions. This has provided the opportunity for private equity firms such as Red Bird Capital and Weatherford Capital to negotiate with universities in need of funding.

Antitrust 

A key issue is antitrust law, which seeks to promote fair competition and prevent monopolistic practices. When private equity firms invest in multiple college sports programs, there is a possibility that these investments could reduce the level of competition among institutions, creating antitrust concerns. Private equity firms would be wise to invest in established programs that can generate their desired returns. If private equity firms control several top athletic programs, they could potentially consolidate power over broadcasting rights or negotiate favorable media contracts for those programs. This would reduce opportunities for smaller schools to compete on equal footing, potentially creating an unfair advantage for schools backed by private equity. This is an even greater concern because of the TV deals/streaming rights that the SEC and Big Ten have–the most lucrative TV deals by a sizable margin. If private equity firms invest in schools from these conferences, it could exacerbate the talent disparity between conferences. Because private equity firms could own stakes in multiple teams, this could create conflicts of interest and hinder competition. It’s been reported that JPMorgan Chase has had negotiations with Florida State and other schools to capitalize on the promising opportunity to have stakes in multiple teams. The legal issues could stem from accusations of price-fixing or anti-competitive conduct, especially if the investments result in monopolies or oligopolies within the college sports market.

Regulatory/Compliance Issues

In addition to antitrust concerns, private equity investments in college sports may also raise issues related to compliance with existing state and federal regulations. Because college sports are typically governed by both federal law and the regulatory frameworks of state governments, private equity firms looking to invest in these programs must navigate a complicated landscape of rules and oversight. A specific example is the recent changes in NIL legislation. With college athletes now able to profit from NIL, there is increased potential for private equity firms to leverage their investments by facilitating NIL deals. In the absence of clear federal regulation governing how these transactions are handled, private equity firms could exploit loopholes, leading to further legal and ethical complications. The most important NIL law in the state of Washington is Senate Bill 5913, now RCW 42.52.807. Private equity firms could run into legal issues if they violate the act, such as the failure to comply with the disclosure requirement. Legal questions will arise around whether private equity firms are required to comply with these state regulations.

Labor Law Implications 

There has been significant movement toward the recognition of student-athletes as employees rather than amateurs. In light of recent legal developments such as the NCAA v. Alston case and the broader push for NIL rights, the role of private equity in shaping the economic and employment landscape of college athletes is becoming more controversial. 

Private equity involvement may result in legal challenges regarding whether student-athletes should be classified as employees. This could entitle college athletes to collective-bargaining rights, the rights of employees to negotiate with their employer as a group through a representative, which the NCAA has opposed. If college athletes were to attain collective bargaining power, they could further leverage their power as employees and argue for more favorable policies. Private equity firms, with their financial influence, may also advocate for arrangements that limit student-athletes’s control over their image or impose longer-term contracts, which could come under scrutiny from legislators and agencies. By placing limitations on students’ control over their image and imposing long-term contracts, private equity firms can maximize their profits. Long-term contracts could lead private equity firms to profit from college athletes later in their careers. For example, Big League Advantage, an investment firm, sought to enforce a contract that entitled the company to 15% of a college athlete’s pretax earnings for the rest of his career. These types of contracts in college sports are unprecedented and there may be legal challenges to the enforceability of these contracts.

Conclusion

The legal landscape in college sports is constantly evolving. Lawyers will play a pivotal role in navigating the complex challenges that are presented that span across multiple areas of law. Stay tuned to see how private equity’s investment changes college sports.

#WJLTA #sports #competition #athletes #NIL