Could real estate be private equity’s clearest path into college athletics?

By Bret McCormick

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Considerable brain power has been spent in the last two years pondering ways private equity could invest in college athletics. While PE taking ownership stakes in conferences, league media rights deals or athletic departments has been floated, investment in real estate and facilities appears to be one of the cleanest avenues through which more private capital enters college athletics. Consider this:

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• American universities and colleges are rich in land. That’s fortunate because their broader campuses need investment, including affordable housing and new ideas to confront diminishing enrollment and attract more students. Their athletic departments need more money to fund revenue sharing with athletes.
• Investing in athletic facilities -- such as new revenue-generating premium spaces or LED ribbon boards on which to sell sponsorship -- and/or mixed-use developments around those venues can generate clear returns for investors. “New premium spaces in and outside stadiums is going to be the next big wave of capital investment in college athletics,” said Elevate Chief Business Officer, Elevate College and Global Marketplace, Jonathan Marks. 
• Unlike buying a piece of a conference or its media rights, there are existing examples of public-private partnerships (P3) benefiting both the university and the outside investor. One good example, though it is under the legal microscope right now, is the Oak View Group-University of Texas Moody Center project. Regardless of how OVG won the right to develop that arena, it’s exemplary of how a P3 can work -- OVG financed and built the arena, turned it over to the university, and while running the venue, keeps a portion of the resulting revenue. It’s easy to imagine Elevate, which launched a $500 million college investment vehicle backed by PE firm Velocity Capital Management, engaging in these kinds of projects -- investing in and helping create a new incremental revenue driver, then getting a piece of related sales or consultancy business afterward.
• Investing in mixed-use spaces near college sports venues and creating more vibrant, interesting, modern amenities can attract people and more events, such as live entertainment and concerts, which enhance a university campus and students’ college experience. Looking outside the traditional bounds of college real estate can create opportunities to bring brands and companies onto campuses, whether in more traditional retail settings or in a fuzzier, less commercial way that creates new academic lanes and industry exposure and puts a university’s students in front of prominent corporations that might recruit them when they graduate.
• Could private capital engage at the conference level? Getting conference-member schools to agree on anything isn’t easy, but that approach could provide a PE firm with a single entry point into a variety of possibilities. “Maybe the ideal capital partner for us at the American offers us a menu of services,” said American Conference commissioner Tim Pernetti, who’s been meeting regularly with private equity firms. “Rather than this being about capital and creating rules around it, wouldn’t it be interesting if we had a private capital partner where University A could work with them on how to invest their endowment and University B could lean in and do some creative real estate financing to accelerate some projects, and University C could draw down some capital to accelerate more inventory in the stadium and premium at basketball and generate revenue ... that might be the answer. But as you think about real estate -- I can’t stress this enough -- physical, revenue-generating spaces provide tangible community impact, new revenue and long-term stability. And if you pair that with fan experiences, you can show this multi-layered value proposition for private capital in collegiate athletics.”
• Mixed-use developments can progress at glacial speed, especially in the college realm. But for more entrepreneurial athletic departments and universities that don’t have the time or wherewithal to cultivate donors in the way Kansas has with David Booth, or to wade through university and state government bureaucracy, private investors may enable improvements inside a stadium or arena to happen faster. Pernetti: “It’s going to require everybody to open their eyes. The business needs money. Stop apologizing for it. Let’s go out and find it.”