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University of Louisville athletic director Josh Heird says there is no \u201csilver bullet\u201d that will help his department\u2019s current revenue race.<\/p>\n
To compete in the increasingly commercialized world of college sports, programs of its size might spend more than $40 million a year on talent acquisition, revenue sharing and other costs, according to experts. But just five of Louisville\u2019s 23 sports generate any revenue, according to the athletic department. Only football and men\u2019s basketball turn profits.<\/p>\n
Louisville, like a growing number of\u00a0major conferences\u00a0\u2032 public universities, is trying to narrow that spending gap and its supporters are trying to help by creating a new organization to oversee everything from third-party multimedia deals to hospitality packages.<\/p>\n
This spring, Louisville launched Cardinal Ventures, a nonprofit designed to help the athletic department leverage its brand to generate new revenue streams, all to keep pace with the multibillion-dollar market around compensating athletes for the use of their\u00a0name, image and likeness.<\/p>\n
\u201cWe live in a highly, highly competitive environment and industry,\u201d Heird said. \u201cAnd if there\u2019s anything that anybody can do to try to create even the smallest sort of competitive advantage, then they\u2019re gonna look to do that.\u201d<\/p>\n
The University of Kentucky also has a revenue-raising nonprofit. The University of North Carolina is actively discussing a limited liability company. So, too, is\u00a0Louisiana State University.<\/p>\n
There\u2019s \u201cfeverish\u201d interest from higher education in these offshoots, according to Clay Grayson, whose South Carolina law firm designed Clemson University\u2019s in-house venture. There\u2019s also scrutiny from\u00a0Congress. Widespread privatization could further transform universities into profit-driven businesses resembling professional sports franchises, weaning them off fatigued donors and opening the door to private capital.<\/p>\n
\u201cGovernmental universities don\u2019t do commercial very well,\u201d Grayson said. \u201cThose nonprofits are the ones that kind of can get out into that space.\u201d<\/p>\n
Record high gifts underscore the spending spree. Virginia Tech touted an \u201cunprecedented\u201d $75 million commitment intended to \u201censure a strong start\u201d for its nonprofit Hokie Ventures. Michigan State\u00a0bolstered its athletic department\u00a0with a $401 million contribution that included an investment in its own Spartan Ventures.<\/p>\n
Louisville\u2019s Heird said he frequently finds himself discussing these new organizations with peers as they all look to boost their bottom lines.<\/p>\n
At his school, he has found some \u201clow-hanging fruit\u201d with concerts. Louisville\u2019s 60,000-seat\u00a0football\u00a0stadium largely sits dark outside of home games.<\/p>\n
Country music star\u00a0Zach Bryan\u00a0recently lit up the field. The rapper\u00a0Ludacris\u00a0headlines an upcoming hip-hop billing. Planning is already underway for next year\u2019s shows \u2014 each of which could bring seven-figure profits for the hosts.<\/p>\n
Athletic directors seek flexibility, control and a \u2018commercial engine\u2019<\/p>\n
These new efforts may not provide a \u201csilver bullet,\u201d but they do offer new revenue and something many athletic directors may value even more \u2014 more control.<\/p>\n
The nonprofits and LLCs offer greater flexibility to crack the financing puzzle than the previous system. Bureaucracy can drag decision-making out for months. Key components of the fan experience \u2014 tickets, parking, merchandise, concessions\u2014 are often outsourced to vendors they don\u2019t fully run.<\/p>\n
\u201cThere is an unstoppable train that is college sports,\u201d said Jason Belzer, a Sequence Equity partner who advises schools on NIL deals. \u201cThe reality is that you need to create new platforms and paradigms to be able to successfully operate a business that no longer really sits with the original mission of college athletics \u2014 at least at the higher levels.\u201d<\/p>\n
Everything is on the table for Syracuse University. Athletic director Bryan Blair sees an opportunity to corner New York\u2019s college sports market. It\u2019s the state\u2019s only Power Four conference school. And all five ticketed sports play under a 50,000-seat dome that brings what he called a \u201cbig state school feel.\u201d<\/p>\n
The question is how to build a \u201ccommercial engine,\u201d Blair said, whether it exists within his department or outside it.<\/p>\n
\u201cWe\u2019re trying to educate young people, give them a great experience. We\u2019re trying win on whatever day of the week it is for whatever competition it is. We\u2019re trying to be great stewards and ambassadors for our university,\u201d Blair said. \u201cBut to do a lot of those things requires more revenue than ever before.\u201d<\/p>\n
Nonprofits join growing number of affiliates<\/p>\n
Commercial affiliates aren\u2019t new to higher education. Some universities use them to monetize drug patents or manage copyright.<\/p>\n
Take the University of Kentucky, believed to be the\u00a0first school to convert its athletic department\u00a0into a limited-liability holding company. Trustees already managed separate health systems through a not-for-profit that was primed to take ownership of its athletics offshoot.<\/p>\n
Athletic director J Batt, who recently joined the Wildcats from Michigan State, expects these formations will become the norm rather than an exception. \u201cAnd everybody will do the one that\u2019s right for your campus,\u201d he added.<\/p>\n
Grayson, the legal architect behind many such models, said he mostly hears from members of the Power Four. Those 67 schools tend to be the only ones with large, competitive enough programs to spend beyond the revenue-sharing cap of\u00a0$21.3 million\u00a0this year. His firm has helped create affiliated entities at an estimated one in seven schools competing in the Southeastern Conference, the Big Ten, the Atlantic Coast Conference and the Big 12.<\/p>\n
His model strays from the traditional nonprofit. He proposes smaller, seven-person boards in order to expedite decision-making. Some of the athletic ancillaries even own for-profits that handle taxable activities such as stadium concerts.<\/p>\n
Another big difference: they\u2019re not registered to fundraise because their focus is programmatic revenue. He recommends aligning these new ventures with existing fundraising organizations \u2014 like \u201ctwo pedals of a bicycle.\u201d<\/p>\n
\u201cIf you get them moving in sync, you\u2019ve got a powerful, powerful motor,\u201d he said.<\/p>\n
Questions about charitable purpose and donor fatigue<\/p>\n
It remains to be seen whether these new entities will alleviate donor pressure to bankroll costly football programs. Moreover, they raise the same question that\u00a0murky NIL collectives\u00a0did: what is the charitable purpose of an institution whose main goal is to generate more revenue for athletics?<\/p>\n
The Internal Revenue Service decided many nonprofit NIL collectives were erroneously given charitable status. They served players, not the public good, so\u00a0their activities were likely not exempt from taxes.<\/p>\n
These affiliates are similar, in the view of an NIL tax consultant who previously worked at the IRS. Thad Madden, who studied NIL compliance issues for the agency, said he doesn\u2019t see any \u201ccharitable connotation.\u201d<\/p>\n
\u201cIt\u2019s to serve the financial interest of the athletes so that they make the most possible money with the goal of putting the best team on the field,\u201d Madden said.<\/p>\n
That financial interest has fatigued donors, according to consultants who advise schools on issues of NIL. They\u2019re fielding more athletics solicitations even as universities continue fundraising for student scholarships, research projects and other functions.<\/p>\n
It used to be that development officers could leverage donor interest in athletics to direct some funds towards academics. That\u2019s not so nowadays, according to University of Pennsylvania professor Karen Weaver, a former athletic administrator who studies the evolving college sports landscape.<\/p>\n
\u201cAthletics doesn\u2019t have a revenue problem. It has a spending problem,\u201d Weaver said. \u201cSo, whatever dollar they bring in is gonna be spent on trying to get an advantage in athletics.\u201d<\/p>\n
___<\/p>\n
Associated Press coverage of philanthropy and nonprofits receives support through the AP\u2019s collaboration with The Conversation US, with funding from Lilly Endowment Inc. The AP is solely responsible for this content. For all of AP\u2019s philanthropy coverage, visit\u00a0https:\/\/apnews.com\/hub\/philanthropy.<\/p>\n
#College #sports #talent #race #turning #athletic #department #million #business #empire<\/p>\n","protected":false},"excerpt":{"rendered":"
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