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Good Thursday Morning. Greetings from Spain, where I will be with Future Mrs. SBP for the next 10 days. Here’s the rundown of this week’s Sports Business Playbook:

• 📰 This Week’s Topic: On the heels of the pending House v. NCAA settlement, it appears we are heading towards a new era of college athletics, complete with a new business model. We walk through five potential ways athletics departments can adapt to this new model.

• 🍸️ Impress Your Friends at Cocktail Party: Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• 🤯 “Whoa of the Week”: The Fever may be 2-9 on the court, but they’re capitalizing off of it

• 💪 Weekly Reminders that Sports are Awesome: Sometimes you just need a familiar face on the golf bag, and the introduction of “cosmic baseball.”

For a full breakdown on the House v. NCAA settlement, here is my piece from last week.

Hey team,

We’re just a week or two removed from the monumental House v. NCAA settlement, and college administrators everywhere are starting to make plans for what this new world will look like.

There is a new potential $20+ million expense category that will need to accounted for, and schools are determining areas they can grow revenue and where they can cut costs in order to redirect funds.

It’s important to note that schools sit on a spectrum of how aggressive they will need to be in these respective categories given their place in the college sports pecking order.

Barring a few exceptions, most Power Four and Group of Five schools operate differently given the grander size and scale of the P4’s athletic operations as well as the significantly larger TV money payouts. More than 50% of Group of Five schools earn less than $40 million annually in revenue, and this salary cap is based upon a ~$100 million average revenue for an athletic department. Forget the schools from the 22 non-FBS conferences that don’t operate major college football.

Even within Power Four, though, this same disparity exists. We can expect to see further “stratification” as The Athletic called it. The major players from the SEC and the Big Ten will be able to absorb the blow better than others, and the power brokers from the ACC — i.e., Florida State, Clemson, UNC — and the Big 12 will be fighting tooth and nail to grab additional revenue from the conference. Or leave.

If I were a college administrator, here are the five areas I would be looking at for how to address the challenges on the horizon.

Repurposing donations and attempting to endow the revenue share payment

One of the first things I’d be doing is working with the fundraising group to launch a major capital campaign to create an endowment for this revenue split.

Most scholarships for student athletes are “fully endowed,” meaning the university has invested enough money into its endowment that it can become self-sustaining by pulling from dividends, sales, interest, and more to fund the scholarships without having to spend any net new cash.

The baseline for this is usually around 6%. As an example, for a school whose annual tuition is $60,000, you’d need about $1 million to endow a scholarship.

If we are talking about $20 million or so annually, that magic number jumps to ~$333 million.

That’s an eye watering number, but it’s not out of the realm of possibility given the investments that have been made in facilities, staff, and more around the college ecosystem (more on this later). The money is there.

Commercialize everything

The college athletics licensing and sponsorship machine is about to be unleashed.

Schools have grown in this area but have not pushed it to the limit because they haven’t had to and the extra revenue wouldn’t be worth the pushback from people wanting to protect the image of college sports.

But, I think the gloves are off now.

Reports out of the SEC meetings suggested that the NCAA is likely going to lift its ban of on-field logos to enable the schools to sell that inventory for a significant dollar figure. Jersey patches are expected to be further away, but not out of the realm of possibility.

And, I think you see will more aggressive naming rights on stadiums as well. Schools will want to protect the tradition of the stadium names, but you could get the middle ground solution similar to what the Kansas City Chiefs have done with “Geha Field at Arrowhead Stadium.”

I’d also expect we’ll also start to see other creative licensing and sponsorship efforts that capitalize on this new environment where both the players and schools can get paid. We’re hearing rumblings that Netflix is in talks with the SEC for a Drive to Survive style documentary series, and there is the potential for the new marketing agencies (I will only refer to them as “zombie collectives”) to find other commercial opportunities where the school can also put its logo and marks alongside the players for a cut of the revenue. Florida AD Scott Stricklin threw out licensed fantasy sports as an option for this.

On the whole, expect this to look much more like professional sports. As Big 12 Commissioner Brett Yormark said at the conference’s league meetings last week:

Modernize the ticket model

Lastly, there is an opportunity to drive incremental revenue in ticketing. All schools have much older donors with season tickets and/or a family member that has inherited tickets from a relative who bought them years ago.

Many of these tickets came with a relatively flat annual rate when athletics was not the commercial juggernaut it is now, and these rates were grandfathered in for these ticket holders as modern college athletics began to take shape.

Some, but not all schools, have attempted to update these ticketing policies so these ticket holders must pay semi-modern prices or even take these tickets away if the holders are found to be selling them on the secondary market for a massive profit.

If I’m at a school that has not gone through this exercise, I’m working with Sales and Ticket Ops to put a plan in place immediately.

In addition, investing in more modern concepts like dynamic ticket pricing (pricing moves based upon demand) and keeping more inventory open for single game ticket sales — which fetch hire prices than season tickets because they do not receive the volume discount — will help to make materials gains.

Private Equity and Outside Funding

As noted in last week’s piece, there have been rumblings over the past few years that private equity funds were interested in college sports.

But, we have now seen the first group, College Athletic Solutions, make a public announcement about its intentions to enter the space.

The firm, financed by sports power broker Redbird Capital and Weatherford Capital, an equity firm founded by former FSU quarterback Drew Weatherford, plans to invest $50-$200 million in 5-10 top athletic departments to help them with their strategic capital needs.

It’s important to note that these will not be your traditional PE deals (i.e., payment in exchange for equity in the acquired company, 5-10 year hold time and then sell), but structured more like private credit deals, per Sportico.

In this setup, the investment group would pay a lump sum and then receive a guaranteed annual return (estimated to be 10-12% based upon industry standards) from the school instead of equity.

This is much more palatable for publicly-financed academic institutions to sell to their constituents, but I personally believe this is also a stepping stone towards the schools privatizing the commercial operations of athletics departments and allowing investment firms to take an equity stake.

This model has been used FC Barcelona and some of the prominent European soccer leagues, and it could work here, too.

Reduce expenses

During the SEC meetings this past week, newly minted Texas A&M AD Trev Alberts was quite blunt about how athletics departments operate:

I find this comment ironically both incisive and moronic at the same time.

It’s ridiculous given Alberts left the same role at his alma mater, Nebraska, for the “greener” pastures of College Station, where A&M boasts one of the biggest athletic departments in the country — generating $193 million in revenue and turning a nearly $16 million profit in the 2022-23 year. We’ve heard a similar “woe is us” argument from the major players every time there are rumblings of a shift in how the business will operate.

That being said, he’s right about one thing: there are dumb expenses everywhere in college sports.

In the current era, athletics departments at the major players have had copious amounts of cash.

To spend it, they invest in palatial locker rooms and performance centers, frivolous stadiums upgrades (i.e., one-upping each other on who has the biggest video board), and creating bloated athletic department staffs/paying ridiculous amounts for coaches to coach (or not coach – if you remember, Texas A&M is currently paying Jimbo Fisher $70 million to not be their football HC anymore).

They spent this money because they could and because the optics of turning massive profits while not giving a dime to the athletes were incredibly poor and would have accelerated the conversations about revenue sharing that we now find ourselves in.

So, in this new world order, the dumb expenses will likely be redirected into “smart expenses” – i.e., paying the players to get the best team out on the field.

All of that being said, expense redistribution is not going to be enough for the lower stratospheres of schools. They have to think about other methods.

There have been loud cries about potential non-revenue sports getting cut. That may well happen, but those are a pretty major black eye on the schools and can cause blowback amongst students and donors.

The bigger question for these non-power player schools to ponder and help them determine how they navigate these challenges and what hard choices they have to make: what do we want to be in this new era?

While I think they’re getting screwed on having to pay for the Power Four’s problems in the settlement distribution, the non-FBS schools generally know what they are and will likely take smaller steps into this new revenue sharing era. The Big East, for example, will invest in basketball and a few other sports with this cap, but that’s probably about it.

It’s the middle tier I worry about.

Several schools have invested tens of millions of dollars to try to move from FCS to FBS or into the upper echelon of conferences to compete in the last two decades. Many of them have visions of grandeur, particularly now that the CFP has expanded.

But, the reality is that that ship has likely sailed. That stratification referenced earlier has occurred.

If that’s true, is continuing to try to compete a losing cause, and therefore a “dumb expense?”

Remember, this new salary cap is optional and does not need to be maxed out. Mid-level schools would be setting themselves up for disaster if they tried to spend at the same levels of the big boys.

This is much easier said than done given the competing interests from the president, donors, and fans, but those in power should be intellectually honest with themselves about where they fit in this food chain. That can then inform how to allocate funds appropriately.

🍸️ Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Opener: We’re just a week or two removed from the monumental House v. NCAA settlement, and college administrators everywhere are starting to make plans for what this new world will look like. There is a new potential $20+ million expense category that will need to accounted for, and schools are determining areas they can grow revenue and where they can cut costs in order to redirect funds.

• Shot: It’s important to note that schools sit on a spectrum of how aggressive they will need to be in these respective categories given their place in the college sports pecking order. Barring a few exceptions, most Power Four and Group of Five schools operate differently given the grander size and scale of the P4’s athletic operations as well as the significantly larger TV money payouts. More than 50% of Group of Five schools earn less than $40 million annually in revenue, and this salary cap is based upon a ~$100 million average revenue for an athletic department.

• Shot: Here are the four ways I’d look to grow revenue: redirect fundraising towards endowing the revenue share amount, commercialize everything, modernize the ticketing system, and potentially consider private equity or other outside funding.

• Shot: When reducing expenses, the main thing to realize is that schools have been spending money on over-the-top things like facilities, coaching staffs, and stadium upgrades for years. Those “dumb” expenses, as Texas A&M’s athletic director called them, will likely get cut back and redirected.

• Chaser: More broadly, though, is the idea of trying to compete at the highest level when not one of the power players a “dumb expense?” I fear for the middle tier schools that have visions of grandeur on the gridiron but are likely to fall short and burn millions in cash on it in the process.

🤯 “Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. The Fever may be 2-9 on the court, but they’re capitalizing off of it

💪 Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. Sometimes you just need a familiar face on the golf bag.

2. Cosmic baseball is here, and it’s awesome.

Thanks for reading! Let me know what feedback you have.

Also, if you enjoyed this breakdown, please consider sharing it with your friends and network by clicking the social media icons at the top of the newsletter.

Until next time, sports fans!

-Alex