Wetzel: Beware, college sports, private equity has arrived

The University of Utah approved a groundbreaking private equity deal Tuesday that promised hundreds of millions of dollars for the school's athletic department, which like nearly every athletic department in the country is running an annual deficit.

This was a historic vote. The Utes need money. Otro Capital of New York, a firm that seeks investments in sports, sees an opportunity. The company is offering more than $400 million to the school, a source told ESPN, plus Otro's operational expertise, to generate new revenue streams for the department.

"I think we can go from surviving to thriving," Utah trustee Bassam Salem said before the vote, echoing the optimism of the moment. He then expressed the shared concern: "Are there risks? Yes. Am I concerned? Yes."

Everyone should be; not just at Utah but across college athletics, where deals like these are expected to become more common.

The core problem though, which the smart folks in private equity have certainly realized, is this:

College athletics doesn't have a revenue problem.

It has a spending problem.

Even as revenue goes up and up from richer media deals, expanded playoffs and modernized operations, costs continue to soar because of revenue sharing with athletes, coaching salaries, increased travel and debt on ever-more opulent stadiums and locker rooms.

At some point, spending has to be addressed. Private equity firms, renowned for acquiring investments with an eye toward cutting costs, consolidating and reselling for a profit, are likely to do it with a different mindset than college administrators.

An Otro spokesman declined comment on this deal, which isn't expected to close until 2026.

Typically, though, it would seem that private equity companies aren't really interested in college athletics -- which lose money at nearly every school -- but rather college football and, to a lesser degree, men's college basketball, both of which turn significant profits at the major level.

Utah athletics, for example, lost $17 million in fiscal 2024 after spending $126.8 million against $109.8 million in revenue, per school documents. That's a 15.8% deficit.

However, the Utes football program turned a $26.8 million profit. Men's basketball followed at $2.6 million. The remaining 17 programs lost $21.2 million, per documents.

It's Business 101: If costs need to be cut, then nonprofitable divisions get the axe, perhaps completely. In this case, that could mean Olympic sports teams.

Not everything at a university should have to make money, of course. Every school has a marching band. Yet that isn't how private equity traditionally works -- this is business, not academia. What's the cost analysis on the clarinet section?

That's the crossroads that is coming.

No one will say for certain whether sports will be scaled back or even cut, and perhaps they won't be, especially in the near term. Business is business though.

Final details of the Utah-Otro deal will be hashed out before closing in 2026. But the basics are this: In exchange for the cash infusion, Otro will get a minority share of the newly created, for-profit entity Utah Brands & Entertainment. The university's foundation will own the majority.

That entity will handle sponsorships, NIL, ticket sales and other business-side items. The university's argument is that Otro's expertise will increase revenue. Utah, meanwhile, will control scheduling, hirings and firings and handling the student-athletes.

Utah was in the red despite, it noted, "ticket sales, number of donors, and total donations ... [improving] year-over-year." The department already collects $6.2 million in fees from students courtesy of a $82.69 per-semester charge, according to documents.

Essentially, something needed to be done.

"There's equal risk of actually not doing anything," school president Taylor Randall said at Tuesday's meeting.

So Utah is getting a cash infusion and some operational expertise in exchange for ... ?

That's the question.

Utah says it will have governing control over Utah Brands & Entertainment. "Decisions regarding sports, coaches, scheduling, operations, student-athlete care and other athletics matters will remain solely with the athletics department," athletic director Mark Harlan said.

Generally speaking, though, across college athletics, a business approach to an athletic department is going to lead to uncomfortable and previously politically-loaded conversations about cutting expenses.

That's because no school has consistently managed to generate enough revenue to cover ever-rising costs.

Even mighty and massive Ohio State, which brought in $254.9 million of revenue in fiscal 2024 (or nearly 2.5 times the amount of Utah), according to school documents, ran a $37.7 million deficit while operating 32 athletic programs.

It's one reason Ohio State supported a $2.4 billion private-capital deal between the Big Ten and UC Investments before the proposal stalled out last month because of opposition from Michigan and USC. Mark Bernstein, chair of Michigan's Board of Regents aptly noted that until runaway spending was addressed, the deal was simply akin to a "payday loan."

College athletics has done much of this to itself, mind you.

Costs have been out of control for decades. The facility "arms race" has been financially destructive everywhere. Leagues have expanded, causing spikes in travel for even the smallest of programs. Motivated by winning, almost no one has kept a latch on coaching salaries, buyouts or staff sizes -- in football especially, but every program as well.

While there is certainly plenty of fat that can be cut from football or men's basketball, those are the profitable divisions that generate the money that keeps everything potentially viable. While Title IX compliance remains a factor, the emotional decisions about the value of other teams have been kicked down the road.

It's how not just Utah, but nearly everyone else, has gotten to the point that these deals look like a life preserver.

Yet private equity is, usually, motivated to turn a profit to recoup (and then some) its initial investment.

How long until they, unmoved by arguments about the ethereal value of, say, having a tennis team, or that swimmers work as hard as football players, don't push for bottom-line decisions -- namely some of these teams need to go?