Rather than reject this inevitability, we believe that if properly expanded and implemented the Kentucky model can be a boon — both programmatically and financially — not only to universities’ athletic programs but more importantly to their main mission, academics.
Champions Blue LLC now houses the entire University of Kentucky athletic department. The new company is 100 percent owned by the university and will be governed by a board that is headed by the university president and includes other university officials as well as outside business and sports executives.
While we are unaware of other universities that have gone so far as to incorporate their athletic departments, they too will have to respond to a changing fiscal landscape. The Big Ten Conference, for example, is currently sitting on an offer from an investment group that would pay the conference $2.4 billion for a 10 percent interest in a new enterprise that would manage and hold various media rights. And the University of Utah has agreed to partner with a New York-based private equity firm to create a separate corporation to which it will transfer certain athletic-related assets.
While Kentucky is moving in a direction that is probably inevitable, to have a positive impact on both athletics and academics other individual institutions, as well as big-time sports conferences, need to take further measures. Here is what we propose:
First, like Kentucky, universities should incorporate — if not their entire athletic programs then at least those of major revenue sports such as football and basketball. While retaining controlling interest, they should sell equity shares to outsiders.
Given the significant value of many sports programs, universities are sitting on a pot of money they can use to help fund other academic priorities. For example, the University of Texas football team is said to be valued at $2.38 billion. Put even a fraction of that into an endowment and the earnings would cover the faculty salaries in perpetuity of more than a few liberal-arts departments.
Of course, not all college teams are as valuable as the Texas Longhorns. Yet private investors have shown a penchant for purchasing professional sport teams, often willing to pay extraordinary sums for teams in relatively small markets.
No less important than the financial benefits of incorporation are policy changes that should be made to the current model. First and foremost, players should be paid directly by the corporation and salaries should be based on market conditions. After all, universities are already permitted to pay athletes: Under an agreement that settled three antitrust suits against the NCAA, universities can divvy up to $20.5 million a year among all of their athletes. Hence, the objections to additional direct payments to athletes are no longer over principle, but only price.
Irrespective of whether universities are willing to live with their name, image and likeness (NIL) schemes, which permit athletes to be compensated by outsiders but not the university itself, that arrangement is certain to fall from the weight of its complexity. Last month, for example, parties to one of the NCAA lawsuits filed a motion claiming that certain types of firms (those holding multimedia rights) were being unfairly viewed as being too closely associated with universities to be considered independent NIL providers. Moreover, at least 32 states have passed laws regulating NIL and other aspects of athletes’ compensation.
In a further assault on the hypocrisy that characterizes current practice, we propose that athletes need no longer be students. They could, and would be encouraged to, pursue degrees, but would not have to. Similarly to professional sports leagues, conferences could establish reasonable rules as to transfers from one team to another, as well as salary caps. These could include limitations as to age and number of years of eligibility.
The advantage of dropping the academic eligibility requirement inures to the benefits of academics as well as athletics. Athletes who have no interest in academics would no longer have to pretend that they are pursuing an education, and universities would no longer need to pretend that they are providing one. Faculty and academic administrators could focus on teaching students whose primary purpose is to acquire an education, while coaches and corporate personnel could concentrate on the athletes and their needs. Courses and majors designed specifically for athletes, expensive tutoring centers and counselors to monitor academic progress could be eliminated.
One potential disadvantage of this seemingly radical approach may include tax implications related to the corporate arrangement. However, as a leading member of the U.S. Senate Commerce Committee has already suggested, once universities engage in private equity deals, as they are already doing, they should no longer continue to be immune from taxation.
The current model of athletic management tries to add the oil of free markets to the mythically pure waters of amateurism. They don’t mix. College sports are a big business. Considering the current and expected future strain on higher education finances, universities should not only embrace this trend but take it a step further by incorporating their revenue sports and abandoning the discredited fiction of the “student-athlete.”
Michael Granof is the EY professor of accounting emeritus at the University of Texas at Austin. Martin J. Luby is an associate professor at the LBJ School of Public Affairs at the university.
Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
