University of Utah Taking Investment From Private Equity

Private-equity firm Otro Capital will invest in a new corporate entity being formed by the University of Utah to manage revenue-generating athletic operations—in what serves as a possible blueprint for other schools to emulate.

The school’s 10-member board of trustees voted unanimously to approve the formation of the LLC during a meeting held Tuesday. The entity—Utah Brands & Entertainment—will be majority owned by the university, with Otro owning a significant minority stake. Its aim is to maximize all revenue streams, from ticketing and concessions to corporate sponsorships and other licensing deals.

The news was first reported by Yahoo Sports. A source familiar with the matter tells Front Office Sports the venture is expected to generate nine figures’ worth of revenue. 

While the vote was unanimous, the board discussed the proposal for more than an hour before voting. Among the questions raised were why Otro Capital was chosen, what will happen if revenue projections fail, and what risks are involved. University of Utah president Taylor Randall and AD Mark Harlan addressed the questions. Harlan called Otro the “perfect match.” Randall said the risk will be “shared” between the school and PE firm, and that the university can buy shares in the LLC back under certain circumstances, including whether Otro decides to move on. Randall also said the determination was that risks were greater if the school stood pat instead of taking this bold step.

The corporate structure has been done by schools before—Clemson University and the University of Kentucky each have such holding companies. But this marks the first time a private-equity firm is involved.

Brian Anderson, who co-leads the sports practice at law firm Sheppard Mullin, previously told Front Office Sports the corporate holding structure was a potential model for private-equity firms.

“PE can add a ton of value. It’s not just capital, it’s expertise,” Anderson said in August. “These funds often have portfolios of companies they can leverage to help schools commercialize stadiums, [secure] naming rights, sponsorships, fan engagement—all the things pro teams already do.”

The need for private capital in college sports has become heightened in the wake of the House v. NCAA settlement, which allows schools to share millions in revenue with players and offer extra scholarships. But it has been a crawl, due in part to sensitivities around putting private-equity money into schools, which are supposed to have an educational mission.

Before Tuesday, lending had been the route for private capital to be plugged into schools. Most major PE firms have private credit arms, and deals with those businesses are structured as loans: investors provide financing, collect interest, and get repaid.

Sports business consultancy Elevate is a prime example of private credit at play. Its $500 million initiative, announced in June, features money from private-equity firm Velocity Capital Management and the Texas Permanent School Fund—but rather than buying any stakes, Elevate offers loans on a deal-by-deal basis with negotiated repayment terms.

The deal with Otro, expected to be finalized in the coming weeks, represents a bona fide private-equity investment. The firm will own a stake in the LLC and infuse it with capital, with the idea being that this structure will alleviate a financial burden that has been growing since the House settlement. It will also benefit the school at large, and the PE firm, because Otro’s executives bring operating experience that is expected to result in revenue maximization.

Otro, whose portfolio includes the Alpine Racing Formula One team and sports-focused data analytics firm Two Circles, is led by cofounders Alec Scheiner, Brent Stehlik, and Niraj Shah. All three previously worked at RedBird Capital Partners. Prior to RedBird, Scheiner was an executive with the Browns and Cowboys. Stehlik is also a former Browns executive. A representative for Otro declined to comment Tuesday.

The deal is a significant step forward for private equity, which has been circling college sports without quite knowing the right entry point. Now that the University of Utah and Otro have taken the plunge, will others follow suit?

“The dam will break at some point,” Ben Fund, a partner at Carlyle Group, told FOS in June. “I hope it’s soon, because there’s a huge opportunity to generate returns and, I think, professionalize programs and invest in schools.”