Kentucky is splitting off the athletic department
Can you really have a Front Porch if it's not attached to the house?
In a first of its kind move, Kentucky is going to split their athletic department off from their university into an LLC, the school announced April 24. For many opponents of the NIL and possible NFL-ification of college football, this move may ring as the end of days in college football. But what’s actually at stake here?
The idea
I hate to keep beating a dead horse, but, with the House v. NCAA settlement in a state of limbo that could reinvent everything we’ve known about college athletics, athletic departments are going to have to adapt to that coming future. Kentucky is trying to make that adaptation.
Their idea: to make the university’s athletic department not a subsidiary of the university itself, but its own entity as an LLC. Champions Blue, LLC to be precise.
The proposal was approved in full by the UK Board of Trustees last Friday, April 25, and is ready to go. Most surprisingly, it doesn’t seem to be a contingent approval based on the outcome of the House settlement. It’s a full green light to go ahead right now.
According to the Louisville Courier Journal’s Payton Titus, the articles of incorporation for Champions Blue, LLC were filed April 17 ahead of the official proposal, so the new nonprofit entity is hitting the ground running.
But why did Kentucky go after this? Well, the House settlement certainly plays a big role, but university president Eli Capilouto and athletic director Mitch Barnhart believe this move will make Kentucky one of the most efficient and effective athletic departments in the nation.
“It’s a foundation and model that we are calling Champions Blue. Athletics and its success have always been the result of an incredible and productive partnership with campus. It will continue to be in the future — if we seize the opportunities in front of us to meet the challenges that lie ahead,” said Capilouto in the Kentucky press release.
So how does this work?
Kentucky isn’t looking to shake up the entire business model of college athletics here. Capilouto and Barnhart still retain the power within the new organization. Think of Champions Blue, LLC like a large advisory committee.
Champions Blue will be led by Capilouto and Barnhart, but a Champions Blue Board will be established relatively soon. This board will provide “strategic guidance and growth,” according to the school’s press release. Members have yet to be chosen, but will include both UK officials and outside experts. The press release pointed towards individuals with “outside expertise from business and the professional sports world,” so we can assume major donors and alumni would have a seat at the table.
If we look a little further, it appears the Champions Blue Board will be mostly comprised of the senior athletic administrators in the Kentucky office. In the official proposal to the Board of Trustees to adopt the Champions Blue model, it’s pointed out that “the President shall insure those senior administrators, who shall serve by virtue of their office, are a majority of the Board of Directors of Champions Blue, LLC.” That means that, in practice, the operations within the Kentucky athletic department shouldn’t change much.
That means that this move, as to be expected, is simply to increase revenue streams and find additional funding. That’s clear in the proposal, which lists one of the five main goals as “Restructure to accept new capital and approach permanent financial stability.”
But how will this restructure open up new capital and revenue stream lines? Certainly, private equity is on the table and much easier for an LLC to accept than a university’s athletic department. Kentucky’s press release floated out ideas such as “expanded premium seating and fan amenities in Kroger Field or public-private partnerships to develop revenue-generating ventures.”
Sounds like private equity to me.
Want to know more about private equity in college football? Check out our piece from last summer breaking it down!
Will this actually matter in the end?
Probably.
While the actual operations of Champions Blue won’t be much different from how Kentucky operates, it does open up a lot of new ways to manage the department. Namely, as its own entity instead of focusing on what’s best for the overall school.
In higher education, there’s a lot of debate about whether or not athletics at the level like Kentucky’s are good for a school. On one hand, you have the folks that see rising coaching salaries and rising player payrolls coupled with rising tuition and fee rates, leading to most universities effectively pricing out some potential students. With lowering enrollment, growing staff payroll and, for most campuses, a laundry list of upkeep issues stemming from academic buildings to dorms, how should you justify sending millions and millions of dollars into athletics?
The other side takes into account the “Front Porch” idea where athletics serves as the Front Porch for a university. When you think of a school, what do you think of first? Based on the fact that you’re reading this newsletter, you think about their football team or basketball team before their engineering program. Incoming students often think the same way and there’s a theory out there that more competitive and successful athletics lead to higher enrollment and graduation rates. Just look at the 51 percent increase in enrollment at Alabama during the Nick Saban tenure as evidence.
No matter where you fall on the debate, splitting off the athletic department can be seen as an end-all be-all solution: the athletic department is a separate entity so there is no institutional money going to athletics, all while the athletic department maintains its relationship and is still under the college’s umbrella and promoting the school. Everyone’s happy, right?
To go a little further, it takes a unique type of trailblazing university and athletic department to pull something like this off. Kentucky just might be the university.
All across the Board of Trustees proposal and press release are mentions of how Kentucky has already done this entire shebang. It’s not new to them.
The University of Kentucky already has an affiliated LLC, Beyond Blue, that is the holding company for a lot of their assets. In fact, they’ve used Beyond Blue most recently to overhaul the university’s medical system in acquiring King’s Daughters Medical Center and St. Claire Health, two local hospitals.
In those hospitals, the “existing senior administrators and managers with the most expertise stayed in place,” much like their plan for keeping the power with Capilouto and Barnhart in the athletic department. Beyond Blue was merely used to achieve more flexibility in the hospitals’ finances. That includes a new $100 million Emergency Department for King’s Daughters and a $300 million overhaul of St. Claire to bring both facilities up to higher modern standards.
Now, Beyond Blue is valued at $1.3 billion and a massive success.
It’s a clear roadmap for Champions Blue and the Kentucky athletic department. Keep operations the same and open up new revenue streams. But running a hospital is different than running an athletic department. Especially one like Kentucky’s that is a bona fide blue blood on the hardwood and ponying up the big bucks on the gridiron to their coach. Athletics is a results-driven field unlike anything else. I have no doubts that the capital and funding will be there, but does it translate to on-field wins?
That largely depends on the House settlement and, with it, the rules and oversight contained within. Right now, Kentucky and Champions Blue can spend to their hearts’ desire to bring in top-notch athletes and transfers across all sports. The settlement, though, puts in a $20.5 million cap on athlete revenue distributions directly from the school.
I know what you’re thinking - Griffin, Champions Blue isn’t the school, it’s an LLC! - and you’re wrong. Champions Blue still falls under the university’s umbrella. Kentucky didn’t find a loophole to circumvent the NCAA’s newest idea for regulation. If they did, you would’ve heard a lot more about this story by now and other athletic departments would’ve finalized the move.
Either way, this will be an interesting case study. Is it a sign of professionalization in college football? Sure, but no more than the House settlement or growing coaching salaries were. This is simply innovation and positioning a school for the best in an unknown world. We’ll see how it plays out, but I’ll be excited to monitor Kentucky going forward.
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Very interesting! Thanks for the breakdown, sir.