Private Equity: When Wall Street Meets College Athletics

Imagine sitting in a boardroom where a private equity firm is evaluating your athletics department like a middle-market manufacturing company. They’re confident. They’ve done this hundreds of times. They’re asking questions about earnings, EBITDA and normalized cash flow. And none of these concepts exist cleanly in your world.

Before a private equity firm writes a check, it needs to know how real an athletics department’s earnings are. To answer this, the private equity (PE) firm conducts a Quality of Earnings (QoE) analysis. In layman’s terms, a QoE is essentially a stress test of whether revenues are real, repeatable, and usable.

The QoE’s purpose is not simply to check the math. It’s to help investors understand the sustainability, reliability and drivers of a company’s earnings so they can make an informed investment decision. PE decisions are rarely made on instinct; they’re made on how much confidence investors have in the numbers.

As universities consider private equity partnerships, PE buyers are trying to apply a traditional QoE framework to a completely nontraditional environment. University financial structures do not resemble corporate financial statements. And athletics finances are even more unique due to:

• Restricted vs. unrestricted funds
• Booster influence
• Institutional subsidies
• Conference distributions
• NCAA financial reporting requirements
• Lack of EBITDA (earnings before interest, taxes, depreciation and amortization)
• Complex cost allocations
• Governance and compliance-driven constraints
• Mission driven (not profit driven) decision making

As a result, the standard QoE playbook simply does not translate without significant adaptation.

What is a QoE Analysis?

If your institution were evaluating a new academic program, you wouldn’t count one-time grants or start-up subsidies as ongoing revenue. That’s essentially what a QoE analysis does for PE. It strips away noise to understand what financial performance is truly repeatable.

In practice, a QoE analysis asks a simple question: How much money does this business actually generate on a recurring basis that can be relied on going forward? The QoE teams strip out one-time, nonrecurring or misleading items that inflate reported results. For investors, inaccurate earnings are like a campus reporting donor pledges as cash or treating championship-year ticket sales as a guaranteed future revenue stream. The QoE prevents overpaying for performance that is not sustainable.

At its core, a QoE evaluates:

• Whether revenues are truly recurring
• Whether expenses reflect ongoing operations
• Whether reported earnings convert to real cash
• Whether future obligations reduce available cash flow

In PE, these answers directly drive valuation.

Why Traditional QoE Models Break in College Athletics

The many structural realities that exist in collegiate athletics have no corporate analog. These issues directly affect what earnings are usable, transferable and shareable, and therefore whether a PE return model is even viable.

Donor-Restricted Contributions

In a corporate QoE, revenue is presumed to be unrestricted, deployable and available to support operations or debt. In college athletics, donor-restricted contributions are often one of the largest single funding sources, yet they are purpose restricted, time restricted, donor controlled and reputationally sensitive. From a QoE standpoint, this creates a fundamental problem: The largest “revenue” item may be economically unusable.

A QoE will need to separate booked contribution revenue from spendable operating resources, identify donor intent restrictions that prevent sharing or monetization, and assess donor behavior risk if athletics enters a PE partnership. Many donors give because athletics is missionaligned instead of commercial. A PE transaction could trigger donor withdrawal, force renegotiation of gift agreements, or give future donors the impression you no longer need additional funding.

Revenue Contract Partners

Multimedia rights (MMR), apparel, licensing and other revenue contracts are not normal commercial contracts. Private equity is comfortable underwriting customer contracts, vendor relationships and licensing agreements. However, athletics contracts with MMR partners, apparel providers and licensing and sponsorship entities are hybrid agreements, blending cash payments, in-kind benefits, brand obligations, performance clauses and termination rights tied to conference affiliation or NCAA status. Many contracts are institution-level, not athletics-owned, and may prohibit assignment or revenue sharing.

A traditional QoE may assume contract cash flows are transferable, upside can be extracted through renegotiation (good luck with that!) and PE can share in existing revenue streams. In reality, MMR revenue is often shared with the institution and apparel deals include large non-cash components that inflate revenue. Licensing revenue may be pledged to debt or restricted by state law, and contract renegotiation may trigger clawbacks or termination.

NCAA and Conference Distributions

Unlike a corporation, athletics departments do not fully own key revenue streams. Many distributions are governed by NCAA bylaws, conference constitutions, federal compliance obligations and institutional agreements. Examples include NCAA grants-in-aid distributions, Student Opportunity Fund allocations or conference media revenue distributions related to required production capital enhancements. These funds are typically earmarked for specific student-athlete benefits, prohibited from third-party diversion or subject to audit, clawback or forfeiture. These outcomes could carry direct financial consequences that are rarely captured in traditional models.

Traditional QoE teams may treat these distributions as operating revenue, assume they can be pooled into total earnings and model them as shareable cash flows. But PE participation raises a red flag for NCAA governance, conferences with their own revenue optimization strategies or institutions worried about compliance violations. There is significant uncertainty about whether these revenues may be shared with PE — or whether doing so jeopardizes eligibility.

Public Institution Constraints

Many institutions face state law and public university constraints that directly affect QoE. Certain revenue streams may be restricted by statute, subject to public records requirements, pledged to bondholders or governed by board or legislative approval. From a PE perspective, these are often treated as abstract legal risks. For institutions, they are binding realities.

A QoE that assumes revenue is shareable without confirming legal authority can expose universities to compliance violations, covenant breaches or public scrutiny that extends far beyond the transaction itself.

Athlete Revenue Share/House Settlement

By focusing on historical financial performance, PE will be evaluating legacy athletics models, not the post-House environment. From an investor perspective, athlete revenue share represents a new, recurring operating expense and a direct claim on future cash flow, reducing the earnings available to support returns.

A traditional QoE may attempt to model revenue share as a predictable expense. But these obligations may evolve rapidly, be subject to additional regulation or drive future litigation. Without proper context, a QoE risks understating future obligations and overstating distributable earnings.

Exit Risk and Transferability of Earnings

In a traditional PE investment, QoE is about whether those earnings can be transferred to a future buyer. In college athletics, that assumption is far from certain.

If earnings cannot be transferred cleanly at exit, pressure could shift back to the institution through renegotiation, operational constraints or reputational fallout. These risks are rarely visible in a standard QoE model, but they’ a’e central to whether a PE investment truly works.

What PE is Really Trying to Understand

PE firms are not focused on accounting theory. They’re trying to answer a small set of practical questions that determine whether an investment works over time:

• How much cash is truly dependable year after year?
• Which revenue streams disappear if conditions change?
• How much cash must remain inside the operation to keep it running?
• What revenue looks real on paper but cannot legally, contractually or politically be shared?
• Where are future obligations that could strain liquidity?

In a corporate setting, these questions are often answered through EBITDA and working capital. In college athletics, the answers live in restricted gifts, governed distributions, institutional subsidies and compliance-driven constraints.

This matters because PE doesn’t just buy cash flow. It buys rights, often including approval over budgets, contracts, staffing and capital decisions. When QoE assumptions are wrong, deal structure can shift control in ways institutions did not anticipate.

A successful QoE in college athletics answers investor questions honestly while preserving the financial, legal and governance realities of higher education.

Key Components of a QoE

In practice, QoE adjustments in college athletics focus on separating sustainable operations from one-time or restricted activity.

Normalize Revenue

Collegiate athletics examples include:

• Removing guarantee revenue from a marquee home-and-home series
• Removing House settlement back damages from future NCAA revenue distributions
• Adjusting for COVID-era spikes in conference advances or dips in ticket sales
• Considering abnormally high fundraising during a capital campaign
• Verifying revenue recognition is consistent and compliant

Normalize Operating Expenses

Collegiate athletics examples include:

• Coaching contract buyouts
• Future athlete revenue share payments
• Guarantee expenses from the home-and-home
• Legal settlements
• One time consulting expenses

Deliverables: What the Investor Gets

At the end of the engagement, private equity receives a QoE report, which provides:

• Adjusted earnings and cash flow
• Observations that may affect deal structure
• Key financial risks
• Sustainability of revenue
• Recommendations on purchase price

This is like the output of an internal audit or NCAA agreed-upon procedures, but more forward-looking as a tool to support decision-making rather than compliance.

What University and Athletics Leaders Should Do Before QoE Begins

Institutions considering PE should prepare for a QoE process before diligence starts, not after assumptions are baked into the model. Practical steps include:

• Inventory spendable vs. restricted revenue
• Align leadership earlyincluding athletics, finance, advancement, legal and compliance) to ensure consistent messaging to investors
• Define which revenue streams are non-sharable due to legal, contractual or governance constraints
• Stress-test donor and stakeholder reactions, particularly where mission alignment may be affected
• Anticipate regulatory and conference responses, not just investor expectations

Institutions that enter a QoE process unprepared could spend the rest of the deal cycle undoing assumptions that should have never been made in the first place.

The Moral of the Story

A QoE analysis is not a neutral exercise when applied to college athletics. It is a translation exercise. And whoever controls the translation controls the story.

PE firms are applying the frameworks they know best, but college athletics is not a business in the way PE defines a business. It doesn’t generate free-floating earnings. It doesn’t control all of its revenue streams. It doesn’t freely deploy its cash. And it doesn’t operate under a single accounting framework designed to measure profitability.

Yet QoE teams will still attempt to measure “earnings” because that is how investments are priced. If institutions remain passive, the resulting analysis will reflect the buyer’s assumptions, not the institution’s financial reality.

Higher education leaders have seen this before — for example, when external auditors unfamiliar with athletics misinterpret financial results. Now add another layer of Wall Street diligence teams, even those with professional sports experience, who don’t understand higher education governance, compliance or mission-driven finance.

This is why institutions exploring PE in college athletics cannot afford to be silent participants in a QoE process. They need an advocate who can translate higher education finance into investor terms, push back when assumptions are wrong and explain why certain revenue simply cannot be treated as earnings.

Most importantly, they need someone credible willing to say, “That works in a company. It does not work here.” Because in this process, getting the numbers wrong is expensive, but getting the story wrong is far worse. Need help turning numbers into value? James Moore’s Collegiate Athletics CPAs and consultants work alongside universities during PE diligence and QoE analysis to translate complex higher education and athletics finances and compliance realities into a defensible QoE narrative. We serve as your strategic translator and advocate when PE comes to the table.