University of Utah private equity deal sparks questions and debate. Is it the future of college athletics?

The University of Utah’s private equity deal might be a turning point.

Otro Capital is expected to inject up to $500 million into Utes athletics, a partnership that could blaze a lucrative trail that other schools soon follow.

But while Utah officials say the first-of-its-kind deal will be the difference between “surviving and thriving,” the agreement has already sparked scrutiny from lawmakers over tax implications and the university’s non-profit mission, questions about transparency and pushback from faculty members.

After last month’s announcement, U.S. Rep. Michael Baumgartner (R-Washington) also reignited conversation about his federal proposal, the PROTECT Act. The legislation would ban universities from entering into agreements with private equity or sovereign wealth funds.

“Congress will be taking a hard look at the tax exempt status of universities that enter into private equity deals,” Baumgartner said on X in response to Utah’s deal. “If you want to act like a non-public entity, you better be ready to be treated like one.”

The U., however, says it is confident its deal will fit within federal tax laws. And some experts believe it’s just the beginning of private equity in college sports, as schools face rising costs.

Utah Athletic Director Mark Harlan has said his department is facing a possible $30 million deficit as a result of conference changes and the House v. NCAA settlement, which essentially created a $20.5 million salary cap for student-athletes.

U. President Taylor Randall defended the partnership to faculty during a meeting this month, saying the recent financial upheavals in college sports demanded “some reinvention.”

“I don’t think any of us would prefer to be in this situation right now,” Randall said. “But it just is what we’re facing.”

U. faculty pushes back

Several faculty members spoke out strongly against the deal during an Academic Senate meeting on Jan. 5 — the first time many said they heard directly from Randall about the negotiations. That came a month after the announcement.

Randall said the U. athletics have been “a fiscally responsible enterprise” up to this point. But it won’t remain that way without the private equity deal, he said.

“We needed to find solutions to not just stay above water but thrive in a very important aspect of our university,” Harlan also told faculty during a meeting on Jan. 5.

Norm Waitzman, a U. economic professor, called the deal “antithetical” to the point of a university, which he said should be focused on education.

“I just think it’s all unfortunate, quite frankly,” he said. “I think that this is a reflection of the corporatization of the university.”

Lisbeth Louderback, an associate professor of anthropology, questioned if the deal wouldn’t ultimately hurt the education operations of the university, drawing donors to support athletics instead of academics.

“What if there aren’t profits?” added Leslie Francis, a law professor.

There were questions, too, about the impact on students, the possibility of ticket prices increasing for games — possibly pricing people out — and whether academic programs might be cut to come up with funding if the deal doesn’t work out.

Academic Senate President Richard Preiss encouraged Randall moving forward to include faculty, who can help the university work through concerns and find solutions.

“There is no safety checklist to review to ensure what we care about is protected,” Preiss told The Salt Lake Tribune. “It’s up to us to identify those checks, and that’s a role faculty can help perform in partnership with university administration.”

Private equity, Preiss said, is often associated with “the most short-sighted forms of capitalism.”

Randall told faculty that before arriving at the private equity deal, the school had considered other ways to come up with the money to cover a sports deficit. That included raising student fees.

“We didn’t like that idea philosophically,” Randall said.

The University of South Carolina went that route, bumping the costs for students by $300 athletics fee per year for all undergraduate students. That’s on top of $172 per year for sports ticketing at the school.

Currently, a U. student pays $165.38 toward athletics in fees each year out of a total of $1,109 in annual fees.

He also said the school thought about possibly cutting academics — which also already underwent state budget cuts this year — or getting rid of athletics altogether. Both of those options, he said, were quickly brushed off the table. Athletics, he said, brings students and the community together.

And it was his priority, he said, to safeguard academics, which is why he said the private equity deal was preferable. There is no mixing of academics in the deal, so if it were to fail, he said, the university’s academic operation would not be responsible for the funds.

“The whole idea here is the avoidance of costs on students and athletes,” Randall said.

Preiss said he appreciates that separation.

“Based on everything we’ve heard, I think the university has structured this deal as advantageously as possible,” Preiss added.

“Whether or not it becomes a yacht, right now we need a lifeboat,” he said. The federal legislative deal “could prove an extinction-level event for athletics at many universities.”

Randall also said he didn’t expect the cost of ticket prices to go up any more than typical annual increases. And the availability of student seats, he said, will remain the same.

Was there proper notice of the deal?

On the day the U.’s board of trustees approved the private equity plan last month, Utah Sen. Dan McCay took to social media. He said he hadn’t been alerted about the major deal before the announcement.

“Please call your friends at the state of Utah,” he wrote in a post on X. “I have questions.”

He wasn’t the only one who felt blindsided.

The Tribune called several other state lawmakers who said they were also not informed about the deal and frustrated by the lack of a heads-up.

Prior to announcing the deal, U. spokesperson Rebecca Walsh said in a statement, university President Randall had discussed it with state leadership: Gov. Spencer Cox, Senate President Stuart Adams and House Speaker Mike Schultz.

Walsh said that Randall also reached out to McCay after seeing his post and discussed his concerns.

There are also questions about whether the U. properly informed the public that it would be discussing the deal during its board of trustees meeting.

The agenda for the meeting listed the item to be discussed as “Proposal to Support the University’s Long-Term Financial Stability, Visibility, and Strategic Goals.”

It didn’t specify anything further or include any documents that it was a private equity deal or even concerning sports.

Utah’s Open and Public Meetings Act, meanwhile, requires “reasonable specificity” for public meeting agendas so that taxpayers know what government bodies are discussing.

Mike O’Brien, a media attorney in the state who also represents The Tribune in some matters, questioned if that agenda item was transparent enough to indicate what was really on the table.

“One would be hard-pressed to conclude that the notice the university gave here involved such a significant and unprecedented change to the nature of collegiate athletic finances,” he said.

Walsh, though, said the U. believes the description was “accurate and sufficiently specific to comply with the act.”

Further consultation with stakeholders and the public, she said, will happen moving forward.

Will there be legal pushback?

Legal experts who spoke to The Tribune said that the U. could face challenges being the first into this kind of financial arena.

“The Utah athletic rights are being severed off of the university and being put into a box of a for-profit corporation … So yes, they do need to be concerned,” Irwin Kishner, co-chair of the Sports Law Group at the New York law firm Herrick, told The Tribune.

University officials have said they have consulted tax lawyers and, according to a memorandum shared with the U.’s board of trustees, “there is substantial authority that the plan can be implemented in a manner consistent with federal tax laws.”

Some federal lawmakers, however, would like to see the laws changed. Even before Utah announced its deal with Otro, Baumgarnter, the congressman from Washington, had proposed legislation that would ban such partnerships.

“Assets under the control of universities should be managed in service of that public, educational mission — not carved up as a new asset class for private equity, hedge funds, or foreign sovereign wealth funds,” Baumgartner said in an October news release announcing his PROTECT Act proposal.

Utah Chief Financial Officer Tony Wagner told the Tribune this month that the U. remains confident its non-profit status will not be impacted by the private equity deal.

“There’s very careful work going on with that,” Wagner said. “We’re working closely with Otro with their legal counsel, our legal counsel as we work through those issues, I would say I am confident that we’ll be able to navigate that.”

But Baumgartner’s push is in its infancy. He filed his proposed bill in October and it has been referred to a legislative committee.

Meanwhile, other schools and conferences have been weighing the benefits of their own private equity deals. And Utah’s move might push some others into the water.

“These are professional teams that are operating on a, if you will, professional level,” said Kishner. “I certainly anticipate you’ll see a floodgate of these kinds of things happening. I think a lot of them will be utilizing the general structure that is being utilized in Utah.”

Who is shouldering the risk?

How much risk exists within this deal? It’s hard to say.

The partnership between the U. and Otro Capital is expected to be finalized early this year. The Tribune has requested a copy of the proposed agreement between the parties, but has not been able to review it yet.

U. officials, though, have said they feel confident in the amount of risk the university is assuming.

“Mitigating risk, we focused on that like a laser,” Wagner told the Utah board of trustees last month. “But the upside is the difference between surviving and thriving.”

Randall told faculty there will be annual audits of the venture, with reports made to the state, to ensure compliance and transparency.

He also said the university’s risk with the private equity firm is “about the same” as it faces now with having a sports deficit it can’t cover. If it fails, he said, the U. will still be on the hook for coming up with that money. But it won’t be responsible for paying back any shareholders.

“We’re not going to try to hide anything in there,” Harlan added about the contract with Otro.

He said he’s also known the individuals who run Otro for about 20 years.

If the private capital with Otro Capital does indeed fail, Wagner said there are multiple scenarios where the U. can exit or even buy back the minority stake of the deal if the deal goes awry

“We will basically always have the right to be able to buy it back,” Wagner said of Otro Capital’s minority stake.

Randall added that Otro Capital is “taking risk with us.”

“We both feel an obligation to make this venture successful, and we both want the same thing,” Randall said. “The next few years is about getting this venture off to an extraordinarily successful trajectory.”