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PART III
The Evidence: Documents, Deals, and What's Actually Happening
Show Me The Receipts
```Up to this point, we've established the pattern (locomotives) and shown how it appears everywhere in college athletics (the lens). Now it's time to prove it with evidence.
This section presents the actual documents, financial structures, legal mechanisms, and concrete data that demonstrate the transformation is real, systematic, and accelerating.
No speculation. No theory. Just the receipts.
```1. The Forcing Function: House v. NCAA Settlement
```The entire LLC/PE transformation exists because of one legal reality: schools must now pay athletes directly, and most can't afford it under the old model.
What The Settlement Actually Says
- Back Damages: $2.576 billion paid over 10 years to athletes who competed 2016-2025
- Revenue Sharing Cap: $20.5 million per school for 2025-26 academic year
- Cap Calculation: 22% of average athletic revenue across Power 4 conferences
- Annual Increase: 4% minimum per year (reaches ~$32.9M by 2034-35)
- Total New Spending: Estimated $19.4 billion over 10 years across all schools
- Opt-In: Schools choose whether to participate (virtually all Power 4 will max out)
Where The Money Actually Comes From
This is the critical question that reveals why LLCs and PE matter. The $20.5M isn't free money—it has to come from somewhere.
The gap is real. According to financial analyses, most Power 4 schools will need:
- $20.5M for revenue sharing
- Plus up to $2.5M for expanded scholarships
- Plus increased NIL collective funding (which continues separately)
- Plus legal/compliance costs for the new system
- Total new annual costs: $25-30M+
Utah Athletics ran a $17 million deficit in fiscal 2024—before revenue sharing. Adding $20.5M in new athlete payments would have made that a $37.5M+ annual deficit.
This wasn't sustainable. Something had to change structurally.
Enter: Otro Capital with $500M.
The Compliance Infrastructure
The House settlement created a new enforcement body: the College Sports Commission (CSC). This isn't just bureaucracy—it's evidence of professionalization.
- CEO: Bryan Seeley (former MLB executive)
- Function: Monitor revenue sharing, investigate violations, enforce roster limits
- NIL Oversight: Every third-party NIL deal over $600 must be submitted for approval
- Clearinghouse: "NIL Go" portal tracks all deals
- Arbitration: Binding dispute resolution for compliance issues
This is professional sports infrastructure. Commissioner. Arbitration. Centralized compliance. The amateur model is dead in everything but name.
The Allocation Problem
The settlement doesn't mandate how schools split the $20.5M. This creates massive Title IX exposure.
According to early public allocations:
- North Carolina: $13M football, $7M men's basketball, $250K baseball, $250K women's basketball
- Notre Dame AD Pete Bevacqua: "Some schools allocate up to $16 million to football"
- Typical formula: ~75% football, ~15% men's basketball, ~5% women's basketball, ~5% other
This means 90% of revenue sharing goes to male athletes. Title IX requires equitable treatment. This will be litigated. Extensively.
```2. Kentucky's LLC Structure: The Legal Architecture
```Let's dissect exactly what Kentucky built and why it matters.
The Organizational Chart
University of Kentucky (Public 501c3)
└── Beyond Blue Corporation ($1.3B nonprofit holding company)
└── Champions Blue, LLC (Athletic Department)
├── Revenue Operations
├── Athletic Teams
├── Facilities
└── Compliance
Key Legal Designation: "Disregarded entity for tax purposes"
What "Disregarded Entity" Actually Means
This is the tax innovation that makes the whole structure work.
A single-member LLC that the IRS treats as if it doesn't exist separately from its owner for tax purposes. Income and expenses "pass through" to the parent organization.
For Champions Blue this means:
- LLC's revenues are taxed as part of Beyond Blue Corporation (nonprofit)
- Avoids separate corporate income tax
- Maintains connection to university's 501c3 status
- BUT: Creates legal separation for liability purposes
The magic: Tax treatment says "you're part of the university." Liability treatment says "you're a separate entity." Best of both worlds.
The UBIT Shield
Here's why this matters for tax-exempt status:
Unrelated Business Income Tax (UBIT) applies when nonprofits earn income from activities "not substantially related" to their exempt purpose (education). College athletics has historically avoided UBIT because sports were considered educational/recreational.
But paying athletes $20.5M annually? That looks commercial, not educational.
"The significant commercial growth seen in recent years has led to discourse about whether UBIT should be applied to income derived from college sports. The creation of Champions Blue LLC shields the University of Kentucky from that potential taxation."
Translation: If the IRS decides college football is commercial business (which it obviously is), the LLC structure protects the university's overall tax-exempt status by quarantining the commercial activity.
The Private Benefit Problem
There's another tax risk: private benefit doctrine.
501c3 organizations can't provide substantial benefits to private individuals. But revenue sharing pays specific athletes millions of dollars. That's... a private benefit to individuals.
By operating through Champions Blue LLC, Kentucky can argue:
- The commercial entity (LLC) is paying for commercial services (athletics)
- This is business expense, not private benefit
- The nonprofit university isn't directly providing private benefit
- The firewall protects the university's exempt status
Will the IRS buy this? Unknown. But it's a defensible structure that traditional athletic departments don't have.
The Liability Firewall
This is the other major benefit—and it's huge.
Scenario: Football players are deemed employees (NLRB Dartmouth ruling, pending appeals). They sue for back wages, benefits, workers' comp. Damages: hundreds of millions.
| Traditional Structure | LLC Structure |
|---|---|
| Athletic department is university department. Lawsuit targets "University of Kentucky." All university assets at risk—endowment, research funds, academic buildings. | Athletic department is Champions Blue LLC, a separate legal entity. Lawsuit targets the LLC. Liability contained. University's academic assets protected. |
This is what LLCs exist for: Limited Liability. The clue is in the name.
The Beyond Blue Model
Kentucky didn't invent this. They copied their own healthcare playbook.
- Created: 2014
- Purpose: Manage UK Healthcare acquisitions and ventures
- Structure: University-affiliated nonprofit holding company
- Portfolio: King's Daughters Medical Center ($100M investment), St. Claire HealthCare ($300M investment)
- Total Assets: ~$1.3 billion
Why this worked: Healthcare acquisitions require business flexibility that traditional university governance doesn't allow. Beyond Blue operates like a private company while remaining university-affiliated.
Champions Blue is the same model applied to athletics. It's not experimental—it's proven internal infrastructure.
3. Utah's PE Deal: The Money Explained
```If Kentucky is the legal innovation, Utah is the financial innovation. Let's break down exactly how the Otro Capital deal works.
The Deal Structure
- Formation: December 9, 2025
- Total Capital: $500M+ (Otro equity investment + donor equity purchases)
- Otro's Stake: Significant minority equity position (exact % undisclosed)
- University Control: Majority ownership maintained
- Governance: Board includes AD Mark Harlan (chair), Otro executives, Utah trustees
- Operations: External president manages day-to-day commercial operations
- Otro's Return: Percentage of annual revenue from Utah Brands & Entertainment
- Exit Strategy: 5-7 years; university has right to buy back Otro's shares
What Moved to the LLC vs. What Stayed
This is the clever part—surgical separation of commercial from competition.
| Utah Brands & Entertainment LLC (Commercial Operations) |
University Athletic Department (Competition Operations) |
|---|---|
|
• Ticketing • Concessions • Corporate sales & sponsorships • Media production/broadcasting • Hospitality & premium seating • Brand partnerships • Licensing & merchandise • Content creation • Digital platforms • Finance operations • Revenue-sharing payments to athletes |
• Fundraising (donations) • Coaching decisions • Player personnel/recruiting • Conference management • Scholarship administration • NCAA compliance • Academic support (Everything needed for NCAA eligibility stays with university) |
See what they did? Everything that generates revenue moves to the LLC where PE has equity. Everything that maintains amateur status stays with the university for NCAA compliance.
Who Is Otro Capital?
Understanding who's actually running this matters.
Founded: 2023 by former RedBird Capital Partners executives
Key Personnel:
- Alec Scheiner: Former Cleveland Browns president, Dallas Cowboys SVP. Deep NFL front office experience.
- Brent Stehlik: Former Browns executive. Sports business operations expertise.
- Niraj Shah: RedBird Capital veteran. Private equity structuring.
Philosophy: "Operator-led private equity firm" — not passive investors, active managers with hands-on approach
Existing Portfolio:
- Alpine Racing (Formula 1): $200M for 24% equity stake
- FlexWork Sports: Marketing and events
- Two Circles: Fan and data analytics platform
Pattern: Otro invests in sports properties with undermonetized commercial operations, brings professional management, optimizes revenue, exits at multiple of investment.
These aren't college administrators. They're NFL executives and PE professionals who run professional sports franchises. And now they're on Utah's board managing commercial operations.
The Return Calculation
How does Otro make money? Let's model it.
Utah Athletics Current State:
• Annual operating revenue: $126.8M (FY 2024)
• Football revenue: $79.1M
• Annual deficit: $17M
Otro's Investment Thesis:
"With professional management, commercial optimization, and capital
for facility/brand improvements, we can grow revenue 15-20% annually
while improving margins."
5-Year Projection:
• Year 1 (2025-26): $127M revenue → improve to $145M (commercial optimization)
• Year 2: $145M → $167M (15% growth)
• Year 3: $167M → $192M
• Year 4: $192M → $221M
• Year 5: $221M → $254M
Otro's Take (assuming 12% of revenue per year):
• 5-year total distributions: ~$110M
• Exit valuation (if Utah buys back at 8x EBITDA improvement): $150-200M
• Total return on $300M investment: $260-310M over 5-7 years
• IRR: 15-18% (typical PE target)
This is how PE thinks. They're not donating. They're investing capital to generate returns. And Utah gave them equity in an asset (commercial athletics operations) that was dramatically undermonetized.
The Donor Equity Innovation
Here's the really clever part: Utah lets donors buy equity stakes in Utah Brands & Entertainment.
Traditional model:
- Donor gives $1M to athletic department
- Money is gone (it's a donation)
- Donor gets tax deduction + naming rights + priority seating
New model:
- Donor buys $1M equity stake in Utah Brands LLC
- Donor is now investor/shareholder
- Receives distributions based on LLC profitability
- Can potentially sell equity stake later
- No longer a donation—it's an investment
If donors are buying equity rather than making tax-deductible donations, they lose the charitable deduction. But they gain potential returns and equity value.
This fundamentally changes the donor relationship. You're not philanthropist supporting education—you're investor seeking returns from sports entertainment product.
This is EMD/GMAC thinking. Turn stakeholders into equity holders. Convert donations into capital.
4. The Tax and Legal Minefield
```Both Kentucky and Utah's models create enormous regulatory risk. Here's what's unresolved.
The 501c3 Question
Can athletic departments maintain tax-exempt status while operating as for-profit LLCs?
- Organized for exempt purpose: Charitable, educational, religious, etc.
- Operated for exempt purpose: Activities must further that purpose
- No private benefit: Can't substantially benefit private individuals
- No private inurement: Earnings can't benefit insiders
The problem: Paying athletes millions looks like private benefit. Providing returns to PE investors looks like private inurement. Operating for-profit looks like commercial business.
Kentucky's "disregarded entity" status is an attempt to thread this needle. But it's untested. The IRS hasn't ruled on whether this works for athletic departments paying athletes $20M+ annually.
The UBIT Exposure
Even if 501c3 status survives, Unrelated Business Income Tax could apply to revenues not related to educational mission.
What could trigger UBIT:
- TV rights income (is broadcasting games "educational"?)
- Sponsorship revenue (commercial advertising)
- Licensing/merchandise (commercial sales)
- Premium seating/hospitality (luxury entertainment)
Historically, IRS hasn't applied UBIT to college athletics. But with $20.5M in athlete payments making the commercial nature obvious, that could change.
The Title IX Litigation
This is the big one. Multiple Title IX challenges to the House settlement are already filed.
Law: Educational institutions receiving federal funding must provide equal athletic opportunities regardless of sex.
Current allocation: ~90% of revenue sharing goes to male athletes (football + men's basketball)
The argument: This violates Title IX's requirement for equitable treatment
Schools' defense: Revenue sharing tracks revenue generation (football/men's basketball generate the money)
Plaintiff response: Title IX doesn't allow "market justification" for discrimination. Compensation must be equitable regardless of revenue generation.
If plaintiffs win, schools would need to split $20.5M more equitably. That might mean $10M+ to women's sports. Football coaches are already promising recruits $15-16M in roster spending. The math doesn't work.
The Employment Question
The House settlement explicitly didn't resolve whether athletes are employees. That fight continues.
- NLRB Dartmouth Decision (Feb 2024): Men's basketball players ruled employees. Under appeal.
- Johnson v. NCAA: Class action seeking employee status and back wages
- Numerous state cases: Various employment claims
If athletes become employees:
- Workers' compensation required
- Unemployment insurance
- Overtime rules apply
- Collective bargaining rights
- Back wage claims for years of unpaid labor
- Potential damages: billions
The LLC defense: If Champions Blue LLC employs athletes, not the university, maybe the university's liability is limited. Maybe.
The Open Records Question
Public universities are subject to state open records laws. Private LLCs generally aren't.
If Champions Blue or Utah Brands & Entertainment aren't subject to open records requests, that means:
- Athlete payment details: secret
- Coach contracts: secret
- PE deal terms: secret
- Financial performance: secret
This is already being challenged. Media organizations and transparency advocates are arguing that university-affiliated LLCs performing public functions must comply with open records laws.
Outcome uncertain. But the ability to operate in secrecy is a significant advantage for Kentucky/Utah vs. traditional athletic departments.
```5. Comparison to Professional Sports Models
```What Kentucky and Utah built isn't unprecedented. It's the standard model in professional sports. Let's compare.
The NFL/NBA Ownership Structure
| NFL/NBA Model | Kentucky/Utah Model | Traditional Athletic Dept |
|---|---|---|
|
Legal Entity: Private corporation or LLC |
Legal Entity: LLC (Champions Blue, Utah Brands & Entertainment) |
Legal Entity: University department (no separate legal existence) |
|
Ownership: Private investors/ownership groups |
Ownership: University (majority) + PE/donors (minority equity) |
Ownership: University (100%) |
|
Revenue Model: Media rights, tickets, sponsorships, licensing |
Revenue Model: Media rights, tickets, sponsorships, licensing (identical) |
Revenue Model: Same sources but also donations (tax-deductible philanthropy) |
|
Player Compensation: Salaries with collective bargaining, revenue sharing ~50% |
Player Compensation: "Revenue sharing" (~15-20% of total revenue eventually) |
Player Compensation: Scholarships only (until House settlement) |
|
Management: Professional sports executives, GMs, business operators |
Management: PE executives (Otro), professional operators, some university oversight |
Management: Athletic directors (typically former coaches/athletes) |
|
Tax Status: For-profit, pays corporate taxes |
Tax Status: "Disregarded entity" (trying to maintain 501c3 connection) |
Tax Status: 501c3 tax-exempt as part of university |
|
Return to Investors: Franchise value appreciation, distributions from profits |
Return to Investors: Revenue percentage to PE, equity value growth, exit at premium |
Return to Investors: None (donors give philanthropically) |
See the pattern? Kentucky/Utah are 80% of the way to professional sports franchise structure. The only differences:
- University retains majority control (for now)
- Attempting to maintain tax-exempt status (unclear if sustainable)
- Still nominally "educational" (for NCAA compliance)
Everything else—ownership structure, PE investment, professional management, revenue focus, player compensation—is professional sports.
The MLS Model Precedent
There's actually a direct precedent for this: Major League Soccer.
When MLS launched in 1996, it created an unusual structure:
- MLS is single legal entity (LLC) that owns all teams
- Individual "teams" are actually regional operating units
- Investor-operators buy equity stakes in MLS (the league), not individual teams
- League controls player contracts centrally
- Revenue sharing is built-in structurally
Sound familiar? This is basically what college athletics is becoming:
- Big Ten/SEC becoming "leagues" that control member assets
- Individual schools as "operating units" within larger structure
- PE investing in leagues/conferences, not individual schools
- Centralized media rights (league-level, not school-level)
The Franchise Valuation Question
If college athletics are becoming professional franchises, what are they worth?
NFL franchises trade at ~7-10x annual revenue. Applying that to top college programs:
| Program | Annual Revenue | Implied Value (7x) |
| Texas | $239M | $1.67 billion |
| Ohio State | $251M | $1.76 billion |
| Alabama | $214M | $1.50 billion |
| Michigan | $210M | $1.47 billion |
| Georgia | $203M | $1.42 billion |
This is why PE is interested. These aren't "athletic departments." They're billion-dollar franchises with massive underexploited commercial value.
Kentucky's $202M in revenue suggests Champions Blue is worth ~$1.4 billion as a franchise. Utah's $127M suggests ~$900M valuation. Otro's investment at presumably lower valuations gives them significant upside if these entities are eventually valued like professional sports franchises.
```6. What The Documents Actually Say
```Let's look at actual language from the public documents we have access to.
Kentucky's Board Resolution
"RESOLVED, that the Board of Trustees approves the establishment of
Champions Blue, a wholly-owned subsidiary LLC that will serve as the
entity to manage and operate UK Athletics...
"The new structure will allow UK Athletics to pursue public-private
partnerships, optimize asset utilization, and unlock additional revenue
streams while ensuring that all activities remain aligned with the
University's mission and values...
"Champions Blue will be structured as a disregarded entity for tax purposes,
ensuring that its financial activities are treated as part of the University
while providing operational flexibility and liability protection..."
Note the language: "optimize asset utilization," "unlock additional revenue streams," "operational flexibility," "liability protection." This is corporate restructuring language, not educational mission language.
Utah's Official Announcement
"The University of Utah today announced the formation of Utah Brands &
Entertainment, LLC, a new structure designed to maximize the commercial
potential of Utah Athletics...
"Through partnership with Otro Capital, a New York-based sports
investment firm, the LLC will access significant capital to invest in
facilities, technology, and brand development...
"The University will maintain majority ownership and control of Utah
Brands & Entertainment, with Otro Capital holding a significant minority
equity stake. This structure allows Utah to compete at the highest level
in the evolving landscape of college athletics..."
"Maximize commercial potential." "Access significant capital." "Equity stake." This is PE investment language. They're not hiding what this is—they're just not calling it what it is: the professionalization and financialization of college athletics.
The House Settlement Language
"Schools may share athletics-related revenue with their student-athletes
up to a cap of approximately 22 percent of the average Power 5 revenue,
subject to annual adjustments...
"The revenue-sharing cap for the 2025-26 academic year is set at
$20,577,571...
"Schools are not required to share revenue with student-athletes but
may do so at their discretion, subject to the cap...
"Nothing in this Settlement shall be construed to establish an
employment relationship between student-athletes and educational
institutions..."
That last line is key: "Nothing in this Settlement shall be construed to establish an employment relationship." They're paying athletes $20.5M annually but explicitly saying it's not employment.
This is the legal fiction that the entire structure depends on. And it won't survive serious scrutiny.
```7. The Financial Reality: Where The Money Goes
```Let's model what the new economics actually look like for a typical Power 4 athletic department.
Budget Model: Before vs. After House Settlement
BEFORE HOUSE SETTLEMENT (FY 2024):
Revenue: $150M
Expenses:
Coaching salaries: $35M
Scholarships: $15M
Facilities/operations: $30M
Team travel: $12M
Medical/training: $8M
Admin/support: $25M
Debt service: $15M
Other: $10M
Total Expenses: $150M
Net: Break-even
AFTER HOUSE SETTLEMENT (FY 2026):
Revenue: $150M (unchanged immediately)
NEW Expenses:
Revenue sharing: $20.5M
Expanded scholarships: $2.5M
Enhanced compliance: $2M
Previous Expenses: $150M
Total Expenses: $175M
Net: -$25M annual deficit
This is the crisis. And it's why LLCs and PE matter.
Where Can Traditional Departments Cut?
To close a $25M deficit without PE capital, schools can:
Eliminate 5-8 non-revenue sports. Saves maybe $10-15M. Creates:
- Title IX violations (cutting more men's than women's sports)
- Massive backlash from alumni, athletes, coaches
- Still doesn't close the gap
Ask donors for $25M more annually. Problem:
- Donors already funding NIL collectives separately
- Donor fatigue is real
- Not sustainable long-term
Ask university for $25M from general fund. Problem:
- Public universities face budget cuts already
- Faculty/academic programs competing for same money
- Politically untenable at most schools
Kentucky/Utah solution:
- PE provides capital ($300-500M) immediately
- Professional management optimizes revenue (grow $150M → $175M+)
- Improved margins cover new expenses
- Liability protection as bonus
- Sustainable long-term
Only Option 4 actually solves the problem structurally. Everything else is short-term band-aids on a permanent gap.
```The Evidence Speaks
```Let's summarize what the documents, deals, and data actually prove:
- The House settlement creates $20.5M+ annual new costs that most schools can't afford under traditional model
- Kentucky created LLC structure explicitly for "liability protection" and "operational flexibility" — this is corporate separation, not administrative efficiency
- Utah brought in PE partner (Otro Capital) for $500M+ in exchange for equity stake and revenue share — this is investment seeking returns, not philanthropy
- Both models surgically separate commercial operations from competition operations — exactly what pro sports franchises do
- Management now includes professional sports executives and PE professionals — not traditional athletic administrators
- The tax structures ("disregarded entity") are attempts to maintain 501c3 connection while operating commercially — untested and legally fragile
- Title IX, employment status, and tax-exempt status are all unresolved — massive litigation risk ahead
- Traditional athletic departments face structural deficits they can't solve without transformation or crisis cuts
This isn't speculation. It's documented fact from public records, press releases, legal filings, and financial disclosures.
The Documents Don't Lie
Kentucky and Utah built professional sports franchise structures.
They brought in PE capital expecting investment returns.
They separated commercial operations from educational missions.
They hired professional sports executives to run things.
This is what EMD did to the locomotive industry.
This is what's happening to college athletics.
Next: What Comes Next — Scenarios, Predictions, and The Divestment Scorecard
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