As noted recently in the Sports Business Journal, revenue sharing and name, image, and likeness-related issues have revolutionized the business of college athletics. Following that, athletic administrators now face financial, legal, and logistical needs and challenges different in kind from traditional college sports. This has led to substantial changes in the staffing and focus of athletic departments across the country, with some restructuring into limited liability corporations and others providing flexibility for the future.

Even in the face of such sweeping changes, one standard tenet of college athletics seems to currently be holding firm: having a single “athletic department” that oversees all sports and all athletic operations simultaneously. This model has worked and endured for decades in college sports, so it is understandable that schools and administrators would be reluctant to discard or significantly modify it. Even those universities that have taken such out-of-the-box steps as restructuring into for-profit entities or pursuing private equity investments appear to have done so with the vision of one centralized athletic department operating into at least the near future.

The Disney Model: Managing Different Businesses Separately

If athletic departments are to operate more “like a business,” it is important to think about how large entertainment corporations are structured. Specifically, very few do or would run all their various enterprises through one single corporate entity. Disney provides one of the most famous examples. Its various significant operations (movies/television, theme parks, cruises, etc.) operate through several subsidiary entities. Disney's entertainment offerings are broken down further even from there, with brands such as Pixar, Marvel, and LucasFilms operating as their own distinct subsidiaries. 

Although subsidiaries provide tax and liability benefits for such corporations, funding types and sources can also vary by entity. Through its various subsidiaries, Disney can maintain unique structures, and priorities for its varying operations. They are managed by people with knowledge and focus specific to that affiliate's particular offerings and needs. Disney and other such corporations still oversee the operations of their subsidiaries through their parent entities and/or boards, but allow themselves the flexibility to manage and operate differing businesses in different ways.

Should College Sports Operate Through Separate Subsidiaries?

With the radical changes to the business of college athletics, universities should consider whether their operations should resemble something closer to the Disney model than a traditional athletic department moving forward. Specifically, should every sport operate through one single "athletic department" entity? Or should schools consider sport-by-sport or group of sports subsidiaries?

Potential Benefits for Revenue and Non-Revenue Sports

Although having an athletic director to guide and oversee operations is as important as ever, it is essential to recognize the varying needs and goals of different college sports. Specifically, the business of college football and college basketball varies wildly from that of other sports. Universities should consider whether college football can exist as simply one of many sports moving forward, or whether it needs to be operated through its own subsidiary. This would allow for an administrator or team whose singular focus is on the success of that sport, which often funds massive portions of an athletic department budget. Football-related incomes could still be shared with other sports/affiliates just as occurs in many corporations. But, to the extent football and/or basketball success and finances are of singular importance to an athletic department, its corporate structure should recognize and allow for that.

Operating various sports through subsidiaries could also benefit programs that might otherwise be left behind in an arms race to compete in football and basketball. While schools will always spend significant resources on those revenue-driving sports, this would allow for a continued focus on the health and needs of Olympic sports and others that might otherwise risk falling behind. Even though such subsidiaries would likely operate with a smaller budget and fewer resources than some of their affiliate sports, they would be able to tailor their marketing, branding, fundraising, and other aspects directly towards those most interested in their games or otherwise as might be in their best interest. Additionally, if and when any sport can show a substantial increase in its success (both on and off the field), those successes could be clearly quantified and lead to increases in the budgets/staffing for that team and/or can be repeated and applied when possible to the operations of other sports.

Testing New Models for Investment and Growth

Subsidiary-level operation of various sports could also make new innovations or opportunities in the athletic space more palatable. For example, a school may not be prepared or willing to fully convert its athletic department into a for-profit entity. However, not-for-profit corporations can have for-profit subsidiaries, and vice versa. A university may consider spinning off one sport or a group of related sports into a for-profit subsidiary to test and evaluate such a potential change. 

Relatedly and considering the discussed substantial needs of football and basketball programs moving forward, universities that aim to play sport such as baseball and volleyball at the highest level may be searching for answers as to how to do so in the current environment. Although it might not be in the best interest of such schools to take full-fledged private equity investments in their athletic departments, the calculation on a single-sport level could be much different. If, for example, a school were to spin its volleyball program off into a for-profit subsidiary and accept some level of private investment in its operations, it could provide a substantial new revenue source for that sport that would not otherwise be possible. Further, private equity firms may welcome the opportunity to show proof of concept as they continue to market themselves in the college athletics space.

An Uncertain Future Requires Change

In the face of an ever-changing legal and financial landscape, questions as to how college athletic departments can operate moving forward are much easier to come by than answers. However, it appears clear that the one thing schools cannot do is remain stagnant in both their operations and their structures moving forward. If athletic departments are going to function moving forward more like businesses that offer a variety of different products and offerings, then major, successful corporations such as Disney provide a roadmap for what that might look like. Accordingly, universities should be asking themselves and their trusted partners whether some level of subsidiary operation of sports moving forward could benefit their programs now and in the future.

Five years in, most NIL coverage still focuses on athletes. The bigger story is what NIL has done to athletic departments administratively. The skills required to run a modern program now overlap substantially with those required to run a mid-size media or entertainment company.

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