Vanderbilt Follows Kentucky's Lead in Commercializing Athletics Department

Kentucky Transfers Entire Athletic Department to Newly-Founded LLC

 “This is the first major shift toward a sustainable model in the post-House era,” Blake Lawrence, the co-founder and president of collegiate operations at Opendorse… “More schools will follow.”

Overview

As Vanderbilt announces their own initiative to professionalize their athletic department with the creation of Vanderbilt Enterprises, we are taking a deeper look at the move that Vanderbilt Chancellor Daniel Diermeier cited as an inspiration for this change.  On April 25th, in a first-of-its-kind move, the University of Kentucky’s board has voted to reclassify its athletic department as an LLC.  Champions Blue, LLC,  a private, for-profit organization with its own board and fundraising capabilities, will now take on all the responsibilities previously belonging to the athletic department. This limited liability company offers the university greater flexibility for the upcoming House Settlement, which will cost the university millions every year, by opening new ways to fundraise that were previously prohibited.

When the board announced this, it listed these as the new LLC’s goals:

• Prepare student-athletes for winning championships and living lives of meaning and purpose by earning UK degrees.

• Create a flexible operating model more responsive to change.

• Create new revenue streams.

• Align with the university and university partners more deeply than ever before.

• Provide coaches and student-athletes with tools to maximize their opportunities and value.

• Restructure to accept new capital and approach permanent financial stability.

Why an LLC?

A limited liability company offers business owners a way to separate their personal assets from their business assets in the case of a lawsuit or bankruptcy; however, in this case, that is only a small part of the appeal for the University of Kentucky. One advantage is the reduction in compliance and regulatory oversight when operating as an LLC rather than a not-for-profit, as the University of Kentucky and all other public universities do. This allows them the flexibility to adapt to new rules and pursue fundraising opportunities that they had previously been prohibited from engaging in.

One example of this would be that Champions Blue could invest in real estate around campus, which would allow it to both become more closely tied to its community and create a new revenue stream. While Vanderbilt has access to many of the same opportunties, Chancellor Diermeier highlighted one unique advantage the Commodores possess: the lively music and entertainment scene Nashville has become famous for. Speaking from London, Diermeier highlighted Manchester City building a concert venue next to their stadium allowing fans to make a whole weekend out of attending a match. However, Vanderbilt has the music aspect built in, and are hoping to expand their connection to it with a hotel, museum, and fan zone. 

Additionally, as LLC’s are taxed differently, this structure has the potential to reduce their tax bill.  Yet perhaps the most significant impact of this will be the opening of the door for private equity investments into college athletics, an almost inevitable step that will bring in significant money, and more importantly, expectations of a return on investment.