A New Model
A look at the future business of K-State Football
The relationship between the NCAA and high-level (FBS, P5) college football can be bucketed into the ‘highly complicated’ category. For all intents and purposes, the NCAA has zero authority over FBS college football. Playoff games, TV deals, and bowl games are completely separate from the NCAA.
The primary reason the NCAA remains in its current capacity for FBS college football is that university presidents, which every program currently has to answer to, implicitly and mutually agree to the architecture and structure the NCAA lays out for fair play, recruiting, and other administrative standards.
The foundational rules of engagement, which have served college football since 1906, are beginning to crack. Unfavorable Supreme Court rulings and an onslaught of damning litigation are slowly draining resources, weakening the NCAA with every blow. The idea of “amateurism” and zero direct compensation for “student-athletes” is crumbling with each passing year. The question is: when not if student athletes will be paid?
Answering this question is complicated. Most universities that participate in FBS college football are public; this implies that their actions and, in turn, the actions of the NCAA have potentially fourth-order effects as they receive state and federal funding. There is also a powder keg of debate sitting on top of the equality component of this whole system as well.
This all broadly points to the fact that the current system is unsustainable. Winston Churchill was credited with saying, “Capitalism is the worst economic system, except for all the others.” I think that level of thinking was able to historically apply itself to the NCAA. Now, with the current TV contracts in place, the money involved within the sports ecosystem, and pending litigation, it can no longer be debated in good faith. Change is coming, and it’s time to explore what that looks like, not only for K-State but for college football in general.
Old Models
To understand where we are going, we first need to understand where we are. At a high level, Kansas State University is a nonprofit organization. Subsequently, the athletic department and football program roll up underneath this umbrella as a subsidiary nonprofits.
It’s important to recognize that organizations that retain non-profit status can still make money, just like a normal commercial business. The primary difference is that nonprofit organizations pursue goals outside of earning a commercial profit. For example, if you read the K-State Athletics mission statement below, you will notice that the goal of the organization extends beyond simply making money.
Our mission is to foster a culture in which our student-athletes have every opportunity to reach their maximum potential academically, athletically, mentally, and socially while operating an organization that is anchored by a genuine commitment to K-State, our supporters, and each other.
The mission of K-State Athletics is to foster a collective spirit. It does not single out football or mention anything regarding maximizing value. Rather, it has a twinge of all for one, one for all. This is all because it’s required to due to its status as a nonprofit organization at a public university.
When you look at the financials, this becomes even more clear. K-State football earned a “profit” of $41 million in the fiscal year 2023 (the latest data available). When you take the net “profit” figures for every other sport while also accounting for “non-program-specific” expenses, K-State Athletics earned a total of $7 million dollars. K-State football eats the sins of the rest of the athletic department because it has to.
In December, NCAA President Charlie Baker laid out a forward-looking framework for the future of the NCAA. One of the more interesting bullet points of the proposals was that top-tier division 1 programs would be required to make an educational trust investment of at least $30,000 for 50% of their male and female athletes. Doing some simple math here, in 2023, K-State Athletics had 258 female student-athletes and 311 men. If all things remain the same, that is at least an additional $8.5 million per year.
There is still a lot of uncertainty with the proposal, but I imagine that if this were to pass, K-State, along with other programs, would have to make some serious head count reductions in order to remain compliant and competitive. The proposal will almost certainly limit opportunities for women and other athletic endeavors.
The uncomfortable truth is that college football, living under the guise of a nonprofit public institution, no longer works. Live sports now dominate television and streaming, and the value required to air said live sports is at its highest premium ever.
It’s my view that athletic administrations, in order to reduce the greatest amount of collateral damage, will need to take a leap of faith and finalize the privatization of Power 5 college football.
Privatization
Inherently, by the time college football reaches the privatization stage, it will almost certainly be under the advisement and direction of a super league structure. Much has already been written about a potential Super League, and I will refrain from adding to the discourse at this time, but there are many uncertainties about exactly what that would look like.
Mechanically speaking, privatizing K-State football and other football programs would not be difficult to achieve. Spinoffs and selling assets are common business practices that happen regularly. I envision K-State or some sort of combination of K-State Athletics, University, and Foundation sharing joint 100% ownership in the newly formed K-State Football LLC. Currently, there are no laws against a nonprofit organization retaining 100% equity stakes in private businesses.
The implications of it all are really the most interesting aspect of privatization. There are so many third- and fourth-order effects that an attempt to address all of them would surely lose your attention if I had not done so already. Instead, I will focus on three key topics and outline the effects that I think privatizing will have. Those three topics are labor, profitability, and organizational structure.
Labor
By privatizing, the path to unionization and collective bargaining, a long-sought goal for student-athlete activists, would be much more achievable. A unionized collective bargaining agreement will set acceptable binding contracts, which puts both the player and coaching staff on the same page. Perhaps this would also solve the issue of tampering. Overall, a unionization and collective bargaining system would increase stability compared to where we are today.
One immediate drawback of privatizing is that football team roster sizes will shrink as a result of increasing labor costs and potential restrictions from the Super League structure. The shift from maximizing the student-athlete experience to seeking profit will not come without a few lost opportunities.
Profitability
On a recent Invest Like the Best podcast episode, former Milwaukee Bucks owner Marc Lasry provided the following insight:
The dirty secret about sports is that you go into it assuming you’re going to make money. Then, if you’re going to win, you have to spend that money.
Athletic departments will face increasingly difficult decisions in determining how much capital to return to the athletic department versus how much capital it reinvests in the football program. In theory, they could squeeze as much out of the football team as possible by paying cheap labor and funding the rest of the athletic department. Fans would surely revolt against this idea, but it does present an interesting layer of effects and incentives to consider. Is success about winning or making more money? Those two ideas are not exactly mutually exclusive, but there are tradeoffs for not reinvesting in your football. This all highlights the importance of universities hiring good actors who act as stewards not only for the university but for the community as well.
Organizational Structure
At some point, schools will be able to sell minority non-voting ownership interests in their privatized football teams to individuals. Effectively, this would formalize an already unspoken acknowledgment that large-dollar donors serve as proxy owners anyway. Having a large, trusted partner infuse capital can help optimize the organization and set it down a path of success, or it can totally blow up in everyone’s face, which makes for a good story.
Chris Klieman currently answers to Gene Taylor and President Richard Linton. Under a privatized structure, Klieman would now have to answer to a proxy CEO, selected by Gene Taylor. I do not envy anyone in that has to fill that role.
Looking Ahead
In any forecast with as many variables as I laid out above, the chances of being right are virtually impossible. I will surely miss the mark on a lot of this stuff.
I think the privatization model offers the most hope for stability and the least amount of collateral damage. There is still a lot of pending litigation between the NCAA and various actors, and the range of outcomes from this point forward is truly infinite.
The current referendum on the NCAA is a deeper, more nuanced issue than society wants to give it credit for. The NCAA is an output and reflection of the bureaucratic-overlord university president mindset. Years of bloated spending, outdated thinking, and piles of debt have left many yearning for a change. Perhaps privatizing college football is only the beginning of what comes next.