Facing escalating costs and the need to remain competitive, a growing number of universities are establishing associated entities such as nonprofits and limited liability companies to generate additional revenue for their athletic departments. These organizations aim to create new income streams beyond traditional university funding.
University athletic directors report that programs of significant size may spend upwards of $40 million annually on talent acquisition, revenue sharing, and other operational costs. However, many sports within these departments do not generate revenue, with only a few, like football and men's basketball, turning a profit. This financial disparity is driving the creation of these new revenue-generating arms.
The University of Louisville, for example, launched Cardinal Ventures this spring. This nonprofit organization is designed to leverage the athletic department's brand to develop new revenue streams, including managing third-party multimedia deals and hospitality packages, in an effort to keep pace with the Name, Image, and Likeness (NIL) market.
"We live in a highly, highly competitive environment and industry," said Louisville athletic director Josh Heird. "And if there’s anything that anybody can do to try to create even the smallest sort of competitive advantage, then they’re gonna look to do that."
Other universities are also exploring or have implemented similar structures. The University of Kentucky operates a revenue-raising nonprofit, while the University of North Carolina and Louisiana State University are discussing the formation of limited liability companies. According to legal experts who assist universities in creating these entities, there is significant interest from higher education institutions.
These associated entities can offer greater flexibility compared to the traditional university structure, which can be hampered by bureaucracy and often relies on outsourced vendors for key fan experience components. "Governmental universities don’t do commercial very well," noted Clay Grayson, whose law firm has helped design such ventures. "Those nonprofits are the ones that kind of can get out into that space."
Significant financial commitments have been made to these new ventures. Virginia Tech announced a $75 million commitment to its nonprofit Hokie Ventures, and Michigan State received a $401 million contribution that included investment in its Spartan Ventures. Louisville's athletic department is exploring opportunities like hosting concerts in its underutilized football stadium, with acts like Zach Bryan and Ludacris already scheduled, potentially yielding seven-figure profits per event.
Experts suggest that these formations may become standard practice for athletic departments, particularly among Power Four conferences, which have the scale and resources to operate at this level. The University of Kentucky's athletic department was an early adopter, converting into a limited-liability holding company managed by a separate not-for-profit that already oversaw the university's health systems.
However, these structures raise questions regarding their charitable purpose, particularly in light of IRS scrutiny of nonprofit NIL collectives that were found to be serving private financial interests rather than the public good. Some tax consultants familiar with NIL compliance issues suggest these new athletic affiliates may also lack a charitable connotation, primarily serving to enhance the financial interests of athletes and the competitiveness of teams.
This trend also occurs against a backdrop of increasing solicitations to donors, who are fielding more requests for athletics funding alongside traditional university needs like scholarships and research. This dynamic has shifted the landscape for university development officers, who previously could leverage athletic interests to support academic endeavors.