The University of Kentucky’s strategy to give it an edge in this unprecedented era of college athletics could spur a horde of copycats — if it is successful.
Ahead of directly paying athletes on July 1, Kentucky decided on an innovative path believed to be the first of its kind in college sports. The school spun off its athletic department into a limited liability company (LLC) called Champions Blue that will report to a Board of Governors, which includes university president Eli Capilouto and Keeneland CEO Shannon Arvin. That decision was the result of more than a year of studying what an LLC model could look like and how it had already been successful in the healthcare sector for the university.
Eric N. Monday, the university’s executive vice president for finance and administration, had seen it work wonders in giving Kentucky greater nimbleness to not only acquire hospitals but provide greater efficiency bringing them all under one umbrella. He came to Kentucky AD Mitch Barnhart with a question: What if we did this for athletics?
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What Kentucky’s braintrust discovered was this could give it the best chance of keeping up with an ever-changing environment that has left others frustrated and hamstrung in their abilities to pivot. Specifically, they hope it will allow them to tap into new revenue streams that aren’t the usual standbys — fundraising, TV and multimedia rights, apparel deals, etc. — and don’t require raising ticket prices to pay for the new $20.5 million revenue sharing costs as other peer institutions have done.
“We’re not just going to our fanbase and saying ‘Hey our expenses went up and we need more money,'” Kentucky AD Mitch Barnhart told CBS Sports. “That’s not fair to them all the time, and frankly, it’s not going to be viable in our state. Our opportunities because of our population (are) not as many.”
What does that look like in practicality?
It ranges from mixed used real estate and premium fan engagement opportunities to public-private partnerships to even compensating employees differently. At a recent UK Board of Trustees meeting, the board approved a $141 million loan which will include $110 million in capital investment loans. A good chunk of that money ($36 million) will go to improving Kroger Field, the school’s football stadium, but it was also revealed that the school is exploring an entertainment district on campus.
“The public-private partnerships are really important in mixed use facilities,” Barnhart said. “Taking the area around our football stadium and there are opportunities in that land space around there for us to do some things that may create a relationship with local businesses that want to be a part of us. Opportunities to incorporate some of those in our football stadium itself which would be really important. There are opportunities for possible hotel/motel lodging on our campus where maybe we could be a partner to that would make some sense.”
Other possible new revenue streams include being better compensated for use of Kroger Field for concerts, like a recent Tyler Childers show, or hosting major events, including NCAA Tournament games.
Kentucky being the first out the gate has prompted questions and intrigue around the industry. Any innovative approach invites copycats, especially if it can deliver a perceived edge. The public details have been limited to this point, but there are plenty who will be watching closely to see if the Champions Blue model is one that could be successfully deployed elsewhere.
Oklahoma AD Joe Castiglione recently told CBS Sports he wasn’t sure how it worked but was open to new endeavors that could help his department. Mississippi State AD Zac Selmon, who worked with Castiglione at OU, has read about Champions Blue LLC and says his school is considering its own plans.
“We’ve looked at a handful of different models but haven’t activated anything yet as far as privatization,” Selmon told CBS Sports. “We’ve looked at a variety of different things that we probably will act on pretty soon that will put us in a good position to stay within the rules and be as competitive as possible. We haven’t gotten quite there yet.”
Risks with LLC model?
One concern brought up is whether moving out to a nonprofit LLC model could in any way impact Kentucky’s sovereign immunity, a particularly important component in the active litigious world that has enveloped college athletics. The university has previously used sovereign immunity as a legal defense when students sued over mandatory student fees incurred during the COVID-19 pandemic when the university shifted to online classes. In announcing Champions Blue, the university said an affiliated corporation, Beyond Blue, allows the school to “abide by all public entity rules and laws and for the UK board to approve strategies, budgets and investments, while allowing its leaders to have some separation and distinctiveness to focus on one core business.”
James Nussbaum, a partner at Church, Church Hittle & Atrium, believes Kentucky athletics should still be legally protected here. In addition to working closely with universities in his current role, Nussbaum served as in-house counsel for Indiana University. He believes the move to an LLC should give Kentucky added flexibility in a number of areas, including potential Title IX concerns.
“You might lose some state protections if they’re not determined to be a state entity, but schools have navigated that for awhile,” Nussbaum told CBS Sports. “A lot of schools have foundations that they try to use as the best of both worlds where they are a state entity when they want them to be and not subject to public records or other pieces they want to insulate them from to the extent that they can.”
Related to that, Nussbaum believes the LLC approach could potentially help insulate Kentucky athletics from possible Title IX issues. There have already been two legal challenges to the House v. NCAA settlement on Title IX basis, arguing that the back payments violate gender discrimination provisions. That has paused the distribution of the $2.8 billion settlement, and many believe there will be more Title IX lawsuits tied to revenue sharing once those payments begin July 1. There are mixed legal opinions on the likely success of those lawsuits — “There’s not really great law or guidance on it,” Nussbaum says — but in theory Champions Blue could be helpful.
“There’s a chance having a separate entity could help with some of that risk,” Nussbaum said. “I don’t think it’s a great option, but there’s a non-zero chance of that.”
Scott Schneider, a leading Title IX and employment law expert and founder of Schneider Education & Employment Law, says there is very little applicable case law around Title IX, and one must consider that the college athletics model looks considerably different than when Title IX went into effect in 1972. He believes an LLC could give a school like Kentucky an additional buffer from Title IX lawsuits depending on how it is structured and how much funding and control the university exerts over it.
“Could we do this where the TV revenue, for instance, or whatever is going to fund these payments, goes directly to the LLC and there’s no operational control of the LLC by the athletics department,” Schneider said. “Could that create some buffer? Yeah, arguably so.”
Still, when Kentucky makes a move like this, Schneider, former in-house counsel for Tulane University, takes notice. He says there are other schools he consults with that are working through similar questions.
“I will say this the University of Kentucky’s general counsel is … in the top three or four of best and smartest general counsel in the country,” Schneider told CBS Sports. “When Bill (Thro) does something, I go, ‘They’ve really thought this through.’ It’s worth taking a look at.”
Could it make employment easier?
Beyond Blue, which has grown into more than a $1 billion enterprise, had to deal with different employment contracts, benefit packages and other logistical quandaries when it acquired and merged hospitals under one system. There are lessons to be learned from that experience, particularly when it comes to employment.
Within Champions Blue, employees won’t be classified as state university employees which opens up both short-term and long-term possibilities. Including perhaps the most taboo subject in college athletics: Employing athletes.
“Going forward it might change the way we do our contracts in the future,” Barnhart said. “Who knows where this whole thing goes? If 10 years down the road we have an employee model for college athletics that looks a little bit different, that might be a place we look a little different and we have an ability to move more efficiently or be better at it than we could have previously.”
Both Nussbaum and Schneider agree that Kentucky could employ athletes right now if it wanted to, but that it could potentially have some collective bargaining advantages down the line depending on how they are classified.
Kentucky’s emergence as the first to embrace this model might have surprised some. It is viewed more as a steady ship than one that wants to rock the boat with aggressive moves like some of its peers. But the decades of shared experience at the leadership level, a rarity in college athletics right now, allowed it to have the precedence and confidence to step out alone. Barnhart has been the school’s AD since 2002, Capilouto has served as its president since 2011 and Monday and Thro both arrived in 2012.
There is risk involved and Barnhart has had to assuage his employees that everything will be fine. It could impact workflow, and there undoubtedly will be kinks along the way.
But now is the time to move, Barnhart says. There’s no time to waste in this era.
“Early on it’s going to be like drinking out of a fire hose on some of this stuff as we try to do it but I don’t want to sit on the sidelines and say we’ll get to it sooner or later,” the Kentucky AD said. “I’d rather go ahead and tackle it and let’s go, let’s try to figure it out.”
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