Rep. Michael Baumgartner (R-Wash.) proposed new legislation that seeks to prohibit agreements with certain private equity and sovereign wealth funds involving intercollegiate athletics, the latest effort to regulate the rapidly changing business of college sports. The proposed Protect College Sports from Private Equity and Foreign Influence Act (PROTECT Act) comes after the landmark settlement approved in a lawsuit brought by former Division I student-athletes against the National Collegiate Athletic Association (NCAA) and five athletic conferences. The House Settlement, a two-part agreement, which includes nearly $2.8 billion in back pay for former student-athletes and a prospective revenue-sharing model for current and future student-athletes, permits universities to pay up to $21 million to student-athletes annually.
In today’s environment, some universities are looking — many for the first time — to private equity, joint ventures and other investment firms for access to capital and other benefits. The PROTECT Act aims to prohibit certain private capital involvement in college sports. The proposed legislation states, “[a]greements that convey ownership, revenue-sharing, control rights, or security interests in intercollegiate athletics to private equity, hedge funds, or similar vehicles are inherently conflicted, create pressure sure to maximize short-term cash flows at the expense of educational and Title IX obligations, and risk extracting wealth from publicly supported institutions and their students — undermining transparency, accountability, and the public purposes for which those institutions exist.”
To facilitate the PROTECT Act, the legislation seeks to amend the Higher Education Act of 1965 by placing a prohibition on private capital and sovereign wealth agreements that convey ownership, revenue sharing, control rights (including veto rights), or security interests involving athletic programs or related assets, with limited exceptions. Notably, the PROTECT Act also requires institutions to ensure compliance with “the Act,” for any agreement entered into by an athletic conference.
The PROTECT Act provides a “transition” provision, requiring agreements to be brought into compliance or terminated within 24 months following enactment of the PROTECT Act. The PROTECT Act also contemplates an annual certification for institutions and its affiliates to affirm compliance and public disclosure of any exempt agreements.
The PROTECT Act still faces a complex legislative journey, including review by committees, debates and votes in both chambers of Congress, followed by the President’s approval, but if enacted, it could have a significant impact on the future operations of college sports for some schools.
The authors of this article are closely monitoring the PROTECT Act and other sports-related legislation. Contact the authors of this article or your McGuireWoods contacts on the Sports Industry Team with questions.
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