In December, Dennis Romboy and Art Raymond of Deseret News reported that the University of Utah’s board of trustees approved a first-of-its-kind private equity deal between the school and Otro Capital to fund athletics.
The decision to partner with private equity appears to be based on a crude assessment of the contributions (revenues and expenses) that can be traced directly to sports, which ignores the value added from the promotion of the university via athletics. And not counting that value added is a huge mistake. A few days ago, University of Utah upset #22 ranked West Virginia in women’s college basketball. Even if no one paid to see this game (2,352 reportedly were there), the University of Utah still reaped a huge promotional benefit when ESPN reported on the game.
Before delving deeper into the University’s mistaken reasoning, one first has to know what sort of business Otro Capital is seeking to fund. Let’s start with some basic stats about the University of Utah. In 2024, the University of Utah reported total operating revenues of $7.3 billion. That same report indicated the university had total operating expenses of $7.8 billion. But with a reported $1 billion in non-operating revenue, one could argue the University of Utah was profitable.
Of course, it was not. The University of Utah is a non-profit business. So, it is incorrect to talk about such a business in terms of profits and losses. Any excess revenues the institution earns are not paid out to owners or investors. Instead, these revenues are used to further the institution’s mission.
In many ways a non-profit institution is just like any other business. The university primarily sells educational services to its customers. To produce these services, people are employed and paid wages. But after all the revenue and expenses are tabulated, there is no individual to claim the profit. And because no one is there to claim a profit, the University of Utah – unlike many for-profit businesses like Otro Capital – is not seeking to maximize profits.
Although the primary business of the University of Utah is education, it also produces other products. One of these is college sports (in which Otro Capital would like to invest). This business gets quite a bit of media attention. But it is actually a very small business financially.
In January 2025, the institution reported that it sponsored 20 different athletic teams. And these teams generated $110 million in revenue (but spent a little more than that). Or to put it differently, athletics at the University of Utah generated about 1.3 percent of the revenues for the business.
Although it is only a small part of the operation, athletics at the University of Utah works just like their education business. Athletics brings in revenue to the institution. To generate these revenues, people are hired and wages are being paid. And at the end of the day – because the University of Utah is still a non-profit – it is inappropriate to talk about the university athletics in terms of profits and losses. Again, there is no one to claim a profit so the University of Utah is definitely not seeking to maximize profits with respect to athletics.
A history of student-athlete exploitation
All that being said, historically there has always been one major difference between athletics and the rest of the university. The product created by athletics is produced by student-athletes and historically the NCAA restricted the pay of these individuals to the cost of attendance. Consequently, the pay of other employees in athletics, such as coaches, tended to be somewhat inflated.
But after the Supreme Court ruled against the NCAA in 2021 (by a 9-0 vote!) in National Collegiate Athletic Association v. Alston, the compensation of college athletes can now go far beyond the cost of attendance. Of course, now universities must find money to pay the athletes.
Back in 2024, I argued the obvious solution was to simply pay the coaches less. So far, this obvious solution has generally been ignored. It appears schools want to keep paying college coaches far beyond what school revenues suggest is reasonable and also find additional money to pay the athletes.
One solution is to keep asking boosters to pay the bill. Mark Cuban does seem quite happy to give millions of dollars to Indiana University. But this massive investment isn’t making Cuban any richer. He has no claim to the Indiana Universities’ athletic revenue. All he gets for his money is the happiness created by a national football championship.
Although it is possible a university can always find a booster who is satisfied to give money to a business just for the chance to be happy, the marriage between the University of Utah and Otro Capital is a different way to go. Otro Capital isn’t giving money to the school just to increase its happiness. Otro Capital – as a private business – is presumably trying to maximize its profits.
So, why would a university that doesn’t seek to maximize profits (because they don’t exist for the organization) want to team up with an organization that we suspect primarily cares about maximizing profits?
A solution in search of a problem
Apparently, decision-makers at an institution with $8 billion in revenue seem to think one program (athletics) spending $17 million more than the $110 million revenue it generates is a problem. But is the solution to this very small problem creating a partnership with private equity?
We do not know for sure the motivations of the people leading Otro Capital. But let’s imagine that once upon a time they listened to the Friedman Doctrine. In 1970, Milton Friedman explained this doctrine in a column for the New York Times. The Friedman Doctrine is effectively captured by the last paragraph of the column:
But the doctrine of ‘social responsibility’ taken seriously would extend the scope of the political mechanism to every human activity. It does not differ in philosophy from the most explicitly collective doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means. That is why, in my book Capitalism and Freedom, I have called it a ‘fundamentally subversive doctrine’ in a free society, and have said that in such a society, ‘there is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.’
Yes, Friedman is arguing that corporations should only focus on profits and do not have any social responsibility.
This sentiment is hardly original to Friedman. The famed financier J.P. Morgan once famously said during the Robber Baron Era: “I Owe the Public Nothing.”
These five words didn’t make Morgan immensely popular with the general public at the time. The inability of the Robber Barons to consistently behave in a way that people considered “socially responsible” eventually led to a political backlash that included the enactment of significant government regulation, a much more substantial social safety net, and tax levels far beyond anything seen in the history of the nation.
Of course, all that happened before the Friedman Doctrine was printed in the New York Times. Since 1970, substantial efforts have been made to lower taxes, limit government welfare programs, and reduce regulation. Today, people in business are generally not foolish enough to repeat those five words from J.P. Morgan in public. One suspects, however, that many people in business very much believe the Friedman Doctrine.
The dangers of private equity
And that is why it may be quite dangerous for the University of Utah to work with a private equity firm. A private equity firm is likely interested in the explicit revenues that University of Utah athletics currently generates. Because football and men’s basketball are two of the oldest sports (that have also benefitted from decades of investment and media attention), most of the athletic revenue is generated by those two teams.
But the other 18 sports teams also contribute to the success of the university. And this is true even if they never generate much revenue and never create a return for Otro Capital.
Although college sports do not generate much explicit revenue, sports are often the primary way these institutions advertise themselves to prospective students, alumni, and the general public. Every time the women’s basketball team or gymnastics team is in the news, the University of Utah is promoted. And this is a significant contribution in value to the University, even if it is hard to measure. It would be immensely expensive for a university to purchase an equivalent level of advertising.
Athletics also can promote the general mission of the institution. In the United States, women account for 58 percent of college students. Imagine a world where the primary method universities employed to advertise their institution (i.e., college sports) only involved men. This might make recruiting and retaining women as students a bit difficult. And a university without students isn’t really creating much social benefit.
Perhaps the people who lead Otro Capital can be made to understand all the things sports does for the University of Utah. Of course, that seems unlikely when we consider how little the University of Utah understands what sports does for the school.
Remember, this move seems motivated by the “losses” that decision-makers at the school think exist in an athletic department at a non-profit institution. If the University of Utah understood what athletics does for the school (i.e., advertising the institution), those “losses” wouldn’t seem so important and this marriage between a non-profit and for-profit institution wouldn’t be necessary.
In the end, private equity might help the University of Utah eliminate its “losses” in the athletic department. But if Otro Capital is only interested in profits (i.e., if they follow the Friedman Doctrine), the University of Utah is likely going to lose far more than it gains.