On April 25, the University of Kentucky announced it was moving its athletic department into a for-profit limited liability company — Champions Blue LLC. This move is in anticipation of the NCAA rule changes going into effect after Judge Claudia Wilken’s sign-off on the proposed House settlement. This is also a decisive step by Kentucky’s athletic director, Mitch Barnhart, in alignment with the university’s efforts to privatize certain functions: first in health care and now athletics. After 22 years of operating in a governmental/nonprofit model, Barnhart is banking on privatization to increase his program’s access to capital. As universities look for ways to run their athletic operations in this new era post-House, Champions Blue is a glimpse of the future.

How can a governmental university like Kentucky create a for-profit arm? Limited liability companies are known for flexibility in design, including giving owners the ability to elect how the LLC will be taxed. If there is one owner of an LLC, then the LLC can be considered “disregarded for tax purposes” in relation to its owner. That means all profits and losses of the LLC are attributed to the owner and reported on the owner’s tax return. However, the IRS will also allow the owner to elect the LLC to be taxed as a separate and independent, for-profit corporation. There’s a good chance UK will make Champions Blue an independent, for-profit LLC.

According to Kentucky, it’s implemented this strategy in its health system. The state of Kentucky is somewhat unique because its laws allow governmental universities to own for-profit companies.........

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