For the past half decade, private equity firms of all sorts have sought new ways into college sports amid mounting opposition from many fans and trustees. A new $285 million development on the banks of the Tennessee River may provide a new roadmap.

This week’s Club Sportico essay dives into the economics and broader trends surrounding 865 Neyland, a new waterfront entertainment district being built around the University of Tennessee’s 102,000-seat football stadium in Knoxville. The project is entirely privately funded, the bulk of which is coming from Arctos Partners, one of many sports-focused institutional funds that have looked into various sorts of deals with major universities and their athletic departments.

Public-private developments like this aren’t new to U.S. universities—they’ve built dorm rooms, dining halls, and classrooms across the country—but they are relatively new to college sports. As is the concept of these mixed-use developments around a sports stadium, which have become a principle part of the economics for many pro sports owners.

While this model might not work for every major athletic department, many are watching the development of—and the reaction to—the Tennessee/Arctos project to see if they might be able to replicate it in some way.

Here is an excerpt of that Club Sportico essay:

“In Knoxville, Tennessee’s waterfront plan is less direct, though perhaps no better in aggregate for the university. Arctos isn’t buying a chunk of the Volunteers football team, its athletic department or a piece of their commercial rights. It’s not lending money to the school in exchange for future revenue, or creating a pool of money for the university to pull from as needed. Instead, Arctos has partnered with a pair of developers—RVX Ventures and Magellan Development Group—to finance and operate the new entertainment district.

Here are the rough economics of 865 Neyland, according to a presentation made earlier this year to Tennessee trustees. The $285 million project has two main parts:

– A $65 million entertainment district, with a 60,000 sq. foot outdoor plaza and 50,000 sq. feet for dining and retail.
– A $220 million ‘condotel,’ to have 180 hotel rooms, 80 residential units, a resort pool, event spaces, a restaurant and more.

The land for both projects is owned by the university and is being leased to the developers for 99 years. In exchange, the school will be paid annual ground rent of $1.5 million per year. It will also receive a small cut of gross revenue. That’s basically 3% of annual revenue that exceeds $25 million for both projects. (In the first 30 years, that could rise to 4% or even 5% if revenue exceeds certain thresholds.) The university also has right of first offer if the developers ever want to sell their equity in the development, and options to purchase the entire project starting in 2068.

For the sake of easy math, let’s say the two parts of the project both earn $25 million in gross revenue annually for the first 40 years of the development. In that scenario, the school will end up paying nothing and making $60 million in rent. The developers will have put up $285 million initially and made back about $1.94 billion in gross revenue minus rent.”

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