The sports world took a lot of hits during the pandemic—tournaments were canceled, stars were sidelined, and teams often played in empty stadiums. For buyout funds flush with cash, that looked like an opportunity.
Private equity firms spent $51 billion on sports transactions globally last year, with $22 billion in Europe alone, according to PitchBook. In North America they spent almost $3 billion buying minority stakes in sports franchises. For leagues and teams, these investments offered stable liquidity at an uncertain moment. The draw for private equity was even simpler: a rare chance at attractive deals after decades of climbing prices for franchises. “Covid showed the resilience of these businesses even when one part of the value chain—the live event—gets turned off,” says Gerry Cardinale, founder of sports-focused firm RedBird Capital Partners.
In Europe, private equity’s role in sports is well established. But European soccer clubs, unlike professional teams in the U.S., are always at risk of being relegated to lower divisions after a poor season. So institutional investors are increasingly targeting top football leagues instead of individual teams to better guarantee returns. In December, Luxembourg-based CVC Capital Partners struck a €2 billion ($2.2 billion) agreement with Spain’s LaLiga, investing in a newly-created company that gives it a share of broadcast revenue. In return, clubs in Spain’s first and second divisions get money to invest in infrastructure, but also to repay debt and sign players.
France’s biggest football league may be next. Ligue 1 is in talks with CVC for a minority stake in the league’s media rights business. The league—which boasts such stars as Kylian Mbappé, Lionel Messi, and Neymar—is recovering commercially from the pandemic and the collapse in 2020 of what should have been a lucrative broadcasting deal with the communications group Mediapro. (Amazon.com Inc. later picked up the majority of Ligue 1 games, but for far less money.)
North American leagues have warmed up to the idea of letting institutional investors buy into teams. In 2019, Major League Baseball moved to allow investment funds to buy stakes in multiple teams so that part owners could more easily sell, and the National Basketball Association and Major League Soccer followed suit soon after. The NBA in 2020 set up a deal for Blue Owl Capital Inc.’s Dyal HomeCourt Fund to be able to buy minority stakes in multiple teams. Dyal took a 6% stake in the Atlanta Hawks in January and one of less than 5% in the Phoenix Suns in July. It also holds shares in the Sacramento Kings.
One reason the NBA was willing to work with the fund is that it imposed a seven-year lockup period on its own investors, providing some stability. “We bought a little bit of a whole lot of minority owners’ positions,” says Andrew Polland, chief operating officer at Blue Owl. “Now we’re in the family.”
The deals are coming quickly. San Francisco-based Sixth Street Partners purchased a share of the NBA’s San Antonio Spurs in June, and RedBird last year took a stake in Fenway Sports Group, owner of the Boston Red Sox and England’s Liverpool Football Club. Arctos Sports Partners raised more than $2.1 billion for its first fund in October and has taken stakes in more than 15 franchises. The firm counts the NBA’s Golden State Warriors and the National Hockey League’s Tampa Bay Lightning among its investments.
Both in Europe and in North America, investors see sports as a media-rights play. In an era when television viewers have lots of cheap streaming options, sporting events still draw live viewers willing to sit through ad breaks or pay a premium. The NBA, for one, is seeking a $75 billion rights package over nine years, according to CNBC, meaning some $8 billion of annual fees could flow down to teams and their owners, including private equity. Sports betting, which has recently been legalized in many U.S. states, could spur even more interest in watching games. “These are rarefied assets that they’re just not printing more of,” says Wylie Fernyhough, PitchBook’s lead private equity analyst.
Leagues and teams, meanwhile, want to be able to invest in media and technology that allows them to reach their fans directly, rather than relying solely on broadcasters. “That objective requires substantial intellectual and financial investment,” says Nick Clarry, head of CVC’s private equity portfolio in sports, media and entertainment. “The pandemic was an accelerator not the cause of this trend, because sports bodies lost revenues and time, right at the moment when they needed to accelerate towards product innovation and digital platforms.”
Not everyone loves the idea of private equity playing a bigger role in sports. Fans are wary of the industry’s reputation for corporate raiding, and in Europe many football clubs are concerned about ceding any control. CVC and other firms had discussions with Germany’s Bundesliga that hit a wall last year after the clubs decided not to proceed with negotiations. Some big teams in Spain’s LaLiga have also pushed back. Real Madrid CF, FC Barcelona, and Athletic Bilbao opposed the deal and put forward an alternative funding proposal, arguing that the agreement gave up too much to CVC.
In the U.S., leagues are trying to preserve individual owners’ control by allowing private equity firms to take only passive stakes. The firms generally get little to no say in teams’ actual business decisions. “We’re not going to come in and tell them how to run the basketball team,” says Andrew Laurino, a senior managing director of Blue Owl and member of Dyal’s investment team. “The control owners appreciate that we actually know how to stay out of the way.”
The NBA currently restricts institutional investors from owning more than 20% of a single franchise, and no team can allow institutions to collectively own more than 30%. But the individual ownership model is under pressure. The rising value of teams is depleting the pool of individuals wealthy enough to buy in. “It can be hard to find someone to write a check for a larger minority stake,” says Michael Kenworthy, head of sports investment banking at Goldman Sachs Group Inc. “It’s a substantial portion of someone’s net worth.”
In the National Football League, which still prohibits institutional investors from taking minority stakes in teams, the coming sale of the Denver Broncos could test individual investors’ appetite for giant deals. The league requires a controlling owner to hold at least 30% equity in a team and limits debt financing to $1 billion. That means if the Broncos sell for $4 billion as expected, a controlling owner with $1.2 billion in cash and $1 billion of debt would still need to find $1.8 billion in investments for limited partners, Sportico reported. Without private equity to buy some of those stakes, that could prove a tall task.
Some consider it optimistic to expect private equity firms to remain pleasantly silent partners for long. “It’s a small slice of business for the largest managers,” says Bloomberg Intelligence analyst Paul Gulberg. “Based on history across other industries, though, private equity funds typically don’t stay passive.”Read next: Bloomin’ Onions, Dodge Durangos, and Six-Figure Paydays: College Athletes Finally Make Some Cash
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