Private equity firms, financial sponsors, and sovereign wealth funds continue to invest in global sports organizations. Financial sponsor–led investments were more prevalent at the beginning of the century in Europe and elsewhere around the world, with Formula One, soccer, and rugby among the sports forging the path over the last two decades.
This interest has been further fueled by the easing of investment restrictions permitting new investors to seek out opportunities and new private equity funds dedicated to sports investments. Recently, these trends have reached the US market, with major US sports leagues and teams starting to ease traditional restrictions on financial sponsor–led investments, leading to widespread investment in less popular sports and sports-ancillary businesses.
Most major US sport leagues have modified ownership rules to allow for the possibility of private equity holding a minority ownership interest in their teams. Major League Baseball (MLB) in 2019 became the first US professional sports league to allow private investment funds to hold passive, minority interests in multiple teams.
Since then, the National Basketball League (NBA), Major League Soccer, and National Hockey League (NHL) have followed course (with the National Football League (NFL) being the notable exception, although even the current NFL restrictions appear to be the topic of reconsideration).
Looking outside of the major sport leagues, emerging sports such as esports, surfing, pickleball, and the Drone Racing League offer early investment opportunities for private equity outside of the saturated, expensive, and “difficult to break into” professional leagues.
While lower barriers to entry are attracting more investment in global sports brands, newcomers should be aware that sports team transactions can be complicated and specific. Investments in teams are often subject to both minimum and maximum investments that differ per investment type and league.
For example, NBA rules limit private equity firm ownership to 20% of a single franchise and limit total investments per firm to a maximum of five teams, but require a minimum investment of 15% equity interest to be a controlling owner. In the MLB, no team can be more than 30% owned by private equity, but ownership groups are limited to 20 partners.
Similarly, no NHL team can be more than 30% owned by private equity, and an individual private equity firm can own part of up to five different teams and only hold up to 20% in any one team. The NHL has a minimum investment of $20 million for any single partner.
In addition, many leagues impose debt limitations for financing the sale of a team or interest in a team. In the NFL, for example, the purchase of a team outright can be financed up to $1.1 billion, and any leveraged acquisition must be approved by a certain subcommittee of the current controlling owners of the NFL teams. This limit was only just recently raised—as recently as 2021, it was $500 million.
In any consequential franchise transaction, most professional US leagues have significant approval, oversight, and information rights; will expect to perform significant due diligence on the new owner; and will often have approval rights over the definitive transaction documents. This “reverse diligence” is the opposite of what most private equity firms will be used to. Leagues conduct deep probes into potential buyers and an interest in their teams, whereas buyers are often afforded a limited view into financial information and not much else.
Most sports leagues are arranged such that there must be a single “controlling owner” who makes all the decisions for the team, including when to sell, but private equity funds cannot be controlling owners for major US sport leagues. This clashes with the traditional private equity model, where funds have a set exit strategy to realize a return on investment and have pushed funds to change their traditional LP agreements.
There are growing opportunities for investments in women’s professional sports as revenues and fanbases continue to grow. Viewership of WNBA games, for example, increased 16% from 2021 to 2022. During that same time frame, traffic on WNBA.com (unique visits) went up nearly 100%. With the popularity of women’s professional sport leagues on the rise, private equity has an opportunity to buy in earlier to leagues that have higher growth potential than most already established men’s leagues.
While investment opportunities have traditionally been accessible only to ultra-high-net-worth individuals, many major sports leagues and their member teams around the globe are opening their doors to investments from financial sponsors and institutional investors.
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