In recent years, the sports industry has become an increasingly attractive area for investment, driven by new opportunities, evolving regulations, and a growing global fan base. As private equity firms, sovereign wealth funds, and other investors seek new avenues for growth, the sports arena offers a promising and dynamic landscape.
Sports Investment Trends
The investment climate within the sports industry has seen several notable trends in recent years, including the following:
- Emerging asset class: Sports are increasingly viewed as an asset class with high investment potential, attracting significant activity from private equity and other investors
- Easing of investment restrictions: Changes in regulations are allowing new types of investors to enter the market, expanding the pool of potential backers for sports teams and franchises
- Minority vs. majority investments: The sports industry sees both minority and majority investment transactions, often driven by the applicable geographic market and the maturity of revenue streams within a specific sport; majority investments are more common in markets where team performance directly impacts revenue
- Future diversification: With the continued growth of the sports sector, opportunities for diversification and synergies across industries are emerging, especially in areas like media rights and sponsorship deals
- Specialized funds: The rise of new private equity funds and advisory units dedicated to sports investments is signaling a more focused approach to this sector
Easing of Rules in US Restricting Certain Investor Types
One of the major catalysts behind the increase in sports investments is the easing of restrictions around investor ownership. US sports leagues, traditionally strict on who can hold ownership stakes, have relaxed these rules to allow private equity firms to invest in teams:
- Professional league rule changes: In 2019, Major League Baseball (MLB) became the first major US sports league to allow private equity funds to hold passive, minority stakes in multiple teams
- This set a precedent for the National Basketball Association, Major League Soccer, and National Hockey League, who followed suit
- In August 2024, the NFL approved a limited number of private equity funds to hold up to 10% of a team
- Owner interest: The willingness of current team owners to approve such changes highlights the growing interest in partnering with private equity to further capitalize on team performance and franchise value and to meet intensive capital needs
Representative Types of Sports Transactions
Private equity investments in the sports sector can take many forms, providing flexibility for investors to choose from a variety of transaction types, including the following:
- Team control acquisitions: Investing in or acquiring controlling stakes in sports teams
- Minority/passive investments: Holding non-controlling stakes in sports teams or franchises
- Strategic lending: Providing financial backing or loans for teams or leagues
- Acquisition of broadcast rights/royalty streams: Investing in the media rights to broadcast sports events or securing royalty income from broadcasting deals
- Joint ventures/commercial agreements: Entering into partnerships or business arrangements with sports organizations
- Stadium and sponsorship deals: Investing in sports facilities or securing sponsorship rights for events, teams, and venues
What Makes Sports Deals Unique
While the sports industry offers vast potential for investment, the deals within this arena are often unique, shaped by league rules, ownership restrictions, and transaction structures like the following:
- League approvals: Most sports leagues require approval for new investors, which adds a layer of complexity to transactions
- Limits on control: Most leagues impose limitations on the amount of control an investor can have on a team or franchise
- Backstopping obligations: Investors may be required to provide guarantees or other forms of financial backstopping
- Restrictive covenants: These may include restrictions on owning multiple teams, engaging in specific businesses like sports betting or player promotion, and investing in performance-enhancing drugs or other sports-ancillary businesses
Trends to Watch in Sports Investments
Looking ahead, the following trends are expected to shape the future of sports investments:
- Easing of restrictions: As investment restrictions continue to loosen and markets mature, more opportunities for investment will arise
- Women’s sports growth: With women’s sports gaining greater popularity and revenue, expect the investment opportunities in this area to continue to expand
- Emerging sports expansion: Beyond traditional leagues, emerging sports like pickleball, cornhole, and electronic sports (esports) are gaining traction, offering private equity investors an opportunity to engage with sports outside the entrenched, expensive traditional leagues—this growth will offer investors a chance to get in early, especially in less saturated markets
- Ancillary opportunities: Expect to see a rise in investments related to media, sports betting, digital assets, artificial intelligence (AI), and data analytics, as these areas continue to mature and integrate with sports
- Sponsorship and facility deals: As the sports sector grows, so too will opportunities in sponsorships, stadium financing, and other related investments
Conclusion
Sports investments are a dynamic and rapidly evolving sector offering promising returns. The increasing involvement of private equity, the loosening of restrictions, and the rise of new sports and technologies provide ample opportunities for investors. While sports deals come with unique challenges and complexities, the growth and diversification of the market make it an attractive and viable asset class for those looking to diversify their investment portfolios. As trends continue to develop, the future of sports investment looks brighter than ever.