Private equity ownership in American professional sports has recently been a hot-button issue for investors. The NFL recently became the final major league to approve private equity ownership. I have always been a sports fan, and as I researched this asset class, I learned that the business of sports has some unique characteristics that are unlike any other business.
In 2019, the MLB became the first league to offer private equity ownership of the major North American sports leagues. Arctos Sports was the leader in pioneering a new marketplace that previously had been controlled by a small group of owners, primarily family-owned and operated businesses. In September, I enjoyed listening to Ian Charles, the founder of Arctos Sports. His team has approached professional sports investing from a data and analytical perspective, and his firm is revolutionizing the business operations of sports franchises.
As COVID-19 shut down live events in 2020, the MLB seemed ahead of the game, allowing teams access to private capital at a time when teams needed capital. The North American sports leagues do not allow teams to use much leverage for various reasons. For owners to grow and expand their business, they must use cash flow from the business and redistribute earnings for growth capital. Soon after, the MLB, the NBA, NHL, and MLS followed suit, allowing a select group of private equity investors to invest in minor ownership stakes in professional sports franchises. The NFL was the final league left, and the NFL is the highest revenue-grossing professional sports league. But in a game of inches, why are investment managers eager to hop into pro sports? Sure, owning sports franchises is pretty cool, but what makes these businesses so attractive? In the following blog, I discuss what makes these businesses different and why league commissioners have opened the door for Private Equity investment.
Have the leagues begun challenging the integrity of America’s favorite pastimes? Have sports become another corporate profit machine? I also discuss the future of sports leagues and what this new movement can mean for fans and league regulations.
As always, thank you for your continued support, and feel free to contact me with feedback. I’d love to hear from other financial advisors and investors. Are you helping clients invest in professional sports, and what are readers’ feelings about this asset class? Is this a temporary bubble or a lasting trend for investors to take advantage of?