Private equity firms are stuffed with billions of dollars to invest and professional sports teams are selling for ever higher amounts, making them unaffordable for almost any individual.
So it makes sense for private equity firms to become owners of sports teams, and that’s exactly what’s happening, although leagues generally only allow minority stakes for companies.
In 2021, private equity firms distributed $51 billion on sports deals around the world, including $3 billion by buying minority stakes in teams, according to Pitchbook, quoted by Bloomberg Businessweek.
Arctos Sports Partners closed a $3 billion private equity fund in October, the largest private equity fund ever.
Last year, the company took a $275 million stake in the National Basketball Association’s Golden State Warriors and a $306 million stake in the NBA’s Sacramento Kings, according to media reports.
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Private equity investors are drawn to the seemingly endless growth in sports franchise values. A private equity manager told Institutional Investor that his firm expects annualized returns in the mid to upper teens.
Stratospheric media rights deals help make sports franchises valuable, and the growth of legal sports betting represents a relatively new revenue stream.
As for media money, the NFL has signed deals with its broadcast partners in 2021 that will bring the league about $110 billion in revenue over 11 years. On the gambling front, legalized sports betting in the US last year doubled to more than $52.7 billion, according to research firm Morning Consult.
In the past, major US sports leagues excluded private equity from team ownership, worrying about complicated and volatile ownership structures.
“But now the leagues have finally arrived, and it’s opened the floodgates for private equity investment,” Robert Caporale, co-chairman of Miami Beach, Fla.-based sports investment bank Game Plan, told Institutional Investor. .
In addition to the NBA, Major League Baseball, the National Hockey League, and Major League Soccer also allow stakes in private equity teams. And the NFL may eventually follow.