The crossover between private equity and sports continues to heat up, with investors acquiring stakes in teams, leagues, and related enterprises. This trend is driven by the escalating valuations of sports franchises and the diversification of revenue streams beyond traditional ticket sales.
In the past month we have seen milestone deals, namely Sixth Street’s purchase of a stake of the San Francisco Giants and financing William Chisholm’s acquisition of the Boston Celtics in a single week! Private equity’s interest in sports is understandable, given that there are a finite number of teams, and the value of those teams will only continue to increase over time due in part to broadcasting rights. When it comes to reaching a live audience with advertisements, sports are the last game in town. Streaming platforms now dominate almost every other form of entertainment, and investors know this is not likely to change.
What does this mean for investors?
- Direct Minority Investments in Teams: With many leagues relaxing ownership restrictions, PE funds can now acquire minority stakes in professional teams. This approach allows funds to participate in the sports industry’s growth without assuming full operational control.
- Collaborations Between Financial Institutions and PE Funds: Some financial institutions are partnering with PE funds to offer private-market funds to individual investors.
- Investing in Sports Technology and Infrastructure: Beyond team ownership, PE funds are investing in companies that provide technological solutions, data analytics, and infrastructure services to sports organizations. This strategy capitalizes on the increasing integration of technology in sports operations and fan engagement.
- Media and Broadcasting Rights: The escalating value of media rights presents a lucrative avenue for PE investment. Funds are acquiring stakes in broadcasting companies or forming partnerships to manage and distribute content, leveraging the global appetite for sports entertainment.
- Collaborating with Sports Management Entities: Forming partnerships with sports management firms or leagues can provide PE funds with unique investment opportunities and insights into the industry’s dynamics. Such collaborations can lead to joint ventures or co-investment opportunities in various sports-related projects, including tournaments.
- Infrastructure and Real Estate Development: Beyond direct team investments, PE funds are financing the development of sports venues, training facilities, and surrounding real estate projects.
What should you be mindful of?
- High Valuations: The soaring valuations of sports franchises mean that even minority stakes require substantial capital, making thorough due diligence essential.
- Regulatory and Tax Implications: Investments in sports teams involve complex tax considerations, including potential passive losses and state-specific tax treatments. It’s crucial to consult with tax professionals to navigate these intricacies effectively.
- Long-Term Commitment: Sports investments may necessitate longer holding periods compared to traditional private equity investments, requiring investors to adopt a long-term perspective.
Both professional and college sports continue to present compelling opportunities, but it requires careful strategic planning and an understanding of the unique dynamics of the sports industry. With Nixon Peabody’s dedicated sports and stadium team, we work with clients throughout the sports landscape to maximize their competitive advantage, capitalize on emerging trends, and comply with the regulations of this high-profile and high-performance world.
If you’re considering a sports investment, need funding, or have questions about evolving guidelines, please do not hesitate to contact me.