Sports Private Equity

I had a thought the other day. Are there any firms that have invested in a sports team/franchise as say a 'portfolio company'?

One example, although a bit different, is Elliot Management took control of historic Italian Football team AC Milan this summer after the past owner defaulted on the debt that Elliot lent to him. Instead of flipping Milan right away, Elliot has vowed to run the team at least until the near future. So maybe this will become a case study for this area?

I know there are firms that help raise capital or help match equity partners for some teams. There are also banks that help with the sale of these teams, but the parties in the transactions are usually individuals/families.

I do understand that sports teams aren't always up for sale, but with how quickly the value of a lot of sports franchises have been growing I don't see why one firm wouldn't try their hand at a bidding for control? Or, maybe a firm buys a lower league team (i.e. a non top division European football team) and invests capital to get them to the top league and then exit when the teams value is inflated?

I know I am not backing this with any data, and I also have no knowledge of the ins and outs of running a sports franchise or the economics of that, but being a sports fan myself and in the industry I thought this was an interesting topic.

I'm curious if anyone has any thoughts or insights into the subject.

Comments (25)

 
Most Helpful
Oct 4, 2018 - 11:38am

For a major sport, the risk/returns profile is probably not there. This is just speculation from my end, but if the average hold period is 3-5 years for a fund, getting a 2x or 3x is challenging in a mature sport. If you're going to outbid Tepper on the Panthers (probably in the lower half of value in the league) and pay 2.5b, how likely is it they will be worth 5+b in 2022?

In developing sports or regions it could be more likely. I think there is some VC behind the new american football leagues.

 
Oct 4, 2018 - 2:59pm

IMO I think it will remain a family-office type of investment. If you think about it, for a billionaire it has multiple benefits. Obviously the ego boost, but also some synergies for whatever their normal business is. I'd imagine the owner of a team can use everything that a team can bring to build preferential relationships with vendors, arrange customer meetings, and get the ear of government officials.

 
Oct 4, 2018 - 12:49pm

Probably wouldn't work with the NFL or MLB but I could see it with a European Soccer team, like you mentioned.

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Oct 4, 2018 - 7:28pm

Interesting topic. To answer your first question, yes. For an example take a look at Ontario Teachers and their stake in the Maple Leafs (NHL team).

https://www.forbes.com/sites/nathanvardi/2011/12/09/the-greatest-sports…

With a 3-5 year hold period for an investment, sport franchises are more difficult to realize at a 2x return. Notwithstanding the fallout the GP would have from LPs that the investment was made for vanity more than anything else.

Now you are seeing private equity firms get more creative. CVC most recently owned Formula One, and now is in talks to buy Premiership Rugby (England's professional rugby competition). This is at the corporate level, similar to the MLS, where the league owns the teams.

At the end of the day, sports franchises are a better fit for longer duration investors, like the infrastructure asset class, as you are now seeing family offices, holding companies (Fenway Sports), and SWFs getting in on the action and buying one, two, or multiple teams.

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Oct 4, 2018 - 7:59pm

I forgot to add, NFL and other top sports leagues are similar to exclusive memberships clubs. Just because you have money, it doesn't buy you entry unless the other members (owners) approve the deal as well. AKA, you need league approval to buy a team, it doesn't just go to the highest bidder.

Due to this, teams are less likely to go to PE firms, when the league and owners know the team will be flipped in a few years. This is why you'll more likely see PE or corporate owned teams in less prestigious leagues and conferences both in and outside the U.S.

You're also seeing more teams overseas (outside U,.S.) trade hands because in general this names are less professional managed but compete in sports more popular internationally. Buying a platform like Manchester City (in the EPL) and then expanding the media rights for this team across the globe while also buying bolt-on teams like New York City FC and Melbourne City FC gives meaningful valuation uplift for investors.

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Oct 4, 2018 - 8:17pm

The real investing opportunity in sports right now is e-sport teams. It's a growth market still rife with performance inefficiencies and a massive following that's only expanding.

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Oct 4, 2018 - 8:37pm

Pretty sure Silverlake owns WWE and UFC as well. Another reason why you don't see a lot of interest from sponsors is the inability to financially engineer a sports organization like you would with a typical corporate. Salaries for players are pretty much fixed, so there's very little you can do on the operating leverage end. Even though a franchise might be capex-lite, you're likely going to dump a lot of money in marketing for little financial return, as typically there's little that an owner can do to materially influence demand (I'll gamble and say that >95% of GSW fans have no idea who the owner is). As mentioned in the thread, its more about clout chasing because you can than any attempt to make a meaningful return.

 
Oct 4, 2018 - 11:41pm

Good post, but I think you need to familiarize yourself more with Elliot as a firm. Those guys are brilliant and have the flexibility to invest in just about anything they think they can make a solid return on. The thesis there was not, " I think we need to get some exposure to the Italian soccer league". I would make the argument that the majority of sports teams are not solid investment opportunities. Obviously exceptions are out there... I.e. the 76ers (Josh Harris from Apollo) bought for a low valuation.

 
Oct 5, 2018 - 9:28am

Oh I agree with that. They definitely didn't go out looking to acquire ownership of Milan, but that's just how it ended up. Even though it most likely wasn't apart of their thesis. I'm curious to see what happens with this situation.

 
Oct 5, 2018 - 1:52pm

D3soccerguy:

Oh I agree with that. They definitely didn't go out looking to acquire ownership of Milan, but that's just how it ended up. Even though it most likely wasn't apart of their thesis. I'm curious to see what happens with this situation.

No they absolutely did intend on owning AC Milan.

They bought the deeply discounted debt and it was converted to equity (which was their intention)

 
Oct 5, 2018 - 1:37am

I actually had a thought about this a few months back as well, for corporations, investment banks or advisory firms typically provide the advisory services, but what about when sports teams buy and sell players and other teams? Are there any firms that engage in such services? And also, how would you value a football player (for example)? I think it'd be pretty hard to do a DCF on a player, but maybe comps for other players with similar profiles?

 
Oct 8, 2018 - 10:46am

This model is interesting. Having player's right owned by a third party is illegal in many big leagues in the world. This is only common in South America and Portugal. FIFA has been trying to get rid of this model. But with some high profile transfers these third party owners have made quite a bit of money. They have also been know to hurt players careers because they only care about their ROI and not on what's best for the player.

 
Oct 5, 2018 - 7:43am

I agree, but RB Leipzig might be an exception to the rule.

I am not 100% sure about the initial investment that was made (I've read something aorund the lines of 100m during the first few years), but they've gone from non-existance (basically, they took over a club in 5th league) to the European Leagues in PE investment, but I think Red Bull has created and will continue to create a great amount of value through its clubs, not even including the marketing value that it gives RB. And considering the amounts that are spent in Europe at the moment for players etc. I would deem their approach rather "fiscally conservative".

 
Oct 5, 2018 - 9:46am

If I recall correctly, Bain Capital bid around USD 3.5 bn to buy the entire NHL (all 30 teams) coming out of the 2004/05 lockout. They planned to run all 30 teams with a centralized marketing budget, similar to what MLS was. The bid was rejected but actually I think it would have been a decent investment what with the increase in franchise values and the overall product delivered on the ice.

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Oct 8, 2018 - 10:43am

Yeah I've seen some interest in the eSports area from some VC's since it is a fairly young concept. I think it will be interesting to see how big that industry can potentially grow and whether it will attract more invest or not.

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