Sports Private Equity: Bright Spot in a Troubled PE Landscape or an Emerging Bubble?

Amidst the miserable deal environment of the past few years, there has been one bright spot: sports private equity.

Even as deal activity, fundraising, and exits have slowed everywhere, billionaires and PE firms backed by billionaires continue to acquire and invest in sports teams.

Over two-thirds of NBA teams have a private equity connection or investment, and all major U.S. leagues except the NFL now allow PE firms to own minority stakes in teams.

In Europe, 35% of football clubs have been funded via capital from PE/VC firms, sovereign wealth funds, or private consortiums.

So, why have PE firms suddenly gotten interested in sports?

And if you’re interested in working in the sector, should you enter the draft?

Sports Private Equity Defined

Sports Private Equity: In sports private equity, firms raise capital from outside investors (Limited Partners) and invest in teams in football, baseball, basketball, hockey, racing, and other major sports, typically via minority stakes, with the aim to sell their stakes for a profit within 3 – 7 years.

The broader world of “sports investing” includes more than traditional private equity firms.

For example, many sovereign wealth funds in the Middle East have also gotten involved, as have holding companies and consortiums led by people such as Josh Harris (Apollo co-founder and now a famous sports investor).

But this article will focus on dedicated sports PE firms and some mega-funds that have made sports investments.

Why Did Private Equity Suddenly “Get Interested” in Sports?

If you look at a sector like technology private equity, the interest developed gradually over time, with top firms like Silver Lake and Vista being founded 20+ years ago.

By contrast, the interest in sports went from 0 to a 100-mph fastball quickly, with dozens of sports-focused firms now (vs. only a handful a decade ago).

This happened for a few reasons:

1) Soaring Valuations – Many sources say that sports team valuations “outperformed” the S&P 500 over the past 20 years, which is a polite way of saying that many teams are now valued at extremely high multiples.

And as with Bitcoin and AI, soaring valuations always attract new buyers who expect even greater fools in the future.

Also, these very high valuations have created a need for liquidity, as older owners may want to sell their stakes – but face a limited pool of buyers.

2) Perception of Sports as an “Uncorrelated Investment” – Even when a recession or market downturn occurs, the franchise still generates cash flows, and fans keep attending games.

Also, even if the team performs poorly, the hardcore fans keep spending money like drunken sailors.

Sports teams have emotional connections that function like “moats” for traditional businesses.

3) Revenue Growth – Besides ticket and merchandise sales, sports teams can grow revenue with broadcast/licensing deals, partnerships, and newer routes like augmented reality (AR) / virtual reality (VR) experiences and e-gaming.

When the fans are passionate, there are infinite ways to milk the brand’s value.

4) Poor Financial Management—Despite these positives, many teams are poorly managed and still lose money, creating an opportunity for PE firms to improve their efficiency.

A great example is how many European football clubs became distressed during COVID and were forced to seek private capital.

5) Regulatory Changes – Finally, many sports leagues have loosened their ownership rules over time and now allow private equity firms to own minority stakes.

For example, in 2021, the NBA started allowing institutional investors to own up to 20% of single teams, which led Arctos to invest 5% in the Golden State Warriors (they later increased this stake to 13%).

The MLB started allowing PE ownership in 2019, and the NHL followed suit in 2021.

Here’s a handy chart with the allowed PE ownership by league, created by Vetted Sports and Sports Pro Media:

Another factor is that many sports franchises offload some of their biggest OpEx and CapEx, such as stadiums, to cities.

It’s a great business model because the team can threaten to leave unless the city pays for the stadium… and when the city pays for it, the team can collect the ticket, licensing, broadcasting, and merchandising revenue.

Finally, sports investing allows wealthy individuals to gain influence and prestige.

Sure, they could keep making money by acquiring random unknown businesses, but if they want visibility, nothing beats sports (or media?).

The Top Sports Private Equity Firms

The list of sports PE firms was short in 2015, but it has exploded over time.

I’ll divide this into 5 main categories: Sports-focused PE firms, large/diversified funds, sovereign wealth funds and pensions, conglomerates, and family offices/individuals.

Sports-Focused Private Equity Firms

A few of the highest-profile firms here are Arctos Sports Partners (Golden State Warriors, Houston Astros, LA Dodgers, Utah Jazz, Paris Saint-Germain, etc.), RedBird Capital (AC Milan, Alpine Formula 1, Fenway Sports, etc.), MSP Sports Capital (McLaren Racing), and 777 Partners (Sevilla FC, Genoa FC, Red Star FC, etc.).

Other firms focusing on “sports-adjacent” companies (analytics, media, tech services, etc.) include Bruin Capital, Clearlake, and Shamrock Capital.

Newer names include Bluestone, Dynasty Equity (Liverpool FC), and LBK Capital (Triestina).

Others with a broader “entertainment” focus include Atairos, Causeway, The Chernin Group, Elysian Park (more of a VC), Fiume Capital, and Zelnick Media.

Larger, Diversified Funds That Also Invest in Sports

As sports investing became more popular, many firms with a traditional TMT or media/entertainment focus also got involved.

Examples include Ares (now with a $3.7 billion sports/media/entertainment fund), Blue Owl (Dyal HomeCourt Partners), CVC (invested in the Women’s Tennis Association), Elliott Management (yes, more of a hedge fund, but they took over AC Milan after a debt default), and Sixth Street (National Women’s Soccer League, San Antonio Spurs, Real Madrid, etc.).

Firms like Silver Lake, Providence, and TPG have also made sports-related investments.

Sovereign Wealth Funds and Pension Funds

Various sovereign wealth funds and SWF-related firms in the Middle East, such as Qatar Sports Investments (QSI) and Saudi Arabia’s Public Investment Fund (PIF), have also done deals for football clubs and sports holding companies (see below).

PIF has also expanded outside of football (soccer) with investments in golf, cricket, horse racing, boxing, tennis, wrestling, and more.

And then there’s OMERS, a Canadian pension fund that now holds a minority stake in the holding company that owns various teams in Toronto.

Conglomerates and Holding Companies

Outside of traditional PE firms, many sports holding companies and conglomerates also invest in the space.

Examples include Monumental Sports (Washington Wizards and Washington Capitals), Harris Blitzer Sports & Entertainment (Philadelphia 76ers and New Jersey Devils), Eldridge Industries (LA Dodgers), and Fenway Sports Group (Boston Red Sox, Liverpool FC, Pittsburgh Penguins, etc.).

Fenway is backed by RedBird Capital, so there’s some PE involvement here as well.

A firm like Liberty Media could also be in this category due to its ownership of Formula One.

Family Offices and Individuals

Finally, many wealthy individuals and their family offices have gotten involved in sports investing.

A few family offices in the space include Certuity, GMF Capital, and Tricor Pacific (Treaty United FC in Ireland).

Besides Josh Harris, other individual sports investors include Jeff Vinik, Dan Gilbert, Mark Mateschitz, and Mukesh Ambani (who owns multiple cricket teams via Reliance Industries in India).

And yes, I’m aware of Steve Cohen, David Tepper, and Steve Balmer, but they’re all single-team owners, which is a bit different than owning a portfolio of sports teams.

How Do Sports Private Equity Deals Work?

The short answer is: “A lot like growth equity deals.”

Many sports leagues do not allow teams or franchises to be highly levered or majority-owned by private equity firms, so the main returns sources are:

• Revenue Growth – From more ticket sales, merchandising, license/broadcast rights, live events, and real estate plays.
• Margin Improvement – While some sports teams are run efficiently (many NBA teams have ~30% margins), plenty of others are not. European football clubs are notorious for losing money, and PE firms are allowed to own some countries’ teams in full, so they see it as an attractive opportunity to improve efficiency.
• Multiple Expansion – This has been the main returns driver as sports teams’ valuations have been bid up, but it’s questionable whether this will continue forever.

If we take Arctos’ £125 million into AMR GP (Aston Martin’s F1 team) at a £1 billion valuation as an example deal:

• The team had revenue of £230 million (roughly a 5x revenue multiple based on the most recent Balance Sheet). You can see the previous year’s financials here.
• The team was losing tons of money, with (25%) operating margins.
• But its sales were growing briskly, with 20 – 25% growth in the two previous years.

In a situation like this, Arctos will focus on revenue growth and attempt to set up new partnerships and licensing deals to “grow past” these losses (which may or may not work, depending on the team’s operating leverage).

It’s only a minority owner, so it has limited power to force management changes or cut specific costs.

However, if it can keep the team’s revenue growing at 15 – 25% per year and exit at a 4x revenue multiple, it could still earn a ~15% IRR over 5 years:

It’s unclear how well this will work because Arctos was only founded in 2020.

Exits seem dependent on finding another PE firm or consortium willing to pay more, and options like IPOs and acquisitions by “strategics” (normal companies) are less viable due to league rules on ownership.

On the Job in Sports Private Equity

If you work at a firm that makes “sports-adjacent” investments, such as Bruin Capital or Shamrock, it’s normal private equity: Read a lot of CIMs, reach out to companies, conduct due diligence, and execute the occasional deal.

But if your firm focuses on acquisitions or minority stakes in sports teams, the modeling and analytical work becomes far more speculative, like growth equity.

How much revenue could the Chicago Bulls generate if they started offering an AR/VR experience based on Michael Jordan?

What if the Dodgers launched a line of merchandise based on Shohei Otani?

Or what if Real Madrid expanded into e-sports and launched a spinoff title from the FIFA series via Electronic Arts?

You need to buy “the story” for the numbers to work, and the job is more about coming up with these ideas than evaluating the downside cases.

On balance, it probably is more fun than traditional PE firms that buy boring HVAC installation companies or accounting firms, but you also develop a more niche skill set.

Many of these newer, sports-focused firms are also quite small, which means that compensation is more in-line with lower-middle-market PE firms, and promotion opportunities are less clearly defined.

Recruiting for Sports Private Equity Roles

If you’re targeting mega-funds or upper-middle-market PE firms that invest in sports, expect the usual on-cycle recruiting process, with timed LBO modeling tests, fast interviews, and extremely early start dates in the U.S.

However, if you go for roles at the smaller, sports-focused firms, recruiting is all off-cycle, and headhunters are not heavily involved.

Working at a top bank or consulting firm always helps, but you could probably get the attention of these firms if you had “sports finance” experience via other means (e.g., corporate development for a sports/entertainment company).

Overall, expect interview questions more like those in venture capital or growth equity because many of these PE firms operate like that: Minority stakes, structured equity, and occasional hybrid debt/equity deals.

Should You Enter the Draft for Sports Private Equity?

So, if you’re interested in both sports and private equity, should you go for sports PE roles?

I think it’s quite risky to join a newer PE firm that invests mostly in sports teams.

Yes, it’s more interesting work than standard PE, and yes, it is a new/hot area that will continue to see more deal activity.

However, the long-term performance outlook is completely unknown, firms like Arctos have only had a few exits, and you don’t necessarily develop a transferable skill set since sports are quite niche.

If you’re interested in this field, I would recommend gaining some TMT or entertainment experience at a diversified firm and then moving to a group that does both sports-team and sports-adjacent deals.

That way, you can get the best of both worlds and give yourself the option to specialize without committing to anything too early.

It’s a bit like being a talented college football player: Yes, maybe you want to go pro and enter the NFL draft, but if you do it too early, you could end up on the wrong team or with an inferior skill set.

Sports Private Equity: Further Reading and Listening

• Capital Allocators Podcast – Arctos Sports Partners | Fenway Sports Group | Professional Athlete to Professional Investor at Arctos
• The Sports Business Investment Map
• Why private equity newbie Arctos is making prolific bets on sport (Financial Times)
• 6 Reasons Why Private Equity Has an Interest in Sports (Vetted Sports)