By allowing private equity to invest in National Football League (NFL) franchises, the stewards of the sport have merely cracked the door open. Four consortiums received pre-approval, with their investment in any single team limited to 10%. Nonetheless, the implications are unmistakable. “This provides an entry point into the NFL and grants access to the […]
By allowing private equity to invest in National Football League (NFL) franchises, the stewards of the sport have merely cracked the door open. Four consortiums received pre-approval, with their investment in any single team limited to 10%. Nonetheless, the implications are unmistakable.
“This provides an entry point into the NFL and grants access to the ecosystem surrounding the franchise, from which you can develop viable business models,” commented Kevin Desai, leader of the private equity sector at PwC.
Seth Allen from Inner Circle Sports, a sports-centric investment bank, echoed similar sentiments, highlighting that private equity investors could provide capital for the infrastructure upgrades teams may require – costs that have historically been partially covered by taxpayers.
Arctos Partners, Ares Management [NYSE:ARES], Sixth Street Partners, and a group made up of Blackstone [NYSE:BX], Carlyle [NYSE:CG], CVC Capital Partners [AMS:CVC], Dynasty Equity, and Ludis, led by Hall of Fame running back Curtis Martin, are the fortunate four investment entities. At least two of them are reportedly already pursuing deals.
Dallas-based Arctos is said to be in negotiations to invest in the Buffalo Bills, while Ares, based in Los Angeles, is linked to a potential investment in the Miami Dolphins. This potential deal could be characterized as real estate-plus, encompassing the Dolphins’ Hard Rock Stadium, the operational rights to the Formula One Miami Grand Prix, and roughly half of the Miami Open tennis tournament.
Such a structure resonates well with PwC’s Desai, who indicated that a franchise aiming to construct a new stadium could sell a portion to private equity and use the funds for larger projects that could include a surrounding entertainment district. In this scenario, the same investor could also play a strategic part.
“A real estate division [of the sponsor] could step in to help not only develop the entertainment district but also acquire land and opportunities in the vicinity,” Desai stated.
A broader spectrum
Broadcast rights present another expansive opportunity. Similar investments have already been undertaken in other sports through various frameworks. For instance, in 2022, Sixth Street financed F.C. Barcelona in exchange for a 25% interest in the soccer giant’s Spanish league broadcast rights for 25 years.
In a similar sport but a different nation, F.C. Internazionale Milano (Inter Milan) issued bonds via Inter Media and Communication, the entity that manages its media, sponsorship, and merchandising rights. Even when the Italian club faced bankruptcy, bond prices remained largely stable.
In May, Los Angeles-based Oaktree Capital took control of Inter Milan after its former owners defaulted on a EUR 275m (USD 290.3m) rescue loan. Fitch Ratings pointed out that this acquisition would not impact the rating of Inter Media’s EUR 415m senior secured fixed-rate notes.
“There are numerous robust debt opportunities,” stated Shehriyar Antia, head of thematic research at PGIM, an asset management arm of Prudential Financial [NYSE:PRU]. “Lending against broadcast rights provides a stable, consistent cash flow.”
Private equity players can also offer expertise as franchises venture into new markets, bringing a level of sophistication that may be absent from NFL boardrooms. Select games are already being held in Europe, but Paul Harris, a principal at KPMG, argues that the technological aspect of international growth – including data analytics and audience engagement – will be key in driving expansion.
Franchises might capitalize on streaming platforms to enhance global outreach, similar to Formula One’s approach via Netflix’s [NASDAQ:NFLX] Drive to Survive series, according to PGIM’s Antia. “There’s a strong possibility that Netflix would engage a worldwide viewership for something akin to the NFL,” he remarked.
This May, Netflix revealed it would stream at least one NFL game globally on Christmas Day over the next three years for an estimated USD 75m per game. The league also entered a seven-year agreement with Alphabet’s [NASDAQ:GOOGL] Google for the rights to air Sunday games.
The playoff clash last season between the Kansas City Chiefs and the Dolphins broke streaming records, drawing 23 million viewers on Comcast’s [NASDAQ:CMCSA] NBCUniversal’s Peacock service.
The NFL derives 95% of its revenue from the U.S. Despite the league’s earnings being 30% more than those of the National Basketball Association (NBA), it still lags behind basketball regarding international revenue, as noted by Lamar Cardinez, a principal at Blue Owl [NYSE:OWL], during the 2023 Mergermarket M&A Forum Miami.
Dyal Capital, part of Blue Owl, has taken stakes in the NBA’s Atlanta Hawks, Sacramento Kings and Phoenix Suns. Arctos also has exposure to the NBA – through the Golden State Warriors and Utah Jazz – along with interests in franchises across Major League Baseball (MLB) and the National Hockey League (NHL). All three leagues have been receiving capital from financial sponsors for a considerable duration.
Expected deal flow
The investment stipulations established by the NFL are more stringent than those welcomed by the NBA, MLB, and the Women’s National Basketball Association (WNBA). The four pre-approved consortiums can only invest in up to five franchises each, according to a source privy to the NFL’s deliberations.
The average valuation of the NFL’s 32 franchises stands at USD 5bn, with approximately USD 500m in debt, as noted by the source. The league instructed the pre-approved groups to allocate about USD 2bn in targeted funding for investments. No single investor may constitute more than 7.5% of a fund dedicated to these transactions, allowing only the largest sponsors, equipped with the biggest funds, to participate.
As per KPMG’s Harris, the NFL has taken a conservative stance in welcoming private equity investors. “This is a ticket price and point that only a limited number of funds can engage with,” he asserted.
Several firms have already established dedicated sports investment vehicles. Arctos, the sole pure-play sports investor among the four, confirmed the final close of its Arctos Sports Partners Fund in August, securing commitments exceeding USD 4.1bn, including co-investment pools and parallel affiliated ventures.
Ares completed its first sports offering – Ares Sports, Media and Entertainment Finance – in September 2022, amounting to USD 3.7bn. CEO Michael Arougheti indicated the sponsor is developing several open-ended and closed-end products centered on the strategy, aimed at institutional and retail investors.
“We are witnessing substantial demand from investors seeking access to the burgeoning and unique value in various sports-related franchises,” he remarked.
CVC, which has previously invested in rugby, soccer, volleyball, motorsports, and tennis, wrapped up its ninth flagship fund at EUR 26bn (USD 27.4bn) in July. A source familiar mentioned that the fund could easily establish a USD 2bn NFL investment vehicle from that fund. Blackstone, Carlyle, and Sixth Street operate at a similar magnitude.
“These are seasoned funds with a history of investing in sports and are focused on this domain,” KPMG’s Harris added. “The NFL has been selective in its initial choices but may gradually ease the guidelines and include additional participants in the approved ecosystem.”
Expanding the frontiers
The very fact that the NFL has conceded is seen by some industry experts as further validation of sports as a distinct asset class. KPMG’s Harris stated it is appealing due to its seemingly recession-resistant nature, relying on unwavering fan support. He has observed a remarkable increase in interest among clients exploring this field, from private equity sponsors to family offices and corporations.
“In just over three years, we have noticed a tremendous growth in demand for sports as an asset class,” stated David J. O’Connor, managing partner at Arctos, in a statement to Mergermarket.
Ares’ Arougheti emphasized the vastness of the opportunity during his remarks on Ares’ Q324 earnings call. He noted that as professional sports leagues globally become more receptive to institutional capital, the potential market is projected to exceed USD 750bn.
The challenge with such figures is their rapid obsolescence since the boundaries for sports investment are still being pushed outward. Women’s leagues are anticipated to be the next significant target. The WNBA, for instance, has garnered a substantial following – both physically and digitally – following the successes of stars like Indiana Fever’s Caitlin Clark and Las Vegas Aces’ A’ja Wilson.
“The audience and viewership are experiencing rapid growth,” noted PGIM’s Antia.
