INVESTING
153 franchises , according to Arctos .
Seeking to broaden the buyer base for their increasingly valuable assets , teams eventually opened the gates to private capital , and now at least a dozen teams in the NBA , NHL and MLB have private equity groups among their owners . Besides Arctos and Blue Owl , some of the major firms in the space include Bruin Capital , RedBird Capital Partners and Clearlake Capital , owning pieces of franchises ranging from the Los Angeles Dodgers to Formula 1 racing to women ’ s soccer .
Can We Play ?
What about non-billionaires ? The most efficient way for them to add , say , a piece of the hometown Red Sox to their portfolio is through sports funds . There are about eight firms with sports-focused strategies , and sports fund options are expected to expand swiftly . Private equity giant Sixth Street Partners in San Francisco is reportedly launching its first such fund . The firm manages $ 75 billion and has stakes in European soccer team Real Madrid , among others .
While sales of big-league franchises are rare , they are happening more often as prices keep rising . A group led by private equity firm the Carlyle Group recently closed on a deal to buy the Seattle Reign ,
Still , investing in sports is no slam dunk . Teams do lose money , especially European soccer clubs .
the women ’ s soccer team , for $ 58 million . The team was purchased for $ 3 million in 2019 . Carlyle also reportedly made a failed attempt to buy the NBA ’ s Minnesota Timberwolves alongside another investor , baseball great Alex Rodriguez . In January , a group led by Carlyle co-founder and Baltimore native David Rubenstein agreed to acquire 70 % of the Baltimore Orioles for $ 1.725 billion . The group eventually took full control of the franchise .
Outside of the recently concluded Olympic Games in Paris , this past summer most eyes in the sports investing ecosphere were on the professional football and basketball leagues . In July the NBA , as expected , tripled the value of the $ 24 billion media rights deal it signed with ESPN and Warner Bros . Discovery , home of TNT , in 2014 . The marketing-savvy , globe-trotting league signed a record $ 76 billion , 11-year contract with Disney , Amazon and Comcast to broadcast its games on ESPN , NBC / Peacock and Amazon Prime Video .
Meanwhile , the NFL , which Forbes estimates is the most valuable sports league in the world , with guaranteed television deals that could be worth more than $ 126 billion by 2033 , could finally open its golden ownership doors to private capital this fall or next year .
Nothing Goes Straight Up
Zook sees a continued rise in the value of broadcast rights , especially for live events . “ If there ’ s an audience , there ’ s an advertiser , and if there ’ s an advertiser , there ’ s money to be made ,” he says .
But he ’ s especially bullish about the cash-flow opportunities of streaming services , as he sees consumers ’ move from broadcast and cable continuing . “ Nothing goes straight up ,” Zook cautions about the trajectory of sports broadcast rights . “ You ’ ll have a stairstep ; but as long as the trend of cord-cutting continues ” the bidding will only go higher too .
Still , investing in sports is no slam dunk . Teams do lose money , especially European soccer clubs . The vetting for private capital to buy a piece of a team is restrictive . Furthermore , outside firms can own only up to 30 % or so of a franchise , and funds , for one , have little say about when or why team management might pursue the sale of the team . Even Zook is nervous about valuations getting out of hand .
“ The only real risk in North American sports leagues right now is if somebody is just overpaying ,” he says . “ At some point , if prices get silly , then obviously we won ’ t keep buying ; we ’ ll be a seller . But we don ’ t see that happening at this point .” ( In fact , on the afternoon of his Financial Advisor interview , Zook was scheduled to meet with someone pitching professional men ’ s volleyball .)
It should be noted that not all investors are eager to jump into the sports investing market .
Jonathan Farr , director at wealth manager Homrich Berg , says he sits comfortably on the sidelines . He admits to not being much of a sports fan , and he isn ’ t impressed with the pitches he ’ s been getting from managers pushing their sports funds . “ I ’ m staying away from allocating any dollars ” in sports , he says . “ It ’ s just a very new space ; valuations are high . When I ’ m thinking about somebody that I want to give money to , I want to see several transactions that have run full cycle . At this point , I don ’ t have data to figure out who ’ s a winner and who ’ s a loser .”
SEPTEMBER 2024 | FINANCIAL ADVISOR MAGAZINE | 41