Breaking: Private Equity Investments Revolutionize the Sports Arena

Private Equity Investments in the Sports Arena: A Growing Opportunity

Private equity firms, financial sponsors, and sovereign wealth funds continue to invest in global sports organizations, driven by the allure of lucrative opportunities. Financial sponsor-led investments have been a hallmark of the industry for decades, with Formula One, soccer, and rugby emerging as prime targets. As the global sports landscape continues to evolve, the appeal of sports investments for private equity firms remains strong.

Insight Still Hot: Why Global Sports Keep Attracting Record-Breaking Investments

Recent trends in the US sports market have further fueled the growth of private equity investments in sports organizations. Major US sports leagues have modified ownership rules to allow for private equity holding a minority ownership interest in their teams. The NBA, MLB, and NHL have all followed suit, with the NFL being the notable exception.

• The NBA, MLB, and NHL have all modified ownership rules to allow for private equity holding a minority ownership interest in their teams.
• The NFL is the notable exception, with current restrictions on private equity ownership.

Most Major US Sport Leagues Have Modified Ownership Rules to Allow Private Equity Holding a Minority Ownership Interest in Their Teams

In 2019, MLB became the first US professional sports league to allow private investment funds to hold passive, minority interests in multiple teams. The NBA, MLB, and NHL have all followed suit, with the NFL being the notable exception.

• The NBA allows private equity firms to hold a minimum 20% equity interest in a controlling owner, with the option to increase the stake.
• MLB allows private equity firms to hold a minimum 15% equity interest in a controlling owner, with the option to increase the stake.
• The NHL allows private equity firms to own up to 20% of any team and hold up to 20% in any one team.

The Benefits of Sports Investments for Private Equity Firms

Private equity firms can benefit from investing in sports organizations in several ways:

• Growth Opportunities: Sports organizations offer a range of growth opportunities for private equity firms, including expansion of existing businesses, new product launches, and strategic partnerships.

Abatement of Restrictive Investor Rules in United States

Most major US sport leagues have modified ownership rules to allow for the possibility of private equity holding a minority ownership interest in their teams. Major League Baseball (MLB) in 2019 became the first US professional sports league to allow private investment funds to hold passive, minority interests in multiple teams.

Emerging Sports as Early Investment Opportunities for Private Equity

Emerging sports such as esports, surfing, pickleball, and the Drone Racing League offer early investment opportunities for private equity outside of the saturated, expensive, and “difficult to break into” professional leagues.

• Esports, surfing, pickleball, and the Drone Racing League are emerging sports with early investment opportunities for private equity.

What Makes Sports Transactions Unique

Investments in teams are often subject to both minimum and maximum investments that differ per investment type and league. For example, NBA rules limit private equity firm ownership to 20% of a single franchise and limit total investments per firm to a maximum of five teams, but require a minimum investment of 15% equity interest to be a controlling owner.

Minimum and Maximum Investments in Sports Transactions

In the MLB, no team can be more than 30% owned by private equity, but ownership groups are limited to 20 partners. Similarly, no NHL team can be more than 30% owned by private equity, and an individual private equity firm can own part of up to five different teams and only hold up to 20% in any one team.

• NBA rules limit private equity firm ownership to 20% of a single franchise and limit total investments per firm to a maximum of five teams.
• MLB allows no team to be more than 30% owned by private equity, but ownership groups are limited to 20 partners.
• The NHL allows no team to be more than 30% owned by private equity, and an individual private equity firm can own part of up to five different teams and only hold up to 20% in any one team.

Gaining Transaction Approval

In any consequential franchise transaction, most professional US leagues have significant approval, oversight, and information rights; will expect to perform significant due diligence on the new owner; and will often have approval rights over the definitive transaction documents.

Reverse Diligence

Leagues conduct deep probes into potential buyers and an interest in their teams, whereas buyers are often afforded a limited view into financial information and not much else.

• Leagues conduct deep probes into potential buyers and their interest in their teams.
• Buyers are often afforded a limited view into financial information and not much else.

Limits on Private Equity Owner Control

Most sports leagues are arranged such that there must be a single “controlling owner” who makes all the decisions for the team, including when to sell, but private equity funds cannot be the controlling owner.

Controlling Owner Requirements

Most sports leagues require a single controlling owner who makes all the decisions for the team, including when to sell.

Limitations on Private Equity Firm Control

Private equity firms cannot be the controlling owner of a sports team.

Individual Private Equity Firm Control

An individual private equity firm can own part of up to five different teams and only hold up to 20% in any one team.

NHL Private Equity Firm Control

The NHL allows an individual private equity firm to hold up to 20% in any one team.

• Private equity firms cannot be the controlling owner of a sports team.
• An individual private equity firm can own part of up to five different teams and only hold up to 20% in any one team.
• The NHL allows an individual private equity firm to hold up to 20% in any one team.

Speaker Bios

RASHMI AIRAN Rashmi Airan is a small business owner, a lawyer, volunteer, runner, cyclist, professor, and entrepreneur. Most importantly, she is a devoted mother of two. Rashmi was named Kent Scholar for honors at Columbia Law School. Before that, Rashmi worked for Morgan Stanley after graduating with honors from the University of North Carolina at Chapel Hill. She has worked at national law firms and as a government attorney. It is her mission to study and share the need for ethical vigilance and ethical decisionmaking. She shares how she powerfully overcame adversity—as a woman, mother, professional, and community activist. Rashmi speaks on ethical leadership and decisionmaking, corporate culture, and overcoming adversity. She grew up in Miami with her parents of Indian origin.

KATHLEEN T. BARR Kathleen T. Barr is an independent director and compliance chair for William Blair Funds, an independent director for Professionally Managed Portfolios, and an independent director for Muzinich BDC. Before becoming an independent director, Kathie was co-owner and president of the former Productive Capital Management, Inc. She also served as senior managing director, chief administrative officer, and chief compliance officer for PNC Funds and the predecessor Allegiant Funds. Together with the adviser where she served as chief administrative officer, her responsibilities included compliance, financial, and regulatory administration, operations, and enterprise risk management. Before becoming chief compliance officer, Kathie had been responsible for distribution, marketing, and product management. Kathie has more than 35 years’ experience in the financial services, asset management, and capital markets industries; a former licensure of FINRA 7, 24, 51, 63, and 63; and holds a BBA from the University of Pittsburgh.

JOHN E. BAUMGARDNER JR. John E. Baumgardner Jr. has been and remains engaged in a wide variety of corporate and securities matters, primarily in the investment management area. He is also a member of the firm’s financial services, investment management, broker-dealer and commodities, futures, and derivatives groups. John has represented issuers, independent trustees, advisers, and underwriters of dozens of US-registered, publicly offered open- and closed-end investment companies, and currently concentrates on independent trustee engagements. He has represented the Investment Company Institute, the principal trade association of the mutual funds industry, on some of its most important projects. John has been a speaker or panelist at conferences sponsored by the Practising Law Institute, Investment Company Institute, and the New York City Bar Association. He was former chair of the Committee on Investment Management Regulation of the association and is the chair of the association’s Committee on the Investment of Funds. John has been named in The Best Lawyers in America for more than 15 years. He has also been recognized as a leading lawyer by numerous publications.

NDENISARYA M. BREGASI Ndenisarya M. Bregasi is a partner in the investment management group of K&L Gates and is based in the Washington, DC, office. Her practice focuses on the representation of investment companies, their independent directors and trustees, and investment advisers on a full range of regulatory, compliance, and transactional matters. Ndenisarya works with investment company complexes and investment advisers of all sizes and is particularly focused on serving the needs of each individual client. Ndenisarya serves as cochair of the DC office Associates Committee and as a DC hiring partner for entry-level associates. Ndenisarya was recently selected by Fund Action and Fund Directions as a Rising Star of Mutual Funds. Each year, colleagues in the industry identify self-starters who have risen quickly to further the development of their company and the mutual funds community as a whole. Fund Action and Fund Directions subsequently determine which individuals are most deserving of this honor.

Private Equity Investments in the Sports Arena: A Growing Opportunity

Private equity firms have been increasingly drawn to the world of sports investments in recent years, with many seeing it as a lucrative opportunity to grow their portfolios and tap into the massive brand value of top sports organizations. Unionjournalism takes a closer look at the growing trend of private equity investments in sports and what it means for the future of the industry.

The sports industry is a multi-billion-dollar market, with top teams and leagues generating significant revenue through ticket sales, sponsorships, and broadcasting rights. Private equity firms can capitalize on this revenue by investing in sports organizations with strong brand value, which can increase their overall brand value and profitability. Additionally, investing in sports organizations provides a way for private equity firms to diversify their portfolio and reduce their exposure to any one particular industry or sector.

Brand Value

Brand value is a key factor in determining the attractiveness of a sports organization to private equity firms. Top teams and leagues have strong brand recognition, which can translate to significant revenue and growth opportunities. For example, the NFL’s Dallas Cowboys are estimated to be worth over $5 billion, while the NBA’s New York Knicks are valued at over $4 billion. These teams have strong brand value, which can attract significant investment and sponsorship deals.

Private equity firms can invest in sports organizations with strong brand value, which can increase their overall brand value and profitability. This can be achieved through various means, including investing in new infrastructure, acquiring new players, and expanding into new markets. Additionally, private equity firms can also benefit from the emotional connection that fans have with their favorite teams, which can lead to increased loyalty and revenue.

Diversification

Diversification is another key benefit of investing in sports organizations. By investing in sports, private equity firms can reduce their exposure to any one particular industry or sector. This can help to mitigate risk and ensure that the firm’s portfolio is more resilient in the face of economic downturns or other market disruptions.

Investing in sports organizations provides a way for private equity firms to diversify their portfolio and reduce their exposure to any one particular industry or sector. This can be achieved through various means, including investing in different sports, such as football, basketball, or soccer, or investing in different teams or leagues. Additionally, private equity firms can also benefit from the growing popularity of sports and the increasing demand for sports-related products and services.

Gaining Transaction Approval

There are several factors that private equity firms should consider when evaluating a sports organization as a potential investment opportunity. These include investor approval, due diligence, and regulatory compliance.

Investor Approval

Private equity firms will likely need to obtain approval from the existing ownership group or controlling owner of the sports organization. This can be a complex process, requiring significant negotiation and compromise. Private equity firms must ensure that they have a clear understanding of the ownership structure and the approval process before making a bid.

Investor approval is a critical factor in determining the success of a private equity investment in a sports organization. Private equity firms must ensure that they have a clear understanding of the ownership structure and the approval process before making a bid. This can involve significant negotiation and compromise, and requires a deep understanding of the sports organization’s business and operations.

Due Diligence

Private equity firms should conduct thorough due diligence on the sports organization, including reviewing its financial statements, management team, and market position. This can involve significant research and analysis, and requires a deep understanding of the sports organization’s business and operations.

Due diligence is a critical factor in determining the success of a private equity investment in a sports organization. Private equity firms must ensure that they have a clear understanding of the sports organization’s financial health, management structure, and market position before making a bid. This can involve significant research and analysis, and requires a deep understanding of the sports organization’s business and operations.

Regulatory Compliance

Private equity firms should ensure that the sports organization complies with all relevant regulatory requirements and laws. This can involve significant research and analysis, and requires a deep understanding of the regulatory environment and the sports organization’s business and operations.

Regulatory compliance is a critical factor in determining the success of a private equity investment in a sports organization. Private equity firms must ensure that the sports organization complies with all relevant regulatory requirements and laws. This can involve significant research and analysis, and requires a deep understanding of the regulatory environment and the sports organization’s business and operations.

Limits on Private Equity Owner Control

While private equity firms can hold a minority ownership interest in a sports organization, there are limits on their control over the organization. These limits are designed to protect the interests of the existing ownership group and the sports organization’s stakeholders.

Minimum Investment

Private equity firms must meet the minimum investment requirement of 15% equity interest in a controlling owner. This ensures that the private equity firm has a significant stake in the sports organization and can influence its decision-making process.

The minimum investment requirement is a critical factor in determining the success of a private equity investment in a sports organization. Private equity firms must ensure that they meet the minimum investment requirement to gain a significant stake in the sports organization and influence its decision-making process.

Maximum Investments

Private equity firms are limited to a maximum of five teams, with each team limited to a maximum of $20 million in total investment. This ensures that private equity firms do not over-invest in the sports organization and dilute their ownership stake.

The maximum investment limit is a critical factor in determining the success of a private equity investment in a sports organization. Private equity firms must ensure that they do not exceed the maximum investment limit to avoid diluting their ownership stake and losing control over the sports organization.

Debt Limitations

Private equity firms are subject to debt limitations, which are designed to prevent them from financing the sale of a sports organization or increasing their investment in a single team. This ensures that private equity firms do not over-leverage the sports organization and put its financial stability at risk.

Debt limitations are a critical factor in determining the success of a private equity investment in a sports organization. Private equity firms must ensure that they comply with debt limitations to avoid over-leveraging the sports organization and putting its financial stability at risk.

Conclusion

Private equity investments in sports organizations offer a range of benefits, including growth opportunities, brand value, and diversification. However, there are also limits on private equity owner control and regulatory compliance requirements that must be carefully considered. By understanding these factors and requirements, private equity firms can make informed investment decisions and position themselves for success in the competitive world of sports.

The sports industry is a complex and dynamic market, with many opportunities for private equity firms to grow their portfolios and tap into the massive brand value of top sports organizations. However, private equity firms must be aware of the limits on their control and the regulatory requirements that apply to sports investments. By understanding these factors and requirements, private equity firms can make informed investment decisions and position themselves for success in the competitive world of sports.