Sports organizations were once exclusive institutions available only to the ultra-wealthy. However, demand for capital, an expanding opportunity set, and loosening regulations have given way to a new field of investing.
A growing asset class
Today, private equity firms have made significant inroads. Historically, strong and stable returns have perpetuated the appetite for this type of investment, adding valuable diversification to portfolios. Evolving regulations across various sports leagues have made this vertical undoubtedly one of the fastest-growing sectors in private equity. Yet, there is still work to be done. While private equity firms can take on huge minimums, there will be challenges for the retail investor until these minimums can be more accessible.
Skin in the game + Portfolio diversification
For many investors, simply being a fan is not enough. That’s because being a part-owner of a sports organization makes fandom that much more exciting. Investing in sports franchises is tempting for those looking to actively participate in their most coveted passion while creating a more diverse and well-rounded portfolio.
A game-changing shift: Leagues begin allowing private equity investment
We are now seeing a major disruption to the previously established regulations across various leagues, which barred a wider range of investors from participating in the business side of their favorite sports.
- For decades, sports leagues in the U.S. and abroad historically only allowed private, ultra-high-net-worth individuals to own shares in teams, creating a bubble of considerable exclusivity among the select few with the means to pursue partial ownership.
- One of the first noticeable shifts in regulations regarding private equity participation in sports occurred in 2005 when F1 accepted the backing of the private equity firm CVC Capital Partners.
- Another noteworthy shift occurred in 2021 when a new class of investors was born with the decision to allow private equity providers to acquire up to 20% of any single NBA franchise being ratified.
- This decision was mutually beneficial for those individuals looking to acquire equity in their favorite franchise and the teams and leagues who could now accrue additional capital to enter into various deals or projects (i.e., stadium construction, premium partnerships) with greater speed and efficiency and potentially bolster profits.
- In the past four years alone, the MLS, NHL, and MLB have all begun allowing private equity investment.
- Each league varies regarding specific rules and regulations, such as the percentage eligible for sale, the percentage a lone investor may hold, the minimum investment commitment, and the number of teams one fund can own.
Interest driven by evolving business model
The rise in private equity interest across multiple sports verticals is also reinforced by a transforming business model that includes several exciting areas. These areas include:
- Streaming: The streaming boom has completely transformed the landscape in which sports content is consumed. With multiple subscription-based models and a global audience reach, the advent of sports streaming has created a lot of interest from private equity investors.
- Sports Betting: The widespread legalization of sports books in numerous states has created an undoubtedly lucrative market for teams and leagues. Another component is the abundance of data and analytics associated with sports betting, which can be a valuable asset for teams.
- Sponsorships: Sports teams, clubs, and franchises can achieve substantial revenue boosts, widespread branding and exposure, and long-term partnerships through sponsorships. All of which are considerable draws for private equity firms and investors.
- Intellectual Property: Owning and monetizing intellectual property within particular sports, such as broadcasting rights and distribution, merchandise, and archival content libraries, can help drive revenue for various sports entities.
How it works
First, private equity firms typically invest equity and/or debt in return for a stake in a newly incorporated holding company or join a venture vehicle of the sports organization. That equity and/or debt is then leveraged to manage the commercial side of the business. The capital generated from these endeavors is typically allocated to explore monetization opportunities. The visible division between the commercial and operational sides allows sports organizations to maintain a level of control over the governance of their businesses.
Investors are paid after an exit following a certain period, typically between five and 10 years. In some cases, investors will receive a portion of cash flows from the organization itself.
Historical investment performance
The value of all major sports leagues within the U.S. as well as several soccer clubs in Europe, has outpaced the S&P 500, especially within the past decade.
Invest in private equity
At Yieldstreet, we unlock direct access to private equity funds and co-investments, including opportunities within the world of sports. With accessible minimums and investor-friendly structures, explore our latest offerings now.
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