Private Equity Gets Into The Professional Sports Game

Who doesn’t love a winning team, especially when it reaps rewards?

Private equity investors showed their affection for professional sports in 2021, spending nearly $2 billion on stakes in U.S. franchises according to PitchBook, a database that tracks the private and public equity markets. Motivated by huge returns, particularly in the National Basketball Association, investors recognized potential growth and joined the game.

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Between 2002 and 2021, the average price return for an NBA team was 1,057%, compared to 669% for Major League Baseball and 467% for the National Hockey League, reported PitchBook.

Global expansion and the escalating value of media rights have drawn firms to teams that are becoming increasingly more valuable. The NBA, with its solid potential for new and younger consumers around the world, is a particularly attractive opportunity. In 2019, it launched the thriving Basketball Africa League and currently has its eyes on India and its population of one billion. The NBA’s other international venture–NBA China–streams games on Tencent.

Also seeking to speed up growth, the Women’s National Basketball Association raised $75 million from investors in early February.

According to NBA guidelines, private equity can’t own more than 30% in teams, with a maximum of 20% ownership for one fund. Major League Soccer requires a minimum investment of $20 million, and MLB evaluates investments on a deal-by-deal basis.

Specific deals include Arctos’ investment of $3 billion to buy stakes in specific NBA and NHL teams and the Fenway Sports Group, which owns the Boston Red Sox and Pittsburgh Penguins. RedBird also saw value in Fenway, investing $750 million, and Dyal took a minority stake in the Atlanta Hawks. Ares Management Corporation invested $150 million in MLS’ Inter Miami CF.

To make money on the funds, the firms collect management and incentive fees.