Sports teams and their associated businesses, like many alternative investments, have characteristics that make them stable and helpful as diversifiers to a broader portfolio.
In the past five years, private equity firms have acquired stakes in teams across all four of the major U.S. professional sports leagues (NFL, NBA, MLB and NHL), and nearly one in five teams now has some level of PE involvement. What’s driving this surge?
Sports team ownership was once the preserve of the uber-wealthy, and that is still largely the case. But as the total valuation of sports teams in the four major leagues approaches $500bn, and with the average NFL team valued around $7bn, some franchises are growing even beyond the means of the wealthiest buyers. Private capital investors taking minority stakes allow ownership and risk to be shared among a larger group of investors, bringing an infusion of cash for opportunities such as the development of stadiums and surrounding properties.
Private capital is a relatively new entrant to major league locker rooms. The MLB opened to institutional investment in 2019, but with restrictions: individual teams can sell up to 30% of their equity, while a single firm can acquire no more than 15% of a team. The NBA and NHL followed with similar guidelines in 2021. It was not until 2024 that the NFL welcomed PE investors, capping ownership at 10% of a team.
The cumulative total returns of each of the four major sports leagues, based on average team value, have surpassed the returns of the S&P 500 since 2014. But it’s not just the market growth that has attracted investors. Sports teams and their associated businesses, like many alternative investments, have characteristics that make them stable and helpful as diversifiers to a broader portfolio.
Professional franchises have predictable, long-term cash flows backed by diverse sources of income: long-term agreements for lucrative TV rights, corporate sponsorships and stadium revenues. As TV and streaming platforms fight for viewers, sports broadcasting rights are hotly contested due to millions of viewers reliably tuning in to watch these games. Of the top 100 broadcasts in 2024, sporting events made up 80 of them.
Professional sports leagues are also a closed ecosystem, with a finite number of teams available for investment. Additionally, unique structural factors such as revenue-sharing and the player draft process help level the playing field and give teams the opportunity to bounce back from a down season.
Perhaps most importantly for the durability of cash flows, fans are incredibly loyal to their teams. Would you keep buying a product that performs poorly? Probably not. But tell that to the lifelong season ticket holder who has never missed their team’s game.
Outside of the major leagues, PE investors have poured money into Formula One, soccer leagues and youth sports. And opportunities abound in segments like apparel and merchandising, contract management, gambling and other activities that comprise the multi-billion-dollar global sports industry. These are often areas where, unlike in the major leagues, funds can acquire majority stakes and apply their playbook of value creation to accelerate growth and improve profitability, all while benefiting from the growth of the sports market.