What’s Behind the Sudden Rush of Sales of Sports Teams?
While attempting to buy an NFL team, Bobby Axelrod, the imperfect protagonist of the popular HBO TV series ‘Billions’ opined that “Sports franchises are how we knight people in this country.” While the series somehow manages to dramatize the already sensational world of hedge funds and high finance, the observation from Axelrod is a poignant one; ownership of sports franchises is America’s closest comparable to knighthood in the United Kingdom. With the lofty societal status assigned to owners of professional sports franchises, the reasoning for parting with such as asset is not always apparent.
Over the last six months, there has been a rash of franchises put up for sale across the four major professional sports leagues in the U.S. as well as prominent soccer leagues in Europe including the British Premier League. Among the most notable deals was the acquisition of Chelsea Football Club by a consortium led by American investor Todd Boehly. The deal, worth up to £4.25 billion, is the richest deal for a sports team in history and reset valuations for sports franchises globally, particularly for other British Premier league clubs up for bid (Olley, 2022). Stateside, the New York Mets, Denver Broncos and Phoenix Suns and Mercury were also recently sold for record-breaking prices for North American professional sports franchises.
Dealmakers in the sports industry cannot recall a period when so many professional sports franchises were for sale at the same time. Currently, there are six major franchises exploring a potential sale, including the Manchester United, Liverpool FC, Baltimore Orioles, Washington Nationals, Ottawa Senators, and Washington Commanders franchises. This count does not include the Los Angeles Angels of Anaheim which owner Arte Moreno recently decided against selling after exploring a potential sale and reportedly exceeding $2.4 billion or rumored expansion franchises for the NBA and MLB in Las Vegas and Nashville.
The plethora of professional sports franchises being put up for sale coincides with a substantial runup in valuations. The recent record-breaking deals across the British Premier League, the National Football League, and the National Basketball Association have provided fresh marks for assets that are historically difficult to price due to the relative illiquidity of investments in sports franchises. Owners of professional sports franchises are seeking to cash in on these elevated valuations and monetize their long-held stakes while investors are keen to gain access to a still largely gated asset class.
A study by Christopher Avery and Judith Chevalier for The Journal of Business examined the parallels between the financial markets and sports gambling, specifically “investor sentiment” in relation to betting on football and its ability to affect betting lines. The study highlighted that the “wisdom of ‘experts’ is in demand; picks are available from online services, newsletters, sports shows, newspaper columns, books, pay-per-view services, and 1-900 telephone numbers.” (Avery & Chevalier, 1999) Avery and Chevalier conducted the study in 1999 and the interest in sports betting has grown exponentially with the digitization of media, the rise of platforms like Barstool Sports, and the increasing number of states legalizing sports betting. Currently, sports betting is legal in 36 states and Washington D.C., with 26 of those states allowing mobile sports betting (Yakowicz, 2023).
While the rise of lucrative television and broadcasting rights deals have been the driver behind the dramatic rise in valuations, sports gambling could be the next catalyst for sports franchise valuations as the stigma attached to sports betting dissipates and both leagues and teams learn the best ways to monetize the new avenue for growth.
Another catalyst for franchise valuations is major professional sports leagues increasingly embracing institutional investors as investors. In December of last year, the National Basketball Association announced it would allow institutional investors including pensions, sovereign wealth funds, and endowments to take minority ownership stakes in its teams. The league had previously only allowed private equity firms to take direct stakes but is now allowing a wider range of investors into ownership groups. The return profile of an investment in a professional sports franchise aligns well with the capital preservation mandate of many pension and endowment investors while the long-term horizon mitigates the drawbacks of the relative illiquidity of investments in sports franchises. The introduction of institutional capital into professional sports franchises will likely drive valuations higher as these large, pooled vehicles increasingly deploy capital within the sports franchise ownership market.
In 2020, Blue Owl Capital raised the Dyal HomeCourt Fund to take stakes in NBA teams and its portfolio currently includes investments in the Atlanta Hawks, the Sacramento Kings, and the Phoenix Suns. The fund was able to monetize its stake in the Suns as a result of its recent sale to billionaire mortgage lender Matt Ishbia. Arctos Sports Partners and Ares Management have also raised substantial funds for sports, media, and entertainment investments and have taken stakes in NBA and European soccer teams while also attracting former team executives including Theo Epstein to serve as advisors. While the NBA is the only major U.S. sports league to allow a wide range of institutional investors as owners, the NFL is reportedly considering allowing private equity ownership of its franchises (Larson, 2022).
A recent report from KPMG suggested that 2023 will be another active year for sports franchise investments and sales. The report cited how perceptions around selling a franchise have shifted and life-long ownership of a franchise is no longer the expectation. KPMG predicts that this shift, coupled with robust demand, will lead to deals in 2023 that will break the records for most lucrative sports franchise sales set in 2022 (Harris, 2022).
Sports franchises are among the prestigious asset classes to invest in and new drivers for valuations will only serve to broaden the universe of investors that are interested in participating in the ever-present upside and associated societal status. The next evolution of investment could see a democratization of the historically gated asset class as teams explore taking portions of the franchises public as the Fenway Sports Group was rumored to explore in 2021. For now, ownership of sports franchises will continue to serve its dual mandate as a creator of generational wealth and U.S. “knighthood”.
References
Avery, C., & Chevalier, J. (1999). Identifying Investor Sentiment from Price Paths: The Case of Football Betting. The Journal of Business, 72(4), 493–521. https://doi.org/10.1086/209625
Harris, Paul, et al. “Strong Sports Deal Market Expected in 2023.” KPMG US, KPMG, 14 Dec. 2022, https://www.kpmg.us/insights/2022/strong-sports-deal-market-expected-2023.html.
Larson, Chris. “NBA to Let Pensions, Endowments Take a Shot at Team Ownership.” FundFire, Money Media, 5 Dec. 2022, https://www.fundfire.com/c/3847624/498274?referrer_module=searchSubFromFF&highlight=nba+to+let.
Olley, James. “Todd Boehly Completes Chelsea Takeover in Deal Worth up to £4.25bn.” ESPN, ESPN Internet Ventures, 28 May 2022, https://www.espn.com/soccer/chelsea-engchelsea/story/4675873/todd-boehly-completes-chelsea-takeover-in-deal-worth-up-to-425bn.
Yakowicz, W. (2023, January 10). Where is sports betting legal? A guide to all 50 states. Forbes. Retrieved January 30, 2023, from https://www.forbes.com/sites/willyakowicz/2023/01/09/where-is-sports-betting-legal-america-2022/?sh=2055a727386b
