A detailed view of the NFL Shield logo on the field during a preseason game between the Los Angeles Rams and the Houston Texans at NRG Stadium in Houston on August 24, 2024.
Rick Tapia | Getty Images Sports | Getty Images
The National Football League is opening its doors to private equity investors but is currently limiting their involvement in the league.
Last week, NFL team owners voted to allow the first private equity firms to acquire up to 10% of their teams. Still, investors will play a silent role in America’s most exclusive professional sports club.
The vote came after lengthy discussions in which the NFL would have benefited from understanding how private equity ownership would fare in other major U.S. leagues, which have allowed private equity ownership since 2019.
“What it does mean is that major sports events are now an investment category,” Bain Capital co-chairman Steve Pagliuca said on CNBC last week. “This is not private equity stepping in and taking action on franchises. circumstances that have an impact.”
Industry experts say many teams are likely to welcome the deep pockets of private equity firms. The funds can be used for stadium upgrades and construction. It also helps cushion the surge in team valuations, which average $6.49 billion, according to CNBC’s official 2024 valuations of NFL teams.
While the league and its owners welcome private equity cash, it won’t give the companies a full seat at the table.
NFL teams are traditionally owned by families (sometimes multiple generations) and high net worth individuals. Franchise purchase prices have soared in recent years, with the Washington Commanders selling for $6.25 billion in 2023, the Denver Broncos changing hands for $6.2 billion in 2022 and the Carolina Panthers in 2018. Sold for $2.275 billion.
“The problem is not many people can afford a team anymore. How many families have that much money?” Shirin Malkani, co-chairman of Perkins Coie Sports Industry Group Malkani said. “So if you don’t get more entities into the market as buyers, you’re going to have liquidity issues. That will ultimately help valuations. That’s a given.”
Selling shares to a private equity firm could also open up breathing room for teams-owning families facing estate taxes.
“You can use this additional liquidity to go in any direction,” said Anthony Mulrain, co-chair of the sports industry group at law firm Holland & Knight. “Ten percent from private equity represents an opportunity, but it’s not a requirement.” He added that being able to get Private equity funds allow them to make these payments.
One toe pointed inward
Kansas City Chiefs wide receiver Kadarius Toney steps into the end zone and A touchdown was scored against the Kansas City Chiefs and Philadelphia Eagles.
Angela Weiss | AFP | Getty Images
The NFL, the last major U.S. sports league to allow private equity to take stakes in its teams, may be watching them closely.
Starting in 2019, the National Basketball Association, Major League Baseball, the National Hockey League and Major League Soccer began allowing private equity to own up to 30% of a team.
“The NFL’s approach is very thoughtful,” said Michael Considine, a partner at Kirkland & Ellis LLP who leads the law firm’s professional sports practice. “Like other leagues that have rules around institutional capital, these rules are in place to protect the integrity of the game.”
Under NFL rules, each fund or consortium can make deals with up to six teams. Their investments have a minimum holding period of six years.
The alliance has also informally told owners and investment firms that it intends to take a percentage of private equity profits from future sales of ownership stakes, CNBC previously reported. reported. No other alliance charges a percentage of the so-called arbitrage, the profit on fund investments that fund managers typically receive as compensation.
“We think it’s a minimum, and a very minimum — the numbers haven’t been finalized — that the profit sharing is fair,” Cleveland Browns owner Jimmy Haslam told CNBC. Equity groups agree.
Private equity firms have been eager to take stakes in sports as team valuations rise, largely due to the proliferation of media rights deals. But the industry has little to do with these teams other than providing funding.
As investors, private equity firms often serve in management and board roles. The playbook in sports is different, especially in the United States, where companies don’t have much control over operations and team personnel.
While professional sports teams, especially those in the NFL, tend to be a recession-resistant investment, limited partners who put money into private equity funds may still face some challenges.
Private equity investments typically have a fixed term (which in many cases can be three to seven years) and expected returns. Investments in sports teams do not provide a clear path to exit or control and often do not allow for governance, which could violate certain limited partner requirements in the fund, said some private equity investors who spoke on condition of anonymity because of their investments.
“These ownership interests are essentially with silent partners, so there won’t be any changes to the team. It’s business as usual,” Holland & Knight’s Mulrain said.
“But many private equity firms invest in two things: cash and human capital. So when it comes to franchises and the connectivity of other businesses, investors may be whispering in owners’ ears that there may be some management originality,” Mulrain added.
deep bench
Buffalo Bills defensive line coach Eric Washington reviews a game on a Microsoft Surface tablet.
Robin Alam | Illustrated Sports Line | Getty Images
The NFL’s reluctance to allow private equity investment was reflected not only in the time it took but also in the list of investors initially approved to enter.
According to previous reports by CNBC, these investors have a total of $2 trillion in assets and intend to raise $12 billion over time (including leverage) reported.
Approved funds have a track record of investing in sports and have significant capital at their disposal.
The three companies approved to invest in NFL teams have accumulated a large amount of investment in a short period of time.
Although Ares Management is a behemoth as an investor, it officially planted its flag in the sports space in 2022, when bulge A $3.7 billion fund dedicated to sports and media. The fund also has an advisory board made up of former players and sports and media executives. The company has become various transactions Teams involved in equity or debt include European soccer’s Atletico Madrid, Major League Baseball’s San Diego Padres and the National Hockey League’s Ottawa Senators, among others.
One of the new investors on the approved list is Arctos Partners, a firm with significant team investments that had been among the possible NFL investors when league discussions began, according to people familiar with the matter.
The company was established in 2019, closure Earlier this year, a second sports-focused fund was launched with total commitments of $4.1 billion. This is a quick follow-up to its first fund, which has closed with more than $3 billion in assets under management.
During that time, Arctos has acquired stakes in about two dozen sports and esports teams, including the NBA’s Golden State Warriors, MLB’s Los Angeles Dodgers and MLS’s Real Salt Lake. It also owns stakes in Harris Blitzer Sports & Entertainment, owner of the NHL’s New Jersey Devils and NBA’s Philadelphia 76ers, and Fenway Sports Group, owner of the MLB’s Boston Red Sox and NHL’s Pittsburgh Penguins.
Arctos also owns a stake in the NHL’s Tampa Bay Lightning, which for sale. Arctos is expected to exit its stake as part of the process, according to a person familiar with the matter.
Arctos will be the only company approved to make equity investments in the five most popular major North American sports leagues, pending final approval.
Sixth Street Partners is another firm in the circle of initial investors that can take stakes in NFL teams and invests in a variety of industries, but has been rapidly expanding its footprint in media and sports. The company has invested in media rights for the NWSL’s Bay FC, the NBA’s San Antonio Spurs and Spanish soccer club Real Madrid, as well as FC Barcelona.
In addition to those three companies, a consortium consisting of Dynasty Equity, The Carlyle Group, CVC Capital Partners and the Ludis Platform, founded by investor and former NFL running back Curtis Martin, was also able to acquire a stake in the team.
Investors declined to comment beyond an early statement released after the NFL’s vote.
Clarification: Sixth Street Partners has invested in the media rights for Spanish club FC Barcelona.
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