Click here to subscribe to Delivering Alpha’s newsletter. “It is very difficult to purchase a sports team, and then lose money,” Carlyle Cofounder David Rubenstein said recently in an interview with CNBC.
Historically, that purported upside has only been enjoyed by the wealthiest of the wealthy. In the past few years, most of the major U.S. sports leagues have changed their ownership rules so that private equity firms can have a minority stake. Major League Baseball opened its coffers in 2019 to private investment funds. A number of other leagues, such as the National Basketball Association and Major League Soccer, followed. PitchBook reports that since the beginning of 2019, over $120 billion has been invested in the sports industry by private equity and venture capital. Sixth Street Partners is a $74 billion company that has made significant investments in sports in recent years. The firm co-founded Bay FC in the National Women’s Soccer League with retired players and Sheryl Sandberg. Sixth Street has also invested in FC Barcelona LaLiga TV broadcasting and in Legends, an entertainment and sports experiences company. Sixth Street and Michael Dell made a strategic investment in the San Antonio Spurs team in June 2021. The firm invested in the legendary Spanish soccer team Real Madrid last year. He claimed that social media and technology streaming are changing the dynamic between a team’s fans. “Instead of only interacting with fans in the local market, this has opened up the floodgates to be able interact with customers all over the world,” said Waxman. Waxman predicted that in 10 years, fans would be able put on a headset and virtually be transported to any game around the world. Great returnsHistorically, investing in the sports space has paid off. According to PitchBook, between 2002 and 2021 the average price returns for NFL, MLB, and NBA bets exceeded the S&P 500. The NHL was slightly behind. The research firm does note that returns will be lower than in the previous 20-year period. Although minority stakes in sports are often sold at a discounted price due to the lack of control, this gap could be closing as more institutions raise funds specifically for sports. This competition will likely drive prices up. How does this change the dynamics of whether someone can lose money by investing in sports? Waxman says that in order to be protected from the worst-case scenario, it is important to take every precaution. No one predicted COVID, for example.
“So, would I say that sports are a safe bet? Waxman added that he would not say this to a typical investor. “What I can tell you is that Sixth Street is able to provide customized solutions and opportunities that are tailored for the needs of each sports team, while also protecting our investors’ money. “