Crowded Sports Sector Forces Private-Equity Firms to Hone Strategies
Summary
- Investors drawn to sports increasingly explore investments in less developed niches, from rugby to X Games
Private-equity investors looking to stand out as they enter the crowded—and potentially lucrative—playing field of sports are buying into less popular segments such as rugby, where pricing pressure is lower, but risks loom large.
Investing in sports—from teams to broadcast rights and betting websites—has blossomed in recent years as laws governing betting on games in the U.S. have loosened while streaming content has expanded. Both of these factors are attracting more private-equity firms to the sector. Investors also say that the value of sports properties tends to be unaffected by public securities markets or higher interest rates, adding to the allure of the investments during periods of volatility and credit tightening.
More investors vying for successful—or potentially successful—teams and associated businesses and assets, such as broadcasting or streaming rights, is driving up valuations, investors and advisers on such deals say. The upward pressure on prices means more firms are honing their focus, pushing some into riskier transactions and prompting others to seek out deals in less crowded sports segments.
Last year, private-equity and venture-capital firms raised $23.65 billion for global funds focused wholly or partially on the sports industry, according to data provider PitchBook Data Inc. In 2021, funds in the sector raised $91.78 billion as the number and value of deals soared.
The sector remains a hotbed for deals, but has cooled since 2021. In that year, total private equity-backed sports transactions surged to $65.1 billion across 444 investments as overall deal making by firms reached record levels. Last year, the sports sector total fell to $34.4 billion—still 35% higher than the $25.4 billion invested through sports deals in 2019.
The expanding market has drawn fresh entrants. New sports- and related entertainment-focused firms started over the past two years include Bluestone Equity Partners, Dynasty Equity Partners Management and Velocity Capital Management.
“I suspect we’re going to see private equity looking [at] a bit riskier and earlier-stage properties, including some of the sports in this country that haven’t been as fully commercialized as they have been abroad," said Charles Baker, a partner in the entertainment, sports and media group of law firm Sidley Austin LLP. Sports like cricket and rugby haven’t seen much investment in the U.S., but private equity will increasingly look to both for opportunities, he added.
In 2021, for example, RedBird Capital Partners and CVC Capital Partners, both established sports investors, each backed deals with cricket teams in India, a market that has been growing rapidly. Last June, U.S. media and entertainment conglomerate Walt Disney Co. agreed to pay nearly $3 billion to retain its global television broadcasting rights through 2027 to many popular Indian Premier League cricket matchups.
But the Hollywood giant bowed out of the race for the league’s general streaming rights that year. The league sold the rights for around $2.6 billion to Viacom18, a joint venture between New York-based Paramount Global, Indian billionaire Mukesh Ambani’s Reliance Industries Ltd. and others.
Also in 2021, RedBird bought a 15% stake in the Rajasthan Royals, a cricket team that plays in the Indian Premier League. The investment wasn’t inordinately risky, said Gerry Cardinale, the firm’s founder and managing partner. The IPL is one of the few leagues whose member teams are all profitable, he added.
Meanwhile, New York-based MSP Sports Capital, a sports-focused firm founded in 2019 that has backed at least four European soccer clubs, last year branched into a more recent arrival in professional sports with the purchase of a controlling interest in X Games from a unit of Disney’s ESPN cable-TV operation. ESPN retained a minority interest and the right to broadcast X Games events in the U.S.
Years ago, Platinum Equity nearly took a stake in the Arena Football League LLC for $100 million. The 2008 deal was ultimately canceled, however, and the league filed for bankruptcy the following year, highlighting the high-risk nature of such niche deals.
Other firms, such as KKR & Co. and Velocity Capital, also look beyond the major leagues and teams to other parts of the sports economy, including betting, streaming rights or companies that supply technology and services to teams and their organizations.
KKR recently bid for a slice of the National Football League’s media content. In November, the firm participated in a $400 million investment in Skydance Media LLC, a transaction that valued the company at $4 billion. Skydance plans to create sports-related content to help the NFL broaden its business by adding mainstream entertainment.
RedBird is also looking to capitalize on the NFL’s streaming rights. The firm recently set up a joint venture, EverPass Media, with the league to stream Sunday afternoon games and events to commercial establishments such as bars and restaurants.
Some firms that focused early on more established sports such as soccer in Europe or basketball in the U.S. have already begun to see those moves pay off.
Dyal Capital, a unit of publicly traded Blue Owl Capital Inc., in 2020 bet big on the National Basketball Association. The firm formed Dyal HomeCourt Partners in partnership with the NBA to invest in a pool of minority stakes in NBA franchises. By late last year, the venture had disclosed investments in three teams: the Phoenix Suns, the Sacramento Kings and the Atlanta Hawks.
The venture’s early investment in the Suns has already more than doubled in value, thanks to a deal passing a controlling stake in the franchise, as well as the Women’s National Basketball Association’s Phoenix Mercury, to Mat Ishbia, the chief executive of UWM Holdings Corp. The package deal was valued at nearly $4 billion, compared with a roughly $1.55 billion valuation when Dyal invested, according to media reports.
In Europe last year Todd Boehly, co-founder of Connecticut-based private investment firm Eldridge Industries, joined with private-equity firm Clearlake Capital Group to lead a successful effort to acquire the U.K. Premier League’s Chelsea Football Club for £4.25 billion, equivalent to roughly $5.23 billion.
The sale came after sanctions targeting Russia forced longtime owner Roman Abramovich, a Russian oligarch, to permit the soccer club’s sale. Mr. Abramovich had purchased the team in 2003 for £140 million, giving him a roughly 30-fold gain over nearly 20 years.
The deal set a world record for a sports franchise sale. Mr. Boehly’s group beat more than 30 competing bidders including Bain Capital’s Stephen Pagliuca and a group led by Apollo Global Management Inc. co-founder Josh Harris and Blackstone Inc.’s David Blitzer.
More recently, bidders vying for the Washington Commanders NFL franchise, including a group led by Mr. Harris, are reportedly willing to meet current owner Dan Snyder’s $6 billion asking price.
Spiraling values for established teams aren’t likely to ebb soon, sports investors say.
“There’s just not an infinite number of great opportunities," said Ted Oberwager, a partner at KKR. “There is a limit on the number of teams, investible leagues, and related assets; competition has always been fierce."
Ultimately, all sports deals entail some risk. But as investors seek out less crowded niches, the odds of making a bad bet go up, investors say. Many newcomers are plunging into low-quality areas of sports nonetheless.
“You need a differentiated viewpoint and differentiated set of resources to drive value," Mr. Oberwager said.
Write to Isaac Taylor at isaac.taylor@wsj.com
