NFL owners are scheduled to vote later Tuesday on whether or not to allow private equity firms to buy into teams. The possible entry of PE firms into the world’s most valuable sports league may not make sense at first glance: After all, the NFL doesn’t need the money—the average franchise is worth nearly $6 billion and teams are largely able to fund their needs through the occasional bond sale and cash flow. The Bengals generated the least revenue in the NFL last year and still pulled in $554 million, while the Cowboys led the league with $1.2 billion.
But the possible embrace of private equity isn’t about team cash flow needs, at least in the near term. It’s more about liquidity—the need and ability to raise cash—for owners, and laying the groundwork for potential yet-to-be-articulated efforts in the future. Here are five questions, and explanations, about what to expect.
Is the ownership of my favorite team changing?
The short answer is no. While details haven’t been made public, discussions have revolved around allowing institutional investors to buy between 5% to 10% of a club with a cap on how much of any team can be owned by PE. One thing is certain: no firm will be allowed to control a team as the primary owner. That means teams will still be led by one person deemed the control owner who must own (with some grandfathered exceptions) 30% of the team’s equity. Jerry Jones and Bob Kraft aren’t being replaced by Carlyle Group or Blackstone any time soon.
Who gets the money?
Unlike in Europe, where institutional ownership of soccer teams has often meant an infusion of money to spend on players and stadiums, the NFL-private equity relationship probably won’t result in any money going to support team operations, at least directly. Instead, the appeal of PE for the NFL is to be able to create a better market for buying and selling limited partner stakes in squads. That is, owners of small equity stakes who find it difficult to sell their ownership in a team. Why is it hard? While it’s so far been easy to find a billionaire to buy control of a franchise, it’s a lot harder to find a very wealthy person who wants to own a small slice of a franchise, considering it would cost them hundreds of millions of dollars even for a 5% ownership. It typically takes many months and a steep discount to team value to sell limited partner stakes in any major sports franchise—one reason the other leagues have allowed PE ownership in recent years. Helping the market for even small portions of teams will likely help boost team values in the years ahead.
Will this affect my team at all then?
Probably not. Other leagues, like the NBA, give their PE investors fewer rights than the usual limited partner, and the NFL may do that as well, meaning the funds would have even less influence in team matters than an individual minority owner—who already doesn’t have much say anyway. There are a few ways PE ownership can affect teams, however. One is allowing franchises to stay in the family by allowing some members of the ownership group to sell out partially or wholly. Stability of ownership is one of the things the NFL prizes, and providing a mechanism where succession matters don’t necessarily have to force team sales would be welcome. Another way it can affect teams is by allowing control owners to sell part of their equity in the club to raise money to help fund a stadium in situations where the team is required to foot part of the bill. Those on the private equity side also contend that the NFL will find itself with an expert resource for things like broadcast contracts and marketing (though the NFL hardly seems to need help on that front). They also are eager to have relationships with teams to be able to participate in NFL-related deals like new stadiums and adjacent real estate developments.
When will deals happen?
Sportico reporting has determined that there are deals with at least a handful of teams ready to be signed immediately, if the NFL votes to permit PE. Of course, term sheets will need to be tweaked to conform to whatever rules the NFL owners decide to put in place around deals, so those transactions may be delayed. It is possible the league could have requirements that would push tentative deals back off the table, such as if the league wanted PE firms to discount the fees they often charge to portfolio companies and to their own investors, or if the NFL insists on a buy-back clause. The latter has been discussed as a way for owners to reverse any seller’s remorse later on.
Will I be able to buy into a team?
Possibly. To be clear, the aim of letting institutional investors into team ownership isn’t to allow fans to buy in—the Green Bay Packers are the only team where that’s expected. But by nature of how PE raises the money it invests, there may be an opening for fans, at least well-off ones, to buy a sliver of their teams. We have seen that PE firms investing in other sports franchises raise some of their money from other funds, which invest as limited partners into the PE fund. Generally, LPs of funds have fewer requirements to disclose their individual investors because every individual investor’s ownership and influence is so small. That means some funds raise their capital with the participation of financial advisors, who are simply allocating money of their clients—so-called retail investors who use advisors to help manage their money. Some people already own a small slice of their favorite MLB, NHL and NBA team. It’s possible one or more of the larger PE firms under consideration would be able to offer NFL team equity to their own wealth management clients, as a way to differentiate their offerings from the rest of Wall Street.
