Private equity gets to make its pitch to the NFL.
The NFL committee researching private equity’s potential role in team ownership is holding a series of meetings Thursday, with many of the top firms vying to do business with the world’s most valuable sports league, according to people familiar with the matter.
It’s not clear which firms are involved, but the day is expected to feature the most confabs in the league’s ongoing evaluation of PE. Among the firms the NFL has met with or has been planning to meet with are Apollo Global Management, Arctos Partners, Ares, Blackstone, Carlyle, CVC, Dynasty Equity and Sixth Street. Blackstone, Carlyle and CVC are half of the world’s six largest PE firms by assets under management, and the trio are said to be pitching themselves as a consortium with Dynasty. Arctos, Dynasty and Sixth Street are firms known in sports business for their sports-specific investments.
Barring a complete breakdown in talks, the committee probably will forward a proposal for owners to vote on at a meeting scheduled for Aug. 27, though nothing is certain.
“I think the funds are hopeful—they may be more than hopeful—they may be waiting on standby for approval, because it does take time to structure funds, raise money, go out to the market,” said Michael Rueda, the head of the U.S. sports and entertainment practice at law firm Withers. “But it’s a little bit difficult to guess because the NFL has held out for this long after the other leagues have decided to move forward with it.”
The NFL stands apart from nearly every other league in the world in that it doesn’t allow institutional investors to own a part of its franchises. In the U.S., starting in 2019, MLB, then the NBA, NHL and Major League Soccer started permitting PE funds to purchase minority stakes in clubs within frameworks of restrictions. In each league’s case, PE funds have committed to capping their ownership percentage and being completely passive investors without any say in team matters. If the NFL allows PE, it certainly will have a framework at least somewhat similar to peer leagues.
“I suspect that the owners already see the value of bringing PE dollars in terms of providing liquidity, ability to expand globally, and potential operational efficiencies,” said Errol Brown, an attorney at Haynes Boone who specializes in sports and media transactions and financing, in an email. “However, as an owner I am asking two questions: How big is the potential check from these PE firms (is it worth the trouble)? Do you PE firms truly understand the definition of being a passive investor? If you’re going to tell me who my quarterback should be and that you would like to change the team colors, I’d rather you keep your money.”
As reported by Sportico, the NFL discussions are part of the league’s due diligence and an opportunity to talk through policy preferences. It is said the league, for instance, may like to see provisions allowing the repurchase of PE stakes if owners end up changing their minds. The league is also debating whether to ask funds to raise NFL-specific capital rather than using funds dedicated to sports investments generally.
The NBA has a similar agreement with Blue Owl, which, under the name Dyal Homecourt, raised funds only for investment in that league’s teams. A requirement to raise NFL-only funds could also be a way for owners to have greater transparency on who every investor is. As other leagues have grown comfortable with PE investment, there has been less scrutiny of limited partners in funds, which has led to potentially hundreds of extended owners, as Mom and Pop retail investors find their ways into franchise ownership.
While PE can be useful for funding expansion of business opportunities and bringing some operational expertise to the table, it’s the amazing growth of franchise values that probably has the NFL exploring private equity investors. The average NFL team is worth $5.93 billion and while sales of controlling ownership in teams continue to set records—the Buccaneers recently turned down an offer that would have been the richest team deal ever—there is increasing concern that limited partner stakes are becoming more difficult to sell. While a minority stake in a sports team will typically go for a good discount—25% or more from the control stake valuation—that still means 10% of a franchise could cost half-a-billion dollars.
“PE is a solution, to a certain extent, for the sale of minority interests,” said Rueda, on a phone call. “The amount of folks that are willing to write a very large check for a minority interest that doesn’t come with a whole lot of benefits—as these valuations increase, that population decreases.”
On the institutional investor side, private equity needs the NFL too. The amount of capital flowing into sports-focused PE funds has been ballooning. PE sees sports teams as an asset that doesn’t fall in value when most other assets do, like stocks or bonds, something appealing to people investing under a longer horizon.
“The leverage is with the owners,” said Haynes Boone’s Brown. “The NFL is the most profitable organization that we’ve seen in our lifetime. There is no better non-correlated asset out there—and it’s just got the prestige.”
