Before the month is out, the NFL could decide whether it will open its doors to a slew of institutional investors, including private-equity firms, venture-capital funds, and even sovereign-wealth funds.
The topic has been up for debate in part because prices for NFL teams have risen so high that the individual- or family-ownership model is becoming less and less feasible. For example, Forbes has listed the Dallas Cowboys franchise as being worth $9 billion, making it the most valuable team in the league.
This raises the question: Are investments in sports teams actually good financial bets, especially for risk-averse investors like pensions and endowments? Research published by Investments & Wealth in November suggests that investing in a professional sports team is probably a smart move. The study, conducted by a team of finance experts, looked at the investment performance of NHL teams in an effort to draw conclusions about other major sports leagues, like the NFL, the NBA, and MLB.
“They perform well, and better than core assets, during market downturns and offer robust returns in bull markets,” according to the study, which was aimed at the investment needs of institutional investors like pension funds and endowments.
To help us learn more about the study and why sports assets might be a safe bet for even risk-averse institutional investors, BI spoke to Sid Muralidhar, one of the authors of the research paper.
Muralidhar formerly worked for Citigroup on its private-equity and sovereign-wealth-fund origination team. Now, he is the founder of Risktyle — a financial-services firm that analyzes risks for asset managers.
For the article, he teamed up with his father, Arun Muralidhar, the chairman and founder of Mcube Investment Technologies, which develops products to help investment managers make better strategic decisions.
He also worked with his brother, Sachin Muralidhar, a recent graduate of the University of Virginia who studied economics before founding the social-media app Bool.
Risk-adjusted returns
Muralidhar said he got the idea for the research paper when he worked at Citigroup, where he closely monitored the NBA’s decision to allow sovereign-wealth funds to invest in the league. That prompted him to ask whether sports assets were actually sound investments for institutional investors, who need to weigh a wide variety of factors — from diversification to correlation — when making investment decisions.
“We decided to look, is this an academically sound investment?” he told BI. “You have to have that fiduciary responsibility of saying, OK, if this is going to affect someone’s pension, we have to make sure that this is a good product.”
Muralidhar, his father, and his brother decided to focus on the NHL, which they determined had the weakest returns of all the major sports leagues. Whatever they found, they determined, could then be applied to leagues like the NBA, MLB, and NFL, which have benefited from larger returns.
“For the purpose of this paper, we said, let’s look at all these sports leagues, but let’s take the quote-unquote weakest case and see if even the weakest case works,” he said.
After looking at NHL returns from 2000 to 2022, they discovered that these teams were a good investment compared to stocks and bonds because they rose even when these assets fell. In 2022, for example, stocks and bonds fell in value and were losing money compared to sports assets, which increased in value and provided an effective hedge compared to bonds.
The NHL, Muralidhar said, had the lowest risk-adjusted returns and the least-favorable correlation profile compared to any other major sports league. Despite being the lowest-performing league in terms of investment returns, they found that a hypothetical investment in the NHL would add value to an investor’s portfolio on a risk-adjusted basis — and provide hedging protection.
“We found that investing in these sports teams actually was pretty competitive on a risk-adjusted return basis to stocks, bonds, venture capital, private equity,” he said.
“In fact, the MLB and the NFL specifically outperformed stocks, bonds, and even private equity on this 20-plus-year basis that we looked at,” he said.
No signs of a bubble
Of course, past performance is no indication of future returns, so BI asked Muralidhar whether it’s possible the sports-investing mania is heading into bubble territory. Muralidhar said he doesn’t see a bubble, and pointed to NFL valuations as a reason why.
“Because there’s just such restricted access into who can get into this, it’s not as if you can have a mad rush,” he said. “You should have seen NBA, the NHL, and MLB valuations blowout in these past few years and the NFL to lag.”
“Actually, in 2022, of all the leagues, the NFL, which doesn’t allow access to the private equity investors and outside investors, had the highest jump in valuation by a decent margin over these other three leagues,” he said.
Meanwhile, he said, there appears to be no lack of billionaires and sovereign-wealth funds interested in buying or investing in sports teams, suggesting prices have nowhere to go but up.
“You’ve seen an explosion in the interest in sports all over the world, especially for these sports leagues,” he said. “They themselves are investing globally to make sure that their brand is increasing, and they found great success with that.”
Correction: March 22, 2024 — An earlier version of this story misstated when the NFL was meeting to discuss ownership structures. The NFL owners’ annual meeting is scheduled for March 24 to March 27, not a couple of weeks from the story’s publication date.
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