The rich are competing with private equity to buy sports teams. Here is how they are getting creative in a crowded field.

• 2023 has been a big year for sports M&A, including a $6 billion sale of the Washington Commanders.
• Valuations show no signs of cooling off with billionaires and private equity firms in bidding wars.
• Bankers to the rich told Insider which sports are drawing moneyed clients.

Mergers and acquisitions in most industries have slowed to a crawl across the globe, but the demand for sports teams has never been stronger. 

Sports franchises used to be viewed as trophy assets but have emerged as an asset class with robust returns. The average price return for an NBA team, for example, was 1,057% from 2002 to 2021, per PitchBook.

Now rich individuals have to compete with institutional investors like private equity firms and sovereign wealth funds for a limited number of teams. As a result, aspiring team owners have gotten more creative to seal the deal.

Many are joining forces in order to amass enough cash for a controlling stake. Actors Ryan Reynolds and Rob McElhenney, for instance, bought Welsh minor-league soccer club Wrexham AFC for $2.5 million in 2021. Less popular sports, such as pickleball, are also drawing investors, with LeBron James buying a team this past October.

Even billionaires are looking overseas for opportunities, such as former co-owner of the NBA’s Milwaukee Bucks Marc Lasry, who is eyeing African and Asian basketball teams.

These trends are likely to continue as valuations show no sign of cooling off, according to Brian Kantarian, head of sports finance in JPMorgan’s private bank. A controlling stake in a NFL team requires at least $2 billion of cash equity, he told Insider. Apollo cofounder Josh Harris bought the NFL’s Washington Commanders for a record-breaking $6.05 billion this summer.

“Some of what’s driving interest towards these more nascent leagues is that the entry point is achievable, especially if you want to have a say in club operations and be any kind of decision-maker,” Kantarian told Insider.

Most investors become passionate owners even if they weren’t sports buffs before

Professional sports are viewed by many as a recession-proof investment. Even when discretionary income drops, some consumers continue to go to games in order to take their minds off their troubles, Kantarian said.

“Sports, given the passion aspect of it, will continue to play an important role in people’s lives,” he said. 

Much of this resilience can be credited to the rising value of media rights, according to Ivo Voynov, who leads sport finance for Citi Private Bank.

He has observed that newer investors, whether their backgrounds are in tech or private equity, have brought a new sophistication to sports team ownership. Due to the rising costs of controlling stakes, many have formed syndicates of other high-net-worth limited partners to buy teams.

“It’s brought this sense of building up real companies around these assets that used to be thought of as nice-to-have trophy assets that you could talk about at cocktail parties,” he told Insider.

American investors are also becoming more dominant in European soccer leagues, according to Voynov. More than a third of clubs in Europe’s Big Five soccer leagues are backed by US investors, including private equity firms and high-net-worth investors, according to PitchBook.

“The perception is that there are a lot of inefficiencies in the way clubs are run there, and then potentially you could bring in some of the lessons learned in the US to Europe and improve operations, whether its data and analytics,” he said.

Plenty of investors have no attachment to their franchises before inking the deal.

“I think it’s my biggest competitive advantage that I don’t get emotionally attached,” RedBird Capital CEO Gerry Cardinale told Insider in December. “They’re all pieces of intellectual property that have a legitimate right to be monetized as long as they balance the fan-social contract at the same time.”

But most team owners often become personally invested, according to Kantarian and Voynov.

“A lot of the owners we work with, they may have initially approached the investment looking at the metrics and the financials and the growth rates, but they get in the owner’s seat and suddenly they want to win,” Kantarian told Insider.

Valuations show no signs of cooling off, but there is a ceiling for transactions

Despite the flurry of M&A activity, the number of sports teams is largely static. Starting a new league is risky and expensive. The XFL, a spring football league, is on its third try after first launching two decades ago.

Advising on deals in European soccer has proved to be big business for Wall Street banks. But banks have limited interest when it comes to emerging sports like pickleball. JPMorgan, for instance, generally does not finance debt if the league involved is less than 10 years old, Kantarian said. The bank also considers the existing owners involved and whether they are current clients or prospective ones.

These investments are also typically regarded as evergreen investments, Voynov said.

“It’s never going to be a private equity type of model where these assets will be exited every five years,” he told Insider. “You’re becoming part of the community so it’s not as easy to extricate yourself in those scenarios.”