NFL Private Equity

What to Know With NFL Owners Welcoming Private Equity Money

The richer are getting richer. NFL owners have given the green light to allow private equity firms to purchase up to 10% stakes in National Football League teams. This decision marks a significant shift in the ownership structure of one of America’s most beloved sports leagues. The vote comes with the NFL seeking to open up new avenues for investment, and potentially increase franchise values in an ever-evolving sports business landscape.

The decision to allow private equity investment has sparked discussions about its potential impact on NFL teams and the league as a whole. The possible benefits and risks associated with this new ownership structure, and providing insights into how it may shape the future of NFL franchise ownership and the league’s financial ecosystem.

Breaking Down the NFL’s Private Equity Decision

In a landmark decision, NFL team owners have voted to allow private equity firms to purchase minority stakes in franchises. This move, approved at a special league meeting in Eagan, Minnesota, marks a significant shift in the NFL’s ownership structure. The decision required the approval of at least 24 of the 32 owners, highlighting the league’s commitment to this new direction. This change in policy makes the NFL the last major North American sports league to permit private equity ownership, opening up new avenues for investment. 

Approved firms and investment limits

The NFL has pre-approved a select list of private equity firms for potential investment. These include Arctos Partners, Ares Management, Sixth Street, and a consortium comprising Blackstone, Carlyle, CVC Capital Partners, Dynasty Equity, and Ludis (a platform founded by former NFL star Curtis Martin). Each approved group can invest in up to six different teams, with a minimum stake of 3% and a maximum of 10% per team. The total capital commitment from these firms is expected to reach $12 billion. 

Exclusion of sovereign wealth funds

While the NFL has opened its doors to private equity, it has taken a measured approach regarding sovereign wealth funds. Direct investment from state-owned funds, such as Saudi Arabia’s Public Investment Fund, is not permitted. However, sovereign wealth funds can indirectly invest by owning up to 7.5% of a private equity entity that purchases a maximum 10% stake in an NFL club. This approach aims to maintain a balance between attracting new capital and preserving the league’s ownership structure.

Increased liquidity for teams

The introduction of private equity into NFL ownership structures has the potential to significantly enhance liquidity for teams. This primarily aims at creating a more robust market for buying and selling limited partner stakes in franchises. With the average NFL franchise now valued at nearly $6 billion, this new policy could provide a much-needed avenue for owners to raise cash. The ability to sell stakes to pre-selected funds, ranging from 5-10% of a club, is expected to improve the market for NFL club equity. Additionally, the NFL has included provisions allowing it to force the sale of an equity stake if a firm violates league terms, including conduct clauses. Private equity firms are also required to hold their team stakes for a minimum of six years, ensuring a degree of stability and long-term commitment. 

Implications for stadium renovations

One of the key benefits of this new ownership structure is its potential impact on stadium projects. Control owners now have the option to sell part of their equity to raise funds for stadium renovations or construction, particularly in situations where teams are required to contribute financially. This additional source of capital could prove crucial as obtaining local government subsidies for such projects becomes increasingly challenging.

Effect on team valuations

The entry of private equity into NFL ownership is likely to have a positive effect on team valuations. By creating a more liquid market for even small portions of teams, this move is expected to boost franchise values in the coming years. Recent sales, such as the Washington Commanders for $6.05 billion, already indicate a trend of rising valuations. The influx of private equity capital and the potential for improved financial results could further drive up these values. This trend suggests that current valuations, impressive as they are, might soon be considered modest in light of the league’s continued growth. 

Private equity involvement in MLB, NBA, NHL

The NFL’s decision to allow private equity ownership marks a significant shift, as it was the last major American sports league to embrace this model. Other leagues have already opened their doors to private equity, with the NBA, MLB, and NHL each permitting teams to sell up to 30% of their ownership to private equity firms. This approach is considerably more liberal compared to the NFL’s conservative stance of allowing only up to 10% ownership. 

Differences in ownership structures

While the NFL is taking a measured approach, other leagues have been more open to institutional ownership. In the NBA, for instance, nine out of 30 teams have some level of private equity ownership. Notable examples include Blue Owl’s nearly 6% stake in the Atlanta Hawks and Arctos Partners’ reported 17% stake in the Sacramento Kings and 13% stake in the Golden State Warriors. The NFL can draw valuable insights from the experiences of other leagues.

Private equity partnerships have brought not only financial capital but also strategic insights and operational expertise to these leagues. This influx of resources has the potential to spur innovation and growth within the NFL and its teams. Moreover, the involvement of private equity could broaden the pool of potential buyers when franchises are put up for sale, which is increasingly necessary as team values continue to soar. 

Investment capabilities and track records

These approved firms bring substantial financial firepower to the NFL. Collectively, they manage nearly $2.2 trillion in assets across 2,025 portfolio holdings. However, their current sports investments account for just 1% of their total assets, valued at approximately $22 billion. Arctos Partners stands out with its extensive sports portfolio, holding stakes in six MLB teams, five NBA teams, and three NHL teams. Ares Management has also been actively targeting sports, raising $2.2 billion for its Sports, Media & Entertainment fund. 

While private equity involvement offers financial benefits, it also raises concerns about potential outside influence. Although private equity investors are not expected to have governance rights or a significant say in team operations, some funds might attempt to influence decision-making, especially if they have substantial resources. The possibility of a single fund owning pieces of up to six different teams could create complex rooting interests and potential conflicts. 

Shaking Hands

The NFL’s decision to allow private equity investment in team ownership marks a significant shift in the league’s financial landscape. This move has an impact on team liquidity, potentially boosting franchise values and providing new avenues to raise capital for stadium projects. While it opens up exciting opportunities, it also brings challenges, such as managing outside influence and maintaining the league’s traditional ownership structure.

As the NFL joins other major sports leagues in embracing private equity, it’s treading carefully with measures to protect its interests. The league’s approach, allowing up to 10% ownership by pre-approved firms, strikes a balance between attracting new capital and preserving its core values. This change could lead to a more dynamic market for NFL team stakes, potentially reshaping the future of sports franchise ownership in the years to come.

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