With major sports teams now changing hands for as much as $6 billion, it’s no surprise that private equity has become a major player. PitchBook reports that 63 major North American sports teams that are valued at $206 billion have either private equity investors or owners with ties to PE. But the National Football League is missing from those numbers. It’s famously holding out against private equity owners.
One active investor is Blue Owl Capital, which invests in sports teams through its HomeCourt Partners Fund. The Fund managed $600 million in assets as of June 30. HomeCourt currently has stakes in the NBA’s Sacramento Kings, Atlanta Hawks, and Charlotte Hornets.
II recently spoke with Andrew Laurino, senior managing director of Blue Owl, about issues for sports investors and its own involvement in the sector. While Laurino believes institutional investment in sports will continue to grow, he says soaring team values will have to correct at some point.
Laurino’s comments were edited for space and clarity.
What are the most interesting issues facing sports private equity right now?
The institutionalization of the sports business, including the capital structure.
There’s also continued importance of the content created by sports. It’s the most valuable intellectual property on the planet. People are emotionally attached to teams and players. The value of that in media is proving out.
Will private equity investment in sports continue to grow?
Yes, it’s a high growth business in need of capital to scale. Barriers to entry — regulations from leagues — should continue to come down as private capital comes in. The minority equity-stake structure has taken hold. Structured equity, credit, and real estate capital will come in a major way. This is the tip of the iceberg.
What areas are the most promising? Perhaps the NFL, which doesn’t yet allow private-equity ownership?
The NFL is the white whale. It has a large, well-structured ecosystem. All teams are profitable. It’s in a better position than almost all the other entities out there. There’s untapped upside, and ultimately it will need an increased pool of capital given where team valuations have gone. They are talking about how to let capital in, and it will be a big opportunity as it evolves.
Real estate is another attractive area. Teams are investing in stadiums, arenas, and the real estate around them, often in public-private partnerships. There is an opportunity for private capital, so that teams and governments can keep their capital commitment light. And local governments still get the tax revenue. The properties around the arenas can be residential, commercial, retail, or entertainment districts. We’re looking at a lot of those opportunities through other parts of the Blue Owl platform.
Will you invest in women’s sports?
The emerging growth of women’s sports is an interesting area. Soccer is attracting investment as the game continues to take hold. The U.S. is leading the market for women’s soccer. The WNBA is becoming quite attractive, and there’s potential for more upside there.
Do you think private equity investments will push up sports entities’ valuations?
More buyers at the table will improve valuations and liquidity over time. We don’t see it today. What’s driving up valuations now is scarcity of assets. Where we participate — passive minority stakes — we haven’t seen as much push. As sovereign wealth funds and family offices come in directly, that competition creates [pressure] on the price. That’s bad if you’re looking to invest, but good if you’ve already made an investment.
Might team prices fall at some point?
As the capital structure continues to evolve, maybe there will be debt that’s more sensitive to interest-rate fluctuations. That creates more dislocation and opportunities for investing. We see this more in European soccer. U.S. leagues now permit only a small amount of leverage. So they’re insulated from rate volatility.
There’s also the law of large numbers. The appreciation of media rights deals will eventually slow down, leaving less room for valuation growth.
You alluded to sports media rights values. Will they continue to rise?
For the near term yes. There’s an evolution of the old way of distribution through broadcast and cable to the new way — streaming. The streaming ecosystem is amassing capital and content.
There’s continuing tension between the old guard and the new for eyeballs. There are opportunities for streaming to grow, but it’s not limitless. But at some point the economic math doesn’t work and you hit your limit.
Talk more about the entry of family offices and other allocators into sports investing and what that could mean.
Family offices are an increasingly important buyer, with sovereign wealth funds and pensions also showing an appetite for the investments. Sports investments provide an uncorrelated return, with strong downside protection.
Private equity investments could mean shorter ownership durations than in the past, but an increasing number of evergreen PE funds may mitigate that. Sovereign wealth and pension funds might hold teams for decades, creating more stability in ownership.
