Written By: Toby Lang, Senior Counsel, Bell Media
In August 2022, investment firm RedBird Capital Partners (RedBird) completed a US $1.2 billion takeover of Italian football club, AC Milan. Alongside RedBird as the club’s new majority owner, Yankee Global Enterprises, the investment arm of the New York Yankees, joined forces with Main Street Advisors, the investment firm of LeBron James and Drake, to take a minority ownership stake. The combination of an NBA icon, a rap superstar, two storied sports franchises, and a renowned dealmaker (RedBird’s Gerry Cardinale) created a signature moment for private equity (PE) investment in professional sports.
PE interest in the sports sector isn’t new, of course. It has been present in Europe, where league control is less centralized and ownership restrictions are more relaxed, for a while now dating back to 2006 when CVC Capital Partners (CVC) acquired a majority share of the commercial rights in Formula 1. In North America, however, the doors to PE and institutional investing in sports were essentially closed until four of the Big Five North American leagues decided to amend their bylaws to allow institutional capital into their sports. When MLB moved in early 2019 to permit PE funds to hold passive, minority interests in multiple teams, what had previously been an inaccessible ecosystem was suddenly open for business. The other leagues followed suit in 2020 (NBA and MLS) and 2021 (NHL), leaving the NFL as the only closed shop amongst the Big Five. According to PitchBook, since the start of 2019 more than US $120 billion in PE and venture capital funds have been funneled into the sports industry.
PE firms have recognized professional sports franchises and leagues as a high-growth (yet uncorrelated) asset class with multibillion-dollar valuations, stable cash flows, high recurring revenue, multi-year broadcasting deals, must-see live content generating premium intellectual property rights, deep customer affinity, and scarcity. They have also been quick to grasp the magnitude of the opportunity for investments in sports franchises and their related assets – including media rights, sponsorship contracts, royalties and licensing, and real estate – which according to Sportico, is understood to have a total addressable market of US $400 billion.
With the sector now well established, the question becomes – what’s next?
The answer is new sports and leagues, innovative deal types, and global fan bases.
On the question of new sports, PE has been exploring opportunities in up-and-coming sports, US college sports, and women’s sports.
In the up-and-coming category, look no further than the fastest growing sport in America – pickleball, of course. The 2023 Sports & Fitness Industry Association’s (SFIA) Topline Participation Report shows participation nearly doubled in 2022, increasing by 86% year-over-year and by a remarkable 159% over three years. This explosive growth is something Carolina Hurricanes owner and PE investor Tom Dundon seized upon when he purchased the Pro Pickleball Association (PPA) along with e-commerce site Pickleball Central and its affiliate pickleballtournaments.com in January of last year. Dundon followed this up in September 2023 with a joint venture with the Tennis Channel which sees the network producing and airing matches on its pay TV and streaming platforms, as well as the launch of pickleballtv, a 24/7 free, ad-supported streaming channel dedicated to the sport. And while Pickleball’s meteoric rise may be an extreme example, there is every indication that PE firms will continue to look for emerging sports and leagues which bear some of the same markers as those proven out by their major league counterparts.
PE firms will also dive deeper into college sports. NCAA Division 1 football is a prime example as certain programs are looking to PE to solve multiple needs including accessing short-term capital, generating revenue sources over and above their media rights, and, for some programs, closing the gap between themselves and the programs comprising the new ‘super conferences’ that have formed through conference realignment. Florida State, having worked with JPMorgan Chase and private equity firm Sixth Street in an effort to raise further capital to compete with the Big Ten and SEC schools, is a good example of this development.
It is women’s sports, however, which show the greatest promise. Fans in Toronto will remember a sold out Scotiabank Arena in May for a WNBA exhibition game between the Minnesota Lynx and the Chicago Sky. It was the league's first international game since 2011 and the first ever in Canada. WNBA commissioner Cathy Engelbert characterized the game as a “seminal moment” for the league’s global aspirations. Powering this growth is a combination of factors including increased media coverage, soaring team valuations, greater sponsor investment, the growth of streaming, online clips and social media making women’s sports accessible to a younger audience, and an association with social activism – around gender equality and pay equity amongst others – which is attractive to purpose-driven consumers. Despite this growth, the economic potential of women’s sports remains largely untapped. According to an April 2023 report by Canadian Women in Sport, while the professional women’s sports market is estimated to have a value of between CAD $150 and $200 million, it remains “significantly underdeveloped”. However, as the professional women’s sports landscape in Canada continues to evolve and build a stronger business case for investors, this is expected to change.
The industry will additionally see an emergence of innovative deal types as PE investors increasingly focus on media rights and their ever-increasing value. CVC, for example, invested US $150 million in the WTA (Women’s Tennis Association) in March 2023 in return for 20% equity in a new commercial subsidiary, WTA Ventures, which focuses on generating revenue through the management of media and data rights and sponsorship sales. Through this structure, CVC took a share of the WTA’s lucrative media and data rights while its investment allows the WTA to expand its marketing of events and players and increase prize money. Expect to see more of these creative arrangements with media and data rights at their core.
PE firms are also working with teams and leagues to build truly global fan bases, which brings us back to AC Milan. Following the RedBird acquisition, the club moved aggressively to amplify its presence in the U.S. on a number of fronts starting with a deal to make its merchandise available for purchase at Yankee Stadium (with Yankees products going the other way into Rossoneri team stores in Milan). Next was an agreement with the New York City-based YES Network (Yankees Entertainment and Sports Network) to make Milan content including full match replays available in the #1 television market in the U.S. It then signed two U.S. men’s national team stars – Christian Pulisic and Yunus Musah – to drive further American interest in the club. Having described Milan as a “sleeping giant” in terms of its potential global appeal, RedBird’s Gerry Cardinale is now executing on this potential and in so doing is signalling what is likely to be the next – and most ambitious – frontier for PE investment in professional sports.