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, valued at $206 billion, have either private investors or PE-affiliated owners. But the National Football League is missing from those numbers. He is known to oppose 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 the issues for sports investors and his own involvement in the sector. While Laurino believes institutional investment in the sport will continue to grow, he says the team’s growing values will have to be adjusted at some point.
Laurino’s comments have been edited for space and clarity.
What are the most interesting questions facing private equity in sports right now?
The institutionalization of the sports business, including the capital structure.
There is also the continued importance of content created by sports. It is the most valuable intellectual property on the planet. People are emotionally attached to teams and players. The value of this in the media is being proven.
Will private investment in sport continue to grow?
Yes, this is a high growth business that needs capital to scale. Barriers to entry – league regulations – should continue to fall as private capital enters. The structure of the minority stake was imposed. Structured equity, credit and real estate equity will come in big. This is the tip of the iceberg.
Which areas are most promising? Maybe the NFL, which still doesn’t allow private equity ownership?
The NFL is the white whale. It has a large, well-structured ecosystem. All teams are winners. It is in a better position than almost every other entity out there. Has untapped upside and will eventually need an increased cap pool given where the team’s valuations have gone. They are talking about how to raise capital and that will be a big opportunity as it develops.
Real estate is another attractive area. Teams invest in stadiums, arenas and real estate around them, often in public-private partnerships. There is an opportunity for private capital so teams and governments can keep their capital commitment light. And local governments still get the tax revenue. The properties surrounding the arenas can be residential, commercial, commercial or entertainment areas. We are addressing many of these opportunities through other parts of the Blue Owl platform.
Will you invest in women’s sports?
The nascent growth of women’s sports is an interesting area. Football attracts investment as the game continues to take hold. The USA leads the market for women’s soccer. The WNBA is becoming quite attractive and has the potential for more progress.
Do you think private equity will boost the valuations of sports organizations?
More buyers on the table will improve valuations and liquidity over time. We don’t see it today. What is driving valuations up now is the scarcity of assets. Where we’re involved – passive minority interests – we haven’t seen that much pressure. As sovereign wealth funds and family offices enter directly, this creates competition [pressure] on the price. This is bad if you want to invest, but good if you have already made an investment.
Could team prices drop at some point?
As the capital structure continues to evolve, perhaps there will be debt that is more sensitive to interest rate fluctuations. This creates more dislocation and investment opportunities. We see this more in European football. American leagues now only allow a small amount of leverage. So they are insulated from rate volatility.
There is also the law of large numbers. Appreciation in media rights deals will eventually slow, leaving less room for valuation growth.
You mentioned the values of sports media rights. Will they continue to rise?
In the near future, yes. There is an evolution of the old way of distribution via broadcast and cable to the new way — streaming. The streaming ecosystem is accumulating capital and content.
The tension between the old and new eye guards continues. There are opportunities for streaming growth, but they are 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 distributors into sports investing and what that could mean.
Family offices are an increasingly important buyer, with sovereign wealth funds and pension funds also showing an appetite for investment. Sports investments provide uncorrelated returns with strong downside protection.
Private equity investments may mean shorter ownership durations than in the past, but the growing number of evergreen PE funds may mitigate this. State investment and pension funds can hold onto teams for decades, creating more stability in ownership.