Considering Investing in Sports?

Considering Investing in Sports? Make Your Move

Maybe you watched Al Pacino, Jamie Foxx and Cameron Diaz working out their passions in the classic Oliver Stone football film Any Given Sunday and always wanted to own your own team. Maybe you’ve been sitting in the stands watching your hometown team lose yet again and thought to yourself – like Mark Cuban did – “Hey, I should take a shot at this.”

The market for sports teams is unlike virtually any other, except perhaps art. The number of teams are extremely limited, demand is high even in down markets, and they are a relatively uncorrelated asset. Whatever your reasons for considering investing in sports, there is most likely a place for you to do so. Here we highlight some of the considerably wide options.

1. Outright ownership of a franchise. In 1999, newly minted billionaire Mark Cuban sat in the stands of the Dallas Mavericks and thought to himself, ‘I can do a better job than this.’ Cuban was willing to invest “as much money as it takes” to turn his hometown team into a consistent winner. And he did, leading the Mavericks to NBA Championship 11 years later.  The financial upside of the move never crossed Cuban’s mind because he only cared about basketball. The team is now worth $3.3 billion, the eighth highest on Forbes financial list. Not bad for an initial $280 million purchase price. Franchise ownership is typically more about creating value than profit, and teams usually realize the vast majority of their investment return upon their sale—like artwork, beautiful to look at, but lacking substantial returns until you sell them.  Another consideration: teams are part of leagues, and the league determines if you can buy a team, as well as exerting considerable control over your operations. The NFL – the most restrictive league in professional sports – requires that one person hold at least 30% of the equity in a team to have final say on team matters. That person cannot have more than 24 partners. Worth noting, the NFL recently formed a committee to revisit these rules, including the potential to permit passive ownership by private equity and institutional investors.
2. Becoming a limited partner or minority investor. If you want to get in on the action of sports franchises but don’t feel comfortable with the financial outlay of outright ownership, consider becoming a limited partner (LP) or minority investor. Granted, you may not be able to make trades or fire the coach, but for a fraction of the cost, you can still enjoy many of the perks of ownership with a lot less outright risk.
3. Investing via a fund. When you invest in a franchise via an investment vehicle – like a fund — you gain ownership on paper, which is an opportunity to diversify your portfolio. However, this option may not come with LP or owner privileges because you may be one of hundreds or even thousands allocated to the vehicle.
4. Purchasing shares of a franchise. Some franchises are publicly owned, but not publicly traded, which means shares don’t appreciate and there is no dividend so it’s more of a collectible. For example, the Green Bay Packers is one of the few the only US-based professional sports team that sells shares directly to the public. When the franchise floundered in the early 1900s, local businessmen formed the nonprofit Green Bay Football Corporation. The group has had several stock sales through the years, which fans purchase as a show of pride and a few perks. Soccer clubs in Europe are run in a similar fashion, where clubs are tightly woven into communities. Actor Ryan Reynolds recently purchased Wrexham AFC, a fifth-tier soccer club in North Wales that fans had bought to rescue in 2011. He vows to make the team a “global force” and is creating a documentary on their progress (think Ted Lasso but reality-based.)

Other Avenues to Ownership

Regardless which sports outlet you pursue, all offer unique opportunities for investment. In regards to media and other revenues, men’s sports—in particular Major League Baseball (MLB), National Football League (NFL), National Basketball Association (NBA), and National Hockey League (NHL) — can be oversaturated. Newer areas give investors an opportunity to generate return on investment through ownership.

If you want to invest in sports but the above leagues don’t suit you, consider some other options in the world of both emerging and women’s sports. European leagues like the National League in the United Kingdom—a “lower tier” league as compared with the English Premier League; or as we have seen with padel or pickleball, which are among the fastest growing sports in the nation; or women’s sports, such as the WNBA or women’s soccer. Advantage: The National Women’s Soccer League is a single entity, meaning owners have a share in the league handling sponsorships and player salaries, but owners manage their own team’s affairs. Women’s soccer is exploding in popularity, inking deals in recent years with CBS, Google, Verizon and others.

Connect with Rockefeller Capital Management to discuss the ownership options that make sense for you and how Rockefeller can facilitate the transaction from purchasing shares to buying or selling a team.