Sports Teams as an Investment
Sports as an investment – particularly in leagues like US basketball, baseball, football, hockey, and European soccer – is a unique and increasingly popular opportunity for private investors and investment firms.
The attractiveness of this investment avenue lies in several factors:
Key Takeaways – Sports Teams as an Investment
- Investing in sports teams offers growth that’s generally independent of traditional financial markets, providing portfolio diversification.
- Media Rights-Driven Revenue
- A major growth driver for sports investments is media rights.
- Offers a steady and significant revenue stream through long-term contracts.
- This generally sustains financial stability even during economic downturns.
- Benefits from high global viewership and live consumption of sports events.
- Asset Scarcity and Long-term Value
- The limited number of high-quality teams in major leagues enhances their value, coupled with minimal competition at the league level.
- This scarcity and established position of leagues like the NBA or NFL secure their long-term value.
- Makes them a more secure investment.
Uncorrelated Growth Opportunity
Many view sports teams and leagues as uncorrelated growth opportunities.
This means their performance is generally independent of traditional financial markets, providing diversification for investment portfolios.
Nonetheless, their economics and valuations are still subject to demand for the product and global credit cycles (among other factors).
Anybody claiming that anything is a “sure thing” or that it can’t lose value (or whatever the claim) should be taken with a grain of salt.
Driven by Media Rights
A significant growth driver for sports investments is media rights.
These rights, valued at over $50 billion per year, provide a relatively steady revenue stream through long-term contracts.
This can help ensure financial stability even during economic downturns.
The global viewership for major sports leagues remains high, and sports events are generally consumed live, adding to their value.
The local, national, and sometimes even international media can give you lots of free marketing.
Scarcity of Assets
The limited number of high-quality sports teams in major leagues (150 or so in the US) adds to their value.
This scarcity, combined with the minimal competition at the league level, means established leagues like the NBA are unlikely to be supplanted by new competitors.
This helps secure their long-term value.
The NFL has seen many competitors over the years – e.g., the AFL (merged with the NFL in 1966), USFL (folded), and other variants – but none have been much of a challenge.
Many – like the XFL, CFL, recent versions of the USFL, and UFL – have all avoided competing directly with the NFL.
Other leagues occupy different geographies, which is pervasive in all sports.
For example, Nippon Professional Baseball competes in Japan and not directly with Major League Baseball (MLB).
Investment Strategies and Structures
Investors can engage in sports investments through funds that take minority stakes in teams or direct investments in individual teams.
These investments, however, are long-term, often not expecting returns for a decade or more.
The investment structures resemble those of private equity.
Risks and Returns
Investing in sports teams involves understanding complex organizations that include various components like real estate, sponsorships, and merchandise.
The risks vary across leagues and teams.
The NBA, for instance, is seen as posing fewer risks compared to leagues like the NHL or MLS.
Returns are generally consistent with high-single or low double-digit percentage private equity returns.
The business model of sports implies lower downside risks compared to traditional private equity and venture capital investments.
Future Prospects and Emerging Leagues
While current focus remains on major, traditional sports leagues, there is growing interest in emerging sports leagues, like women’s soccer and volleyball. Even pickleball.
These emerging leagues present higher risks due to unproven business models and unproven demand among the public.
Nonetheless, they potentially offer higher returns for well-researched investments.
Leverage Point for Other Ventures
Despite high valuations, sports teams tend to not be particularly profitable in any high degree.
Often, they are used as a leverage point as part of broader business holdings.
Sports teams also often get public funding because of their value in infrastructure and urban development.
FAQs – Sports Teams as an Investment
What sports teams are public companies?
Sports teams that are public companies include:
Madison Square Garden Sports Corp (MSGS)
Owns the New York Knicks (NBA) and York Rangers (NHL).
Manchester United (MANU)
An English football club trading since 2012.
Liberty Braves Group (BATRK)
Owns 100 percent of the Atlanta Braves (MLB).
Green Bay Packers
A public company, albeit not publicly traded, allows fans to purchase shares.
For example, Voyager Digital (a cryptocurrency platform) has been associated with the Dallas Mavericks.
How can sports teams be used as a leverage point for other business ventures?
Sports teams can be used as leverage in various ways:
Businesses use team sponsorships to promote their brands to large, engaged audiences.
An owner of a sports team could leverage the team’s visibility for their own interests.
Real Estate Development
Teams can boost the value of surrounding real estate. This can benefit owners’ other business interests.
Team owners have also used the team’s visibility (and even threatened relocation) to secure favorable construction terms and public funding for new projects involving the team, such as a new arena.
Owning teams can grant lucrative media rights deals.
This can benefit parent companies or associated broadcasting firms.
Teams can drive merchandise sales across a range of products, from apparel to co-branded credit cards.
Teams can sway community developments. This can facilitate favorable conditions for related businesses.
Broader Social Benefits
In a separate article, we discussed the strategic vision behind Saudi Arabia’s foray into sports as part of its broader economic development goals.
The investment in sports teams and leagues offers a unique combination of uncorrelated growth, steady revenue from media rights, scarcity of valuable assets, and diversified risk-return profiles.
This makes it an attractive option for investors looking to diversify their portfolios and capitalize on the growing global interest in major sports leagues.