¡Olé! Private Equity continues its foray into professional sports

Yesterday’s announcement by La Liga of a €2.7B ($3.2B dollars) investment by CVC Capital Partners shows private equity’s continued movement into professional sports leagues as the valuation of sports teams and leagues both domestically and internationally continues to increase.

Sometimes considered vanity projects of the wealthy and civic-minded, ownership of professional sports entities is now a certifiable blue-chip form of investment that often outperforms leading index funds. These properties have become an attractive yet elusive investment for institutional investors while at the same time remaining an increasingly valuable yet illiquid asset in the hands of current owners. However, as yesterday’s announcement from La Liga and CVC shows– that ownership landscape appears to be changing; as illustrated by numerous acquisitions of controlling and non-controlling interests in sports teams and leagues by institutional investors in recent years, coupled with recent changes to ownership rules in domestic leagues that could pave the way for further investment. In the wake of the financial fallout caused by the COVID-19 pandemic, cash-strapped franchises and leagues (like La Liga) are likely to welcome infusions of capital with open arms.

In 2012, the English Premier League’s Manchester United was the only professional sports franchise valued at $2 billion. Nine years later, over 57 teams have reached that valuation worldwide. While professional sports entities have long been considered tidy profit engines given their multiple revenue streams and generally predictable (aka collectively bargained) liabilities, it is exponential growth in sports broadcast and gaming revenues that has turned heads in the private equity community.

Streaming and over-the-top (OTT) services like Amazon, Hulu, and YouTube have disrupted a half-century status quo of “appointment” television, leaving live sport as the best bet for advertisers to reach viewers consistently. These same digital disruptors also represent new, deep-pocketed bidders for these precious sports broadcast rights, resulting in ballooning media rights values. Annual spending on sports broadcast rights nearly doubled between 2012 and 2018; currently standing at almost $50 billion worldwide. This figure is expected to rise to $85 billion in the next four years, as digital newcomers compete with established broadcasters; causing teams and leagues to increasingly view themselves as diversified entertainment companies, with a majority of income derived from ever-expanding league and local broadcast revenues, while ticketing and other gameday-related income comprise a less dynamic (though still important) piece of the economic pie.

Add in the loosened regulatory restrictions on sports betting that have allowed numerous professional teams and leagues to bind closer ties with gaming companies (previously a no-no, North America’s four biggest leagues could generate nearly $4.2bn annually as a result of a legalized betting market); you have a collective recipe for outsized growth. These profit-generating factors and the inherent supply scarcity of professional sports ownership opportunities have moved pro league and team ownership into hyper-valuable vehicles that will likely provide their PE owners with rocketship-like returns.