Access is the Most Important Thing – Private Equity Investment in Sports

Red Sox baseball game

When you think about sports ownership, you may think about big names like: Robert Kraft, The Steinbrenner Family, Jerry Jones, Jeffrey Vinik, and the like.  And sure, single-family ownership does still exist.  But two things have become obvious over time:  1.  The value of these franchises has grown to the point where very few families can purchase the entire entity.  And 2.  Private Equity has taken a much larger stake in these organizations. 

According to PitchBook, private equity has stakes in 20 of the 30 NBA teams, 18 of 30 MLB teams, 14 of 29 MLS teams, and 10 of 32 NHL teams.  It would be very surprising if these numbers didn’t continue to expand in the future, because these investments are scarce and oftentimes, they are high cash-flowing businesses.  Certainly, sports franchises are far from the only business out there that is getting more interest from PE, but they do have a very interesting appeal to many investors because there is a certain prestige factor involved in going to your local watering hole and telling your buddies, “Hey, I just bought a piece of the Boston Red Sox!”.  But for most investors, whether it’s private real estate, equity in closely held businesses, or buying a piece of the Houston Astros, ACCESS is the most important ingredient.  

Here’s the good news, private equity distribution gets more creative every day, and advisors’ access to information is making it easier for potential, qualified investors to get access to things they’ve never had in the past.  Additionally, investment advisors, at least those who are innovative, are now able to offer their clients uncorrelated assets that have historically been limited to the ultra-wealthy.  This changes their ability to allocate assets and drive higher, risk-adjusted returns. 

We’ve mentioned this in the past relative to the traditional 60/40 portfolio, but that’s far from the only context in which this “democratization” of access benefits investors (and their advisors).  Every investor is different, but we’ve found there are two things that unify all of them: 1.  They all like higher return with lower risk, and 2.  It’s great to understand what you’re investing in.  We believe the private equity world brings that to investors better today than it has at any other time in history.   

Source: Pitchbook


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