Updated with corrections.
The National Football League, the premier sports league in the U.S., will allow institutional investors, including private equity firms, to take up to 10% stakes in their teams, after lagging well behind Major League Baseball and the National Basketball Association.
The NFL plans to move slowly on this front — among other things, prospective institutional owners will be limited to at most a 10% stake and at least a 3% stake, and will have to keep their ownership interests for at least six years.
“The NFL is the largest and most profitable sports league worldwide and the last holdout (in) allowing private equity investment,” said Kyle Walters, associate analyst-private equity at PitchBook, the financial data and software firm.
Such outside investment can provide NFL team owners with liquidity as some look to cash in on the ever-rising team valuations or fund projects such as building new stadiums, Walters added.
“Additionally, several owners have most — or all — of their wealth tied up in these franchises, and private equity firms can step in and provide equity in exchange for a small piece of the franchise," he added.
Patrick Rishe, director of the sports business program at Washington University in St. Louis, thinks the NFL’s conservative approach to new endeavors reflects the league’s cautious entry into institutional ownership.
“They [the NFL] have had time to speak with the other leagues, their ownership groups, those from the private equity world, and other relevant parties to fully assess the risks and rewards of allowing private equity minority ownership of NFL teams,” he said.
“With average NFL franchise values north of $5.5 billion, the allowance of limited private equity ownership expands the pool of desirable future NFL owners while reducing their financial risk," he said.
Shana Orczyk Sissel, founder, president and chief executive officer of Banríon Capital Management, an alternative asset technology platform which advises clients on alternatives, says alternatives firms have a “massive” interest in pro football teams.
She concurred that the NFL has been among the most conservatively-run sports leagues in the world in terms of permitting private equity firms and other institutional investors to buy in.
“The NFL is very concerned about reputational risks and the strength of their brand,” she said. “They are very sensitive to optics.”
Valuation prompted new investors
Until now, the NFL saw no need to open its ownership and allow private equity investments in the league.
“However, as valuations continue to rise, the league sees that having private equity capital available could benefit the league and its owners, especially where liquidity might be needed,” Walters stated. “Not to say that the other professional sporting leagues needed access to private equity capital, but the NFL is the largest, most profitable sports league in the world and has never seen the need for such a thing. The league is a cash cow.”
Indeed, Sissel noted, the very fact that NFL team valuations have been soaring — the Dallas Cowboys are now worth more than $10 billion, for example — makes the entry of deep-pocketed private equity entities more attractive and perhaps even necessary.
“Not many individuals have billions of dollars laying around to buy a team,” she said. “But private equity firms do have it and they can purchase these clubs with equity rather than taking on debt, which makes them even more attractive.”
However, the NFL will likely not move quickly and haphazardly into this brave new world of institutional ownership.
The league is easing into this process, Walters indicated, and part of that is setting the ownership percentage lower than other professional sports leagues. “Though if all goes well, that 10% (maximum) stake could be increased at some point down the road,” he added. “Other restrictions are put in place to provide some stability in an opaque market, such as the required six-year hold time.”
By comparison, other major sports leagues, including the NBA and MLB allow up to 30% ownership by institutional investors.
The NFL initially wants to bring in private equity firms that are already established in the sports space, which happens to include some larger private equity firms such as Arctos, Ares Management, Sixth Street or CVC Capital Partners.
Among pension fund investors and endowments committed to Arctos Sports Partners Fund II are the Kentucky Public Pensions Authority, Oregon Public Employees Retirement System, and University of Texas Investment Management Co., or UTIMCO. Ares Sports Media & Entertainment Finance fund in 2022 raised money from Canada's CDPQ, CalSTRS and Maryland State Retirement and Pension fund, according to P&I and PitchBook data.
“The only outlier is Blackstone, (which) has not previously acquired a stake in a professional sports team,” Walters noted. “However, Blackstone is the largest household name in private equity. The firm can lean on the expertise of David Blitzer, who is head of the firm's tactical opportunities division and has personally invested in several professional sports teams.”
Blitzer owns stakes in the Philadelphia 76ers of the NBA, the Washington Commanders of the NFL, New Jersey Devils of the NHL, and Cleveland Guardians of MLB, among many other sports teams around the world.
It's unclear whether the NFL will expand its initial list of permitted private equity buyers, Walters cautioned. As private equity firms enter the NFL, not a whole lot will change in the grand scheme of the league, “as these stakes are completely passive and do not hold voting rights within the team.”
Sissel said private equity firms may initially target underperforming clubs — like her hometown Chicago Bears — rather than the more highly-valued teams like the Cowboys or New England Patriots.
The Bears have had only one winning season in the past ten years. Similar to an undervalued and underperforming company targeted by a private equity firm, she said, the Bears might be a very appealing candidate for an alternatives firm looking to enter the NFL, given the team’s long history, huge popularity, as well as the large population of its home base.
Profits over time?
Hanging over these potential deals is whether investments in NFL team will be a profitable investment, given the limited number of exit routes and the potential for a mandatory profit-sharing arrangement with the NFL.
"The question in my mind is how is this going to work in five to 10 years ... Private equity is long term but not forever," said Mark T. Wilhelm, partner specializing private equity at law firm Troutman Pepper Hamilton Sanders.
With a short list of private equity firms permitted to invest in NFL teams and a close to zero percent chance firms will take a team public "how will (private equity) funds get liquidity", Wilhelm said.
What's more, successful exits assume the value of a team will go up over time, he said. Risks swirling around the NFL including injury issues and concussions. Also, there is a risk that there will be challenges to negotiating lucrative media rights in the future, Wilhelm added.
"All of these risks play into the valuations" these private equity firms can put on teams, he said.
On the plus side, the private equity firms' investment in NFL teams could provide additional deal flow by leveraging businesses outside of the NFL footprint but closely connected to NFL teams, such as the real estate near an NFL team or a business providing services to the NFL team, Wilhelm said.
A spokesperson for consortium of investors comprising Blackstone; Carlyle; CVC; Dynasty Equity; and Ludis, stated: “We are pleased to have secured this provisional approval following the NFL’s thoughtful and robust process."
High-profile individual owners
The NFL already has a number of high-profile figures like Blitzer with an alternative investment background, Sissel added.
Josh Harris, the co-founder of private equity giant Apollo Global Management, purchased the Washington Commanders for $6.05 billion last summer. David Tepper, the president of global hedge fund Appaloosa Management, owns the Carolina Panthers, while Mellody Hobson, president and co-CEO of Ariel Investments, is part owner of the Denver Broncos.
Walters expects team valuations to benefit from this new entry of investors.
“All 32 NFL teams are desirable investments,” he said. “There are only 32 NFL teams, so to own a piece of any of them is a big deal. You can think of all 32 teams as crown jewel assets, as being an owner of an NFL team is such an exclusive club.”
Moreover, Walters cited industry chatter that several NFL owners are open to selling a stake in their team, such as Terry Pagula, the Buffalo Bills owner, as he looks to help finance the costs of a new stadium being built.
“So, all teams can benefit from such a change, not just the ‘cream of the crop’ franchises,” Walters added.
Profit-sharing talks ongoing
Sissel cautioned, however, that a private equity fund invested in an NFL team requires a very different “skill set” from managing traditional investments like stocks and bonds.
“Things could go horribly wrong if they don’t pick the right people to make these investments,” she noted.
Rich Nuzum, executive director of investments and global chief investment strategist at consultant Mercer, commented that institutional investment in sports franchises is not new.
“It's been niche, he said. “We have clients that are interested (in sports teams) and a lot of clients who think that's not for us. We'll do other things first. And I think part of it is this concern that there's lots of non-economic benefits to being an owner of a sports franchise, and so maybe that depresses the forward-looking expected returns, even though the historical returns have been quite strong.”
Meanwhile, talks over sharing of profits are in flux.
The NFL has reportedly told team owners and investment firms that the league wants to take a portion of private equity profits on future sales of ownership stakes.
But Walters of PitchBook does not think this issue will deter investors from buying stakes in clubs.
“The league informed these firms of this decision, and no firms decided to back out because of it,:” he said. “While not one of the permitted NFL investors, Blue Owl has a special agreement with the NBA of similar stature. Blue Owl can invest in as many NBA teams as it wants, compared to the maximum of five teams for other firms. In exchange, Blue Owl is required to share an undisclosed amount of its profits with the league. While the agreement isn't quite the same, it is not the first time a professional sports league has implemented such a structure.”
Furthermore, status as one of the select few firms allowed to invest in the NFL is something these firms likely don't take lightly, and “if one of the criteria they must meet is giving some of their proceeds back to the league, then so be it.”
Walters added he thinks private equity firms are “still as eager as ever to invest in the league, regardless of this piece of the puzzle.”
Sissel commented that the NFL clearly understands private equity better than most and wants to get as much out of these investments as possible. “Any private equity manager worth their salt will need to think long and hard before considering an investment in an NFL team because it may not be in the best interest of their LPs,” she added.
