MW Pro sports teams are now too expensive for some billionaires to buy, says Goldman Sachs
By Weston Blasi
From 2000 to 2023, the NFL's cumulative franchise values grew 1,108%, while the NBA's grew 2,004%
Is anything too expensive for a billionaire? As it turns out, yes.
Individual billionaires may now be getting priced out of sports ownership, according to Goldman Sachs's latest report, "Getting in the Game: The Future of Sports Investing."
"In general, valuation growth has outpaced the ability of high-net-worth individuals to acquire control ownership of teams," the report stated.
The main reason that sports franchises - particularly in the U.S. - have gained in value in recent years due to the media and broadcasting deals that these leagues have signed, which now routinely are worth tens of billions of dollars for the National Basketball Association, the National Hockey Leauge and Major League Baseball. The National Football League's latest media-rights deal, meanwhile, is worth an eye-watering $110 billion.
The increase in valuations has essentially priced out a portion of the billionaire class, whose numbers are also increasing. Per Goldman, the number of global billionaires grew to 2,640 in 2023, up from 538 in 2001. Yet because team valuations have spiked, ownership of a major sports franchise "would represent a sizable portion of these individuals' overall balance sheets."
From 2000 to 2023, the NFL's cumulative franchise values grew 1,108%, the NBA's grew 2,004%, MLB's grew 875% and the NHL's grew 799%.
Not too long ago, U.S. sports franchises were sold for tens of millions or hundreds of millions of dollars; now, they're routinely transacted for billions. Such price tags have led to most pro sports franchises selling to those billionaires who have several billions of dollars to spare.
For example, David Tepper bought the NFL's Carolina Panthers in 2018 for $2.275 billion. Tepper is a hedge-fund manager at Appaloosa Management with a net worth of $21 billion, so the Panthers' price tag didn't take a huge bite out of his overall wealth.
Similarly, an ownership group led by Walmart's $(WMT)$ Rob Walton bought the Denver Broncos in 2022 for $4.6 billion. The Waltons have been estimated to be America's richest family with more than $200 billion in net worth, leaving them with plenty of money to play with.
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In addition, sports franchise values - while having almost universally increased over the past two decades - don't come without risk, which could make some potential buyers think twice before getting into the game.
"Professional sports team valuations may not be recession-proof or immune from declines in value due to exogenous factors," the Goldman report said. "For example, during the 2008-2009 Financial Crisis, the average NFL team enterprise value remained flat, but eight teams saw mid to high single-digit declines in value. In 2004, a labor lockout forced the cancellation of the entire 2004-2005 NHL season, causing a significant decline in valuations across all NHL teams."
And changing viewership habits are also shaking up the sports industry. "If the current pace of cord-cutting continues, the traditional cable bundle may collapse. This change could potentially force networks to reduce or eliminate their investment in sports, which could drive down [TV] contract values," the report continued.
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While sports franchises have exploded in value, leagues have also begun allowing private-equity firms to own parts of clubs - a move most recently approved by the NFL.
"Leagues have become increasingly open to institutional investment capital," Goldman wrote. "Several private-equity firms have either announced or made equity or debt investments across global sports leagues and teams."
The NFL, NBA, MLB, NHL, Major League Soccer and National Women's Soccer League all now allow private-equity funds to own a portion of their teams, with the maximum amount being between 10% to 30%, depending on the league. In Europe, meanwhile, last year saw financial firms invest $5.3 billion in the continent's five largest soccer leagues, up from just $72.1 million in 2018, according to Pitchbook.
While only professional sports leagues were mentioned in Goldman's analysis, college sports could be getting a private-equity boost of their own in the near future. Private-equity and venture-capital firms including College Sports Tomorrow and Collegiate Athletics Solutions are looking to purchase ownership stakes in some of the nation's top athletic programs.
The founder of RedBird Capital, the firm that helped create Collegiate Athletic Solutions, said his firm would be available to lend money and offer guidance to athletic departments in exchange for a share of future revenue.
"History has proven that the universities that adeptly invest in their athletic departments consistently win and outpace peer institutions," said Gerry Cardinale. "Our mission at CAS is to offer athletic departments a unique capital solution to invest when and where they need it to compete at the highest level during this tenuous paradigm shift."
-Weston Blasi
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December 19, 2024 14:44 ET (19:44 GMT)
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