Corporate Team Ownership Model Facing Eventual Extinction
Anheuser-Busch recently purchased a Major League Pickleball (MLP) team that will begin play in 2023. Control over the expansion club comes as part of broader founding partnership package with the league and extends to DUPR, a professional and amateur player ratings app.
The company, an innovative sports marketer, expects its newly minted “sponsorship equity” model to be replicated within other emerging sports properties.
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However, there is no reason to believe the corporate ownership trend will carry over to the NFL, NBA, NHL or MLB. Recent history has shown that few publicly traded corporations want to be in the big four sports ownership business. “They’ve stayed out during this great run up in valuations, and for years the money was cheap or free,” said Marc Ganis (co-founder, Sportscorp Ltd.).
Rising interest rates have since made borrowing capital more expensive, and the cost of buying a club has gone up significantly. That makes the prospects of another C-Corp buying control of a big four team seem even less likely in the years ahead.
JWS’ Take: Corporate ownership of pro teams is not a new concept. Some of sports’ most iconic franchises, including the New York Yankees, Boston Celtics and Montreal Canadiens, were at one time owned by publicly traded corporations.
There are current examples within the NBA, NHL and MLB, too. Liberty Media Corp. recently announced plans to split off the Atlanta Braves and The Battery Atlanta, the mixed-use real estate project adjacent to Truist Park, into a new asset-based stock. NFL rules prohibit C Corps from participating in their teams’ ownership groups.
However, corporate ownership in sports has declined in recent decades. “All of these assets became expendable. All the major media and entertainment companies exited the space,” said Jerry Parisi (managing director, sports finance, MUFG). “It was about getting back to the core business, not diversifying outside of that too much.
The decision to exit has cost corporations the opportunity to capitalize on the wave of value appreciation that has occurred over the last decade.
Skyrocketing valuations have made it more difficult for companies to justify entering the ownership ranks. For perspective, Fox Group reportedly paid ~$350 million for the Los Angeles Dodgers in 1997. Sportico pegs the current franchise worth at $4.89 billion.
There are several reasons why publicly traded corporations have shied away from team ownership. For starters, companies that buy teams and publicly traded clubs tend to underperform relative to the market. The absence of a compelling growth story beyond ticket-sales increases and annual bumps in local-media-rights agreements has proven to be problematic.
Public company ownership can also put management in the crosshairs of unrelated union considerations, especially if there is a strike or labor dispute in the core business, and any questionable off-the-field player conduct. “Disney was very famous for having significant control over their employees; what they do, how they look. [Former CEO Michael] Eisner once said it is entirely different when you are dealing with athletes represented by a union,” Ganis said.
Generally speaking, the big four leagues do not love the idea of corporate ownership. They want team owners to be operating with the best long-term interests of the franchise in mind, and that may not always be possible for a publicly traded corporation under investor pressure to deliver profits on a quarterly basis.
They also value continuity among decision makers. While a corporate CEO can serve as the representative for a club in league decisions, if and when that individual is replaced, the incoming executive may have a different viewpoint.
The pace at which the market is evolving makes it likely the NBA, NHL and MLB will eventually look to make club ownership more attractive to corporate buyers. Ganis suggested that leagues could try pulling some tax or governance-related levers to entice them. The three leagues made moves in recent years to welcome institutional capital to team cap tables as they look to keep valuations rising, and just last week, the NBA announced it would accept investment from pension and sovereign wealth funds.
But it’s not clear who the leagues would be looking to entice. Unlike in the late 20th century, when media conglomerates were buying up clubs, there is not a natural list of strategic acquirers for these assets today.
“Go back to when the major media companies were creating the regional sports networks,” Parisi said. “There was a motivation to get a certain mass up and running, hence they controlled major market teams like the Dodgers. Once they had the mass of contracts and were the big honchos in town, there was no further strategic reason to own the intellectual property. They could just re-license it.” The Dodgers were sold prior to the 2004 season.
And it’s not as if owning a pro sports team is a profitable endeavor on a year-to-year basis. “It’s probably not going to pay any dividends because most teams reinvest in payroll to maintain fan support and league competitive balance, which usually doesn’t leave any meaningful excess cash flow for dividend distribution,” Parisi said.
Consumer brands looking to sell products to a broad audience, like Anheuser-Busch, might make sense on the surface, but those companies tend to prefer league-level partnerships over a marriage with a single club in an individual market.
Brands that want local-market association can get it for less money and with less risk via a naming rights deal. Remember, companies that own teams have to operate them. If they fail to win games on the field or are perceived as not spending the money necessary to be competitive, “there are some potential reputational issues that come along with that,” Ganis said.
While Anheuser-Busch, which once owned the St. Louis Cardinals, refuses to rule out the prospect of one day owning a big four team, head of U.S. sports marketing Matt Davis said the “focus will initially be on the MLP and ways to continue its incredible journey. From there, we’ll find other opportunities for emerging sports where our company’s expertise and scale can bring mutual benefits.”
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