Dyal Said to Have Term Sheets Ready to Invest in Six NBA Teams

·3 min read

Dyal HomeCourt Partners, the first private equity fund approved to invest in NBA franchises, has term sheets ready to make its first six investments, according to a source familiar with the plans.

First, however, the fund needs to finish raising capital. HomeCourt is a unit of Neuberger Berman’s Dyal Capital Partners, which said in a Jan. 4 filing that the fund hadn’t yet closed any money. HomeCourt expects to raise around $750 million by the end of the quarter, the person said, which will be used for those first six investments.

It’s unclear which teams are involved. A representative for Dyal declined to comment; an NBA spokesman didn’t immediately respond.

Dyal and the NBA agreed last spring to partner on a new initiative to allow private equity to invest directly in NBA teams. Under the deal, the NBA will receive both an undisclosed cut of management fees, and a cut of profits, according to filings. Dyal has spent the last 10 months interviewing people to lead the fund (it hasn’t hired anyone into that role), speaking with team owners and wooing investors, though it ended the year without any closed capital.

Now the NBA is expanding the opportunity to other institutional investors. Though the terms aren’t identical to Dyal’s, the league’s Board of Governors agreed last month to allow approved investors to take equity in multiple teams with a few restrictions. No fund is allowed to own more than 20% of a franchise, and no fund is allowed to own stakes in more than five franchises. In what might be the first of those investments, CVC Capital Partners is in talks to buy a minority stake in the San Antonio Spurs.

Dyal’s deal is broader than the restrictions on other firms, and it is allowed to invest in more than five franchises, according to people familiar with the agreement. Ultimately the fund aims to raise about $2 billion, Dyal said in a recent filing.

There are two main NBA entry points for Dyal, or other approved investors. The first is minority owners, people who own small (around 5%) stakes in teams and are looking to sell out of their investments. Those stakes have become harder to unload because they don’t carry many ownership perks, and as team valuations soar, the number of people with the cash to afford them is getting smaller.

The second type of investment is directly with a team’s lead owner. Those conversations likely come as owners struggle with the financial hit associated with COVID-19, which is costing the average NBA franchise about 40% of its revenue from basketball alone.

Of course, there will also be NBA teams, backed by owners on solid financial footing, that won’t seek investment of any sort.

Dyal Capital is in the process of combining with another asset manager (Owl Rock Capital) and going public through a special purpose acquisition company (Altimar Acquisition Corp.). The new company will be called Blue Owl Capital Inc.

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