NFL Expected to Alter Stance on Private Equity Investments. But When?
Private equity’s presence in professional sports team ownership groups has been a consistent theme over the last several years. The NBA, NHL and MLB have all altered league bylaws to permit institutional investors to purchase passive, minority investment stakes in clubs in an effort to bring liquidity to franchise owners and keep club valuations rising.
The NFL has yet to go down the same path because it doesn’t need to, according to Marc Ganis (president, Sportscorp Ltd.). “There’s no capital need, and I wouldn’t be surprised if within seven years we see NFL valuations double,” he said.
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But with the Denver Broncos recently selling for a record $4.65 billion and NFL team valuations expected to continue skyrocketing, the pool of interested investors able to afford a team is presumably shrinking. Dan Snyder is exploring a sale for his Washington Commanders, worth $4.78 billion, according to Sportico’s recent NFL valuations.
The NFL did not respond to multiple requests for comment. However, several well-connected NFL insiders believe the league might decide to alter its stance on PE investments in clubs in the future, something it has been considering since at least the mid-2000s.
“If there are pressures on valuation arising from insufficient pools of available capital, leagues are likely to consider institutional capital,” former NFL EVP Eric Grubman said in an interview. “Other than changes to the rules and perhaps some additional disclosure risk, there are no direct costs to a league.”
JWS’ Take: The pool of potential owners is shrinking, because as valuations rise, fewer folks have enough money to buy in. “If it is a $5 billion franchise, the control owner needs to bring a billion and a half dollars and $3.5 billion worth of LPs,” Grubman said.
Finding LPs never used to be a problem; high net-worth individuals were eager to write checks for a small, passive stake in their favorite team and a preferred seat at home games. But as club valuations have grown, so too have the price tags associated with those LP interests. A 5% stake now cost nine figures, and in most cases, limited partners no longer receive meaningful recognition for their investments.
The increasingly soft LP market forced the NBA, NHL and MLB to change their positions on institutional investors. “So enter the sovereign wealth funds and family offices who are prepared to fill the gap and own the assets for 25 or 30 years,” Grubman said. PE firms, like Arctos Sports Partners, Dyal Capital and Dynasty Equity have also entered the space.
But the NFL has never encountered trouble when one of its teams comes for sale. As a result, the league’s owners do not collectively believe there is an imminent problem that requires addressing.
“It is certainly something that we look at in terms of where it could take us and what it would mean to our league,” Stephen Jones (COO, Executive Vice President, Dallas Cowboys) said regarding institutional investment in NFL teams, ”But I don‘t know that we need that yet.”
There are some owners convinced the NFL will eventually face the same house-on-fire situation the other leagues were up against and are pushing to let institutions in. There is also a belief that doing so would further increase club valuations.
Others vehemently oppose the idea. Ganis said traditional lenders are very comfortable lending to teams on attractive terms. If liquidity were ever to become an issue, the league could simply raise its debt ceiling, as it did during COVID-19 when revenues dropped as a result of the lockdowns.
There are also doubts club valuations would increase enough to warrant the league opening up its books and business to additional scrutiny. “They’re already increasing by meaningful percentages as a result of exceptional management of the business without necessitating changes in ownership rules,” Ganis said.
Contrary to popular belief, not every club owner—particularly, those who don’t plan on selling anytime soon—wants valuations to continue increasing. “It makes transferring the team to the next generation very hard,” Grubman said.
Both Grubman and Ganis think the league will open its doors to institutional capital at some point. Many NFL observers believe the catalyst for that change will be a team sale that goes awry. If the league finds itself unable to create an auction dynamic around a given franchise, and the sale failed to yield a valuation increase on par with what the league has commanded in the past, owners currently cool on the idea of PE involvement may quickly warm up to it.
But Ganis does not foresee that happening in the NFL. “Business is too good [not to have multiple bidders],” he said. “Their relationship with the players has the right balance. Their broadcasting revenues and international revenues continue to go up. They have greater cash flow [relative to teams in other leagues] and there is high demand for the scarce, ultra-premium assets as teams rarely come on the market. Sale prices and valuations are going to continue rising even for the small market clubs.”
Grubman said he could also envision a scenario where a prospective control owner brings an attractive bid to the table contingent upon the league granting a one-time waiver allowing an institutional investor to be a part of their ownership group. Recognizing the next best offer is meaningfully lower and unwilling to grant a waiver, the owners put the policy change up for vote, and it gets approved.
However, not everyone is on board with the idea that institutional capital is necessary to maximize sale prices. PE firms buying into sports teams are looking for LP opportunities that are “off the run.” They are less inclined to participate in record-setting purchases.
Change could also potentially emerge out of a discussion on succession planning. The owners could vote in favor of institutional investments as a way to help a long-time colleague, who wants to keep the team in the family, deal with pending tax issues. Outside capital was used to solve familial issues in Pittsburgh.
Ganis said the concept of corporate ownership of non-controlling minority interests has been floated over the years. Opening the door to corporate ownership would, in theory, increase club valuations even more than PE would.
The NFL seems likely to embrace PE at some point, assuming early exits go as smoothly as the entrances we’ve seen to date.
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