NWSL Puts Private Equity Safeguards on Sixth Street Team Ownership

The NWSL’s newest team—a San Francisco Bay Area franchise backed by Sixth Street—is just the latest example of private equity’s push into U.S. sports.

But while the NBA, NHL, MLB and MLS have all loosened their ownership rules to let funds buy passive minority stakes in teams, none has gone as far as the women’s soccer league. Sixth Street, which has $65 billion under management, will be the franchise’s majority and control owner, and co-founder/CEO Alan Waxman will serve on the league’s board of governors.

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NWSL commissioner Jessica Berman discussed the expansion process this week on the Sporticast podcast. She spoke about why sports leagues are often wary of these types of transactions, and how the NWSL worked with Sixth Street to establish safeguards around the investment, building a structure similar to a more typical partnership with a high-net-worth individual.

“We’re really proud of the work that our legal teams did together, because some of the concerns that have existed at professional sports leagues exist for good reason,” Berman said. “And so we have to create an environment that sets us up for success, and that can be a proof of concept for other leagues going forward.”

Sixth Street’s investment was made through its TAO fund, a rare private equity vehicle that doesn’t have a target hold period for investments. Minority partners in the Bay Area team, which will join NWSL next year, include former Facebook executive Sheryl Sandberg, and four former USWNT players.

The group agreed to pay a league record $53 million expansion fee, and will dedicate another $70+ million to get the franchise off the ground. It’s among the largest investments ever made into U.S. women’s sports.

Berman said sports leagues are typically wary of institutional funds controlling franchises for three main reasons:

  • Leagues generally prefer having a single person responsible for the team. In an emergency, like the collapse of Silicon Valley Bank, for example, commissioners want the ability to call an individual who has unchallenged authority to troubleshoot the issue.

  • Leagues also want that decision-maker to control the money. A billionaire owner can reach into her own pocket if needed, but that can be trickier if the capital is in an institutional fund.

  • There’s risk of misaligned incentives. PE funds typically exit portfolio companies within a decade of the initial transaction. Sports leagues obviously have a much longer time horizon. What’s best for a franchise in the next seven years might not be what’s best for the team (or the league) in the long term.

The NWSL has looser rules around PE than many of the larger U.S. leagues. Angel City FC’s controlling owner, Alexis Ohanian, is invested through his current venture capital firm (Seven Seven Six) and his former one (Initialized Capital). The Reddit co-founder also made a personal investment into the team on behalf of his wife, Serena Williams, and their daughter, Olympia. Ohanian serves as Angel City's alternate governor.

That said, Sixth Street is on a different scale, and Berman said the league put safeguards in place with the Bay Area franchise. As an example, she said Waxman assured the league during the process that he has the authority to allocate capital, and the league stipulated in the deal that he represent the club on the NWSL board.

"He is the thread that takes us from money to governance,” Berman said. “He has the authority to bind the investment vehicle, which is the TAO fund at Sixth Street, and he is the one who sits on our board and casts the vote on behalf of the Bay Area team. So we don't have to trace down, for decision-making purposes, someone who can bind the money."

There is nothing in the contract that forces Sixth Street to hold the club for a certain amount of time—all NWSL owners should have the ability to sell their clubs, Berman said—but Sixth Street’s TAO fund is built differently than most other PE vehicles.

“We could never and would never approve an owner—either an individual owner or institutional capital—where the capital is at risk within a certain period of time,” Berman said. “This [TAO fund], uniquely, is an evergreen fund and the money doesn’t need to liquidate, ever.”

As of now, a deal like this would not be possible in the major U.S. leagues. The NFL prohibits PE ownership of any sort, and the other big leagues have strict rules in place on both the buy-side and the franchise-side to limit PE involvement. The only other U.S. franchise in Sixth Street’s portfolio is a 20% stake in the NBA's San Antonio Spurs, also done through the TAO fund.

Berman, however, and said she hopes other leagues are paying attention. “I would argue that we’re pioneers,” she said, “and I think it will work to our benefit.”

With assistance from Emily Caron.

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